Market Equilibration Process

Market Equilibration Process

Mindi Perry

ECO/561

January 13, 2015

Mark Erenburg

Market Equilibration Process

This essay will track the current change in supply and demand that is a result of a world event that causes a move between two equilibrium states. The topic choose is the coffee bean crisis in Brazil. This author elects to trace and give reasons for how this move happens and she will use the opinions of the consumers and suppliers to do so. Furthermore, this essay will provide examples of the law of supply as well as, the law of demand. Mindi will also touch on the efficient markets theory and explain surplus and shortage. To help the readers better comprehend this essay, the author provides graph movements between the points.

The current change in the supply and demand is a recent drought in Brazil. 250,000 small farm workers experience tensions from this unexpected dry spell. This drought is one of the worsts in decades and these little farms tend about 70% of coffee the world receives. Moreover, each year the farmers can fill 55 million bags of coffee but when the midsummer rains did not come the amount of filled coffee bags dropped 20% ( this is the point where the equilibrium changes). Thus, only filling about 45 million bags, a shortfall of 10 million bags. As a result, traders in New York watch, coffee prices jump from $1.20 per pound up to $2.20 a pound. Farmers continue to stress about the shortage and are forced to sell at a loss. On the other hand, some consumers like Starbucks decide to cut some purchases from Brazil because of the price hike and supply uncertainties.

According to the law of supply, if demand is held constant, an increase in supply leads to a decreased price, while a decrease in supply leads to an increased price (Investorwords, 2014). This law is apparent when looking at the coffee supply from Brazil. When the supply is plentiful, the prices stay lower. However, when the supply decreases the rate...