How Shifts in Supply and Demand Influence Price, Quantity, and Market Equilibrium

Economics -- Supply and Demand of Coffee Beans In many respects, coffee (in its final forms) is a consumer product whose profitable sale and value fluctuate in accordance with traditional economic principles of supply and demand very much like other consumable consumer products. In other respects, coffee is insulated from some of the factors that typically dictate the relative price of other consumer products.

Specifically, coffee is a product whose demand remains relatively constant, or in economic terms, the market for coffee is inelastic (Mankiw, 2008) because people generally continue to purchase coffee in the same quantities regardless of increases in its price. The Influences on Consumer Habits and Demand for Coffee Generally, consumer consumption of coffee remains quite constant in terms of their style of consumption because the product is almost always part of very habitual routines.

People drink approximately the same amount of coffee at approximately the same times of day and in approximately the same serving-sizes or quantities year-round and they ordinarily maintain those habitual behaviors for many year and even over the course of many decades. Likewise, whereas many other consumer goods and consumables are subject to the influence of style and social trends, coffee consumption habits are much less susceptible to those kinds of influences on consumers (Goldstein, 2010).

Certainly, economic factors do influence consumer spending habits as pertains to coffee; however, the nature of the fluctuations involved affect the overall demand for coffee beans much less than they affect the manner or the form in which consumers choose to consume it. Whereas consumers typically cut back their consumption of other types of consumer products in times of economic difficulty, coffee consumption is relatively immune from those dynamics for two specific reasons.

First, most generally, precisely because coffee is consumed in such a habitual manner and because it is associated with mood elevation and the perception that it is an aid to productivity, the consumer demand for coffee does not decrease as a function of economic distress. Second, unlike many other types of consumer goods and consumable products, coffee is a product whose cost can be lowered by consumers by their choice to consume it in different forms without changing or reducing their overall consumption (Goldstein, 2010).

For example, when the economy is bad, consumers may reduce their expenditure on coffee without substantially changing the amount of coffee that they consume (Goldstein, 2010). Those who previously purchased only high-end gourmet coffee or who frequented establishments for coffee by single servings typically purchase less expensive, non-premium coffee and rely more on preparing their own coffee at home. Likewise, consumers who previously purchased ground coffee or coffee beans may reduce their coffee expenses by drinking instant coffee instead.

Consumers also have the option of purchasing coffee in bulk at discount outlets (Goldstein, 2010). The Business Impact of Changes in Consumer Demand for Coffee These types of changes in consumer spending impact service-oriented businesses and retail.