Now, Finally, Another Cup of Coffee is Not Just Another Cup of Coffee

1. Suppose we were to completely separate the coffee market into a specialty coffee market and a commodity coffee market. What kind of market structure do you think would govern each, based on the information in the article?

The specialty coffee market would be more monopolistically competitive, while the commodity coffee market would be more perfectly competitive. The specialty farmers are trying to differentiate their products from others, while commodity farmers are producing a uniform product.

2. Does someone selling beans in the commodity coffee market have the same incentive to engage in sustainable farming methods as a farmer in the specialty market? Why or why not?

No, because a farmer in the commodity market, in order to be profitable, would find it in his/her best interest to focus on cost, not on quality. This farmer's incentive would be to reduce costs by as much as possible, by whatever means were possible.

3. Use a graph of supply and demand in the market for coffee to illustrate what happened over the last fifteen years prior to the quality competition. Why did price fall?

As trade barriers fell and other countries became involved in production, supply shifted rightward without a significant corresponding shift in demand. As a result, price fell drastically.

Multiple Choice/True False Questions

1. As a result of this split coffee market elasticity of demand for specialty coffee has ------- , while elasticity of demand for commodity coffee has -------- .

  1. Increased; increased.
  2. Increased; decreased.
  3. Decreased; increased.
  4. Decreased; decreased.
ANS .c

2. True/False. A commodity coffee farmer has just as much incentive to engage in sustainable farming as a specialty coffee farmer.

ANS . False

3. True/False. As trade barriers fell in the market for coffee, the price of a bag of coffee beans fell as well.

ANS . True

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