Introduction
Coffee is a beverage that is dark in color, slightly acidic, and bitter. It is consumed every day by millions of people across the world. The drink is associated with leading retail outlets, such as Starbucks, McCafe, and Dunkin’, among many others. According to Almeida and Spers (2020), coffee contains caffeine that has a stimulating effect on people. It is prepared from coffee beans commonly grown in Ethiopia, Kenya, and Brazil.
Coffee is best described by the individual consumer based on taste and preference. One key feature of coffee is its flavor, which is the product’s cupping parameters based on an overall evaluation and comparison against a standard chart. The second feature of coffee is acidity, which describes its taste based on the bright and dry taste due to the acids it contains. The body of the coffee is gauged by allowing the bean to rest on the tongue and by rubbing it against the top of the mouth; it ranges from heavy to light and thin.
Another feature of coffee is the aftertaste, which describes the feeling a person experiences after swallowing the drink (Hernandez et al., 2020). Cuppers typically assess the aftertaste based on the time it takes from the first aromatic sensation on the back of the throat to the time the feeling dissipates. Other common features of coffee include its aroma, astringency, sourness, and bitterness, which vary depending on the roasting procedure and the levels of caffeine, hydrocolloids, and acids.
Substitutes and Complements
Substitutes and complements refer to products that are closely related to one another. A substitute is a good that can be replaced or used in place of the other or as an alternative to satisfy the same purpose. The products have competing demands such that if the price of one good increases, the demand for the other goes up.
Coffee is commonly consumed as a hot drink, and tea is a key substitute for the product. Greenlaw et al. (2018) indicate that a complementary good is a product that is used together with another good such that they have joint demand. Doughnuts are a perfect complement to coffee, so if the demand for coffee increases, people will also consume more doughnuts.
Normal or Inferior Good
A normal good is described in economics as an item whose demand will increase due to increased disposable income. Positive income elasticity of demand mainly characterizes the good, but it can also be elastic or inelastic to changes in income. On the other hand, an inferior good refers to a commodity whose demand will fall due to increased income.
Therefore, the product has a negative income elasticity of demand (Mankiw, 2021). Based on the descriptions, coffee is a normal good since an increase in demand may increase the consumption of coffee. Alternatively, more disposable income may lead people to consume more high-quality coffee, such as Starbucks, instead of other low-quality options.
Non-Price Factors for Coffee
Demand
Price is considered to be the main factor that influences the demand for a product. A change in the price of a commodity can lead to a change in the demand for coffee. However, the other main non-price factors can influence the change in demand. Income is one of the main non-price factors that can cause the demand for coffee to shift. Income influences people’s purchasing power, such that if people have more disposable income, the demand for coffee will increase or decrease if income decreases.
The price of related products also affects the demand for coffee. Greenlaw et al. (2018) state that products can be related as substitutes or complementary goods. Complementary goods are the products whose demand will be affected similarly due to a change in the price of one commodity.
For instance, if the demand for coffee decreases, the demand for doughnuts will similarly decrease. A change in the price of substitute goods will affect the demand for related goods. For illustration, if the price of tea increases, the demand for coffee goods increases.
Another non-price factor that can shift the demand for coffee is people’s expectations, for instance, of the product’s price. If consumers expect a decline in the price of coffee shortly, they will choose to consume less of the product now, leading to a decline in demand. If the price is expected to increase, people will have a higher urge to consume more coffee before the price goes up. Almeida and Spers (2020) state that the number of potential consumers can influence the increase or decrease in the demand for coffee. If the number of potential customers is expected to decline, there will be less demand for coffee.
Similarly, if the number of potential consumers increases, the demand for coffee will also increase. Tastes and preferences are key considerations that can impact the demand for coffee, as they indicate whether more or fewer people will consume the product. An increase in tastes and preferences increases the demand for coffee, while a slip in tastes and preferences for coffee will lead to less demand. Tastes and preferences can mainly be influenced through campaigns, advertising, and product promotions.
Supply
The supply of coffee can be influenced by several non-price factors that affect the readiness of suppliers to produce the product. One of the main non-price factors on the supply side is the cost of production. If suppliers are confronted with increasing costs of labor, land, and capital, they will prefer to produce less, leading to a fall in supply. If the costs go down, the suppliers will be able to produce more and increase the supply of coffee.
The number of suppliers can also influence the coffee supply level (Mankiw, 2021). A high number of suppliers will increase the coffee output level, resulting in more supply. If there are fewer suppliers, the coffee market could face a low product supply, except if there are fewer prospects of generating profits or if it is anti-competitive.
Additionally, the supply of coffee can go up or down based on the expectations businesses may have, mainly on the future price. An expected decline in the price of the drink will influence suppliers to produce more coffee now to sell at higher prices, increasing supply (Hernandez et al., 2020). If the suppliers expect that future prices will be better, they will produce less coffee now, causing the supply to be low. Technology can also play a key role in influencing the supply of coffee. If suppliers look forward to better technology to produce coffee, the current supply will be low due to more spending on production.
Equilibrium Price and Quantity of Coffee
Demand
The equilibrium price and quantity help to determine the price at which buyers are willing and able to buy coffee based on the quantity that sellers offer. It is simply the point of intersection of the demand and supply curves. If the coffee is sold at any other price than the equilibrium price, the market will not be in equilibrium.
However, the demand curve can shift due to a change in one of the variables or determinants of the demand for coffee. According to Almeida and Spers (2020), the equilibrium price and quantity of coffee will increase if the demand curve shifts to the right. If the demand curve shifts to the left, the equilibrium price and quantity of coffee will decrease.
Supply
The equilibrium price and quantity help identify the price at which sellers are willing and able to supply coffee based on the quantity demanded in the market. The equilibrium is the point at which the demand curve intersects with the supply curve. However, numerous factors can cause the supply curve to shift to the right or left (Almeida & Spers, 2020). A shift of the supply curve to the right decreases the equilibrium price and increases the equilibrium quantity of coffee. If the supply curve shifts to the left, the equilibrium price will go up, and the equilibrium quantity of coffee will decrease.
Projections
Demand
In the next five years, the demand for coffee will increase. This will be due to increasing awareness of its health benefits, the increasing global population, and increasing demand in non-traditional markets in Southeast Asia. Almeida and Spers (2020) argue that an increase in competition will lead to lower coffee prices, which will increase the demand for the drink. Different entities are also developing new complementary products, such as organic coffee, to attract more demand for coffee. The increasing urbanization, development, and expansion of cities and the surging people’s disposable income will create more demand for the product.
Supply
I expect the supply of coffee to increase significantly in the next five years. The increased supply will result from the opening of more cafes and places where people buy and drink coffee worldwide (Hernandez et al., 2020). In addition, numerous coffee companies are developing new products to capitalize on growth opportunities in emerging economies. The increasing number of cities will attract more outlets for selling coffee, increasing the supply of coffee.
Conclusion
Coffee is a common drink that people enjoy daily across different worldwide outlets. Its aroma, flavor, acidity, bitterness, and aftertaste characterize it. Coffee can be substituted for tea, and doughnuts can complement it. It is classified as a normal good, given that people will likely consume more coffee or prefer high-quality coffee once they realize an increased disposable income.
In addition to price, the demand for coffee can rise or fall due to changes in income, future price expectations, the price of related products, the number of potential customers, and tastes and preferences. Technology, future price expectations, the number of suppliers, and the cost of production can impact the supply of the products. Shifts in the demand curve to the right or the left can raise or decrease the equilibrium price and quantity of coffee. A shift in the supply curve can either increase the equilibrium price and reduce the quantity or decrease it and increase the quantity. The projected demand and supply of coffee will increase in the next five years as the population grows and more outlets are opened in newer locations.
References
Almeida, L. F. & Spers, E. E. (2020). Coffee consumption and coffee industry strategies in Brazil. Woodhead Publishing.
Greenlaw, S. A., Shapiro, D., & Taylor, T. (2018). Principles of economics (2nd ed.). OpenStax College, Rice University. Web.
Hernandez, M. A., Pandolph, R., Sanger, C., & Vos, R. (2020). Volatile coffee prices: COVID-19 and market fundamentals. International Food Policy Research Institute. Web.
Mankiw, N. G. (2021). Principles of economics (9th ed.). Cengage Learning.