CASE STUDY 2-2:

CHANGES IN DEMAND AND

SUPPLY AND COFFEE PRICES

Syndicate 7 YP 60 A
Vania Arini Putri (29118310)
Kemal Al Zaro (29118404)
FajriYudha Aulia (29118449)
Nadya Faiha (29118505)
BACKGROUND
• In 1998 to 2004, the world wholesale coffee prices fell by nearly half
• The sharp decline in coffee prices caused millions of small coffee
farmers and their families in developing countries into extreme
poverty
• On the other hand, the sharp decline in coffee prices caused
multinational food companies and coffee shops posted very high
profits from coffee sales
ANALYSIS
1. The Initial Condition in 1998
2. The Condition in 2002
3. The Condition in 2008
1. THE INITIAL CONDITION IN 1998
• This condition is represented by curves D and S.
• The price of coffee received by growers = $1,4 per pound  the equilibrium price of
the coffee
2. THE CONDITION IN 2002
• New countries starting to produce and export coffee on a large scale, and at the
same time other countries sharply increased the coffee export. It caused the
Supply of coffee increased twice the rate of the increase in Demand.
• The increase in Demand caused curve D shifted to D’.
• The increase of Supply also caused curve S shifted to S’, but the shifting is further
than the shifting of Demand.
2. THE CONDITION IN 2002

Result: The price of the coffee fell to $0,48 per pound  new equilibrium price of coffee
3. THE CONDITION IN 2008
• Bad weather in coffee producing nations caused the production level of coffee to
be lower and the Supply to be decreased.
• At the same time, the coffee Demand in consuming nations increased.
• The increase in Demand caused curve D’ shifted D’’.
• The decrease in Supply caused curve S’ shifted to left direction to S’’.
3. THE CONDITION IN 2008

Result: The price of the coffee rise to $1,58 per pound  new equilibrium price of coffee
CONCLUSION
Cause
Multinational
Supply Demand
Coffee Price Farmers Companies &
Coffee Shops
Gain less revenue, Gain more
Increase Low, due to due to the price revenue, due to
Increase 2x
1x surplus condition that is lower than cheaper raw
production cost material
Gain more
Gain less revenue,
High, due to the revenue, due to
due to more
Decrease Increase really high the price that is
expensive raw
demand higher than
material
production cost