Reference no: EM133160362

Question 1:

Why your cup of coffee could be about to jump in price

Crops in top producer Brazil have suffered worst drought in almost a century.

A surge in green coffee prices may soon begin percolating into costs paid by consumers for their daily caffeine fix, in the latest sign of how hot commodity markets are affecting the broader global economy. Coffee bean prices on international markets have surged as crops in top producer Brazil have been damaged by the worst drought in almost a century, leading to the first supply shortfall in the coffee market in four years. Anti-government protests in Colombia halted exports earlier this year, further pushing up markets. Is there going to be a shortage of coffee in 2021?

Global coffee consumption is expected to exceed production this year for the first time since 2017, according to the United States Department of Agriculture (USDA). The department expects 165 million bags of beans to be consumed in 2021. That is 1.8 million bags more than last year.

At the start of June, the futures benchmark in New York for arabica, the high-end coffee bean, hit a four and a half year high of almost $1.70 (€1.44) a pound, up almost 70 per cent from a year before.

Source: ‘Why your cup of coffee could be about to jump in price', Irish Times 7 July 2021,

You are provided with 2 graphs below. Each of the 2 graphs contains a set of supply and demand curves for coffee. Select the graph that correctly illustrates the causes of the rise in coffee prices, given the facts in the article above.

2. Using the graph, you chose in part 1 above, explain the changes in the market for coffee. In your answer identify the cause(s) of the changes and describe the effects they had on the market for coffee. Make use of the facts from the article in your answer.

3. In the article "Coffee Cravers ignoring Bean-Price Surge for Caffeine Fix", Marvin Perez and Lynn Doan quote a chief international strategist, Paul Christopher, where he says, "There's a very low price-elasticity-of-demand for coffee". Based on the statement, is the demand for coffee price elastic or inelastic?

4. Which of the following demand curve best illustrates the price elasticity of demand for coffee( <1) ? Explain your answer.

Question 2:
Pandemic Erased Nearly a Quarter of United States (US) Coffee Shop Market, Report Shows

The COVID-19 pandemic has erased nearly a quarter of the total United States (U.S.) coffee shop market value, according to the latest annual report from coffee market research group Allegra World Coffee Portal. The group now estimates the U.S. coffee shop segment to be worth some $36 billion heading into 2021, down 24% over the past 12 months with $11.5 billion in sales declines. For the first time in modern history, there was also a net decrease in the number of coffee shops over the past 12 months, with the market contracting by 208 shops (0.6%) to comprise 37,189 outlets, according to the research.

Coffee shopoperators reporting losses estimated those losses to be $32,500 per store per month on average, according to the group, while just 38% reported current trading as positive, down from 65% last year.

1. What is the relationship between total cost (TC) and total revenue (TR) when a coffee shop is making a loss?

2. Based on the following information about businesses in the coffee Cafe industry, what type of industry in an economic sense is this industry (perfect competitionor monopolistic competitionor oligopoly or monopoly)?

3. Describe two ways in which the coffee Cafe industry is different to one of the other industry types (you need to select and name the two industry types being compared).

4. Which of the following graphs illustrates a Cafe making a loss in the short run? Explain the choice of your graph. Make use of the information from the article provided above in your explanation.

5. What will happen to a Cafe making a loss (due to COVID-19 mentioned in the article above) in the long run? Briefly explain your answer.

6. What do individual Cafes in the coffee industry do to differentiate their product to take sales from their competitors?

Question 3:

The following graph shows the economic cycles of expansion and contraction in an economy (trade cycle diagram).

1. In economics, we measure the size of an economy through GDP. Name two types of production which are not included in the measure of GDP.

2. The GDP of a country can be described by the equation: Y = C + I + G + X - M. What does each letter standard for?

3. Discuss the main general cause of the expansion and contraction of an economy as depicted by the graph above.

4. Given below is data about the Consumer Price Index (CPI) in the Australian economy between 2012 and 2014. CPI rates are published by the Australian Bureau of Statistics (ABS) annually. The CPI reference base year is 2011-12 in the data given below.

Calculate the inflation rate for 2014. Show the formulae used and your workings.

B. Is this rate within or outside the Reserve Bank of Australia's inflation rate target? Briefly explain your answer.

5. If an economy is at point A as indicated in the diagram above, what type of gap would exist in the economy (as indicated by arrow B) - deflationary gap or inflationary gap?

6. Describe 2 key monetary policy actions that may reduce the gap identified in part 5 above.

Question 4:

Recession and Fiscal Policy

The United States (U.S.) is ‘officially' in a recession - but economists say it's far from a typical downturn. In April 2020, the unemployment rate reached 14.8 percent - the highest rate observed since data collection began in 1948.

In May 2021, unemployment remained higher (5.8%) than it had been in February 2020 (3.5%).

Due to the COVID-19 pandemic, the U.S. Congress and President Donald Trump had enacted the $2.2 trillion COVID-19 Aid, Relief, and Economic Security Act (CARES Act) on March 18, 2020, which the Committee for a responsible federal budget estimated would be partially responsible for an increase of the budget deficit for fiscal year 2020 to a record $3.8 trillion, or 18.7 percent of GDP.

1. Which Aggregate Supply (AS) and Aggregate Demand (AD) diagram below indicates a situation where a recession (a deflationary gap) exists. Use and refer to the trade cycle diagram illustrated in Question 3 to justify and explain your answer.

2. Describe and explain using the information provided above and the concepts and theories studied in the course, how the United States (U.S.) government used fiscal policy to close the deflationary gap.

3. One advantage of fiscal policy is that it operates through automatic stabilisers. Describe the automatic stabilisers and explain how they operate during a recession to help close a deflationary gap.

4. The COVID-19 pandemic triggered an unprecedented change in the oil industry, leading to a historic market collapse in oil prices. In 2020, worldwide demand for oil fell rapidly as governments closed businesses and restricted travel due to the COVID-19 pandemic. An oil price war between Russia and Saudi Arabia erupted in March 2020 when the two nations failed to reach a consensus on oil production levels. In April, an oversupply of oil led to an unprecedented collapse in oil prices, forcing the contract futures price for West Texas Intermediate (WTI) to plummet from $180 a barrel to around -$37 a barrel.

Which of the two diagrams given below showing a change in the aggregate supply (AS) or aggregate demand (AD) curve best describes the effect of the change in oil prices on the economy? Briefly explain your answer.