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Demand and supply
The interaction between the market forces of demand and supply determines the quantity supplied by sellers and quantity purchased by consumers. This interaction is balanced in the equilibrium quantity of the two forces at an equilibrium price. To explore the forces of demand and supply in the market, this paper will study and analyze the market for coffee and in specific, the Nescafé Coffee. Through the study, this paper will explore the factors that influence the quantities of the consumers of Nescafé Coffee buy. Similarly, this paper will explore the factors that influence the quantities supplied by the manufacturer of the Nescafé Coffee.
Demand for Nescafé Coffee
The demand for Nescafé Coffee is defined by the price of the coffee and the quantities demanded at specific prices. The price of the Nescafé Coffee is one of the main factors that influence the quantity demanded by consumers. According to Mankiw (2014), if the price is high, then the consumers avoid purchasing the product in preference of other competing brands if affordable; in this case tea. At the same time, some consumers will opt to buy alternatives to coffee such as tea and cocoa or chocolate, which reduces the quantity of coffee purchased. If the price of coffee reduces consumers will purchase more of the coffee by shifting from other brands and alternatives.
The price of alternative products also significantly affects the price of the Nescafé Coffee. This influences the quantity of coffee purchased in two ways; price of competing brands and the price of the competing alternatives to coffee. If the price of the competing brands of coffee increases without a proportionate increase in the price of Nescafé Coffee, then consumers will shift from the competitors to Nescafé Coffee. According to Mankiw (2014), this shift will increase the quantity of a product purchased, thereby increasing the demand. On the other hand, if the prices of competing brands reduce, without a corresponding reduction of the price of the Nescafé Coffee, then consumers will shift away from buying Nescafé Coffee. This shift will lead to a reduction in the quantity of Nescafé Coffee purchased by consumers.
Similarly, if the prices of the substitute products such as tea increase, people will shift from purchasing tea to coffee. This shift will increase the general market quantities of coffee purchased by consumers. However, this increase will affect all the brands of coffee, but Nescafé Coffee will record a percentage market increase in quantity purchased by customers. On the other hand, if the prices for substitutes for coffee reduce, consumers in the market will shift from buying coffee to buy the substitutes. This will lead to a general reduction in market quantities purchased by consumers in the market; which will similarly reflect on the quantities demanded for Nescafé Coffee.
Finally, consumer-end factors also affect the quantity of Nescafé Coffee purchased. For instance, changes in consumer income will affect the quantity of coffee purchased. If consumers’ income increases, then they will have higher disposable income to purchase more coffee. This leads to an increase in the quantities of Nescafé Coffee demanded by consumers. On the other hand, if their income reduces, the quantity demanded for Nescafé Coffee will reduce. Similarly, if the consumers’ tastes and preferences change in the favor of the Nescafé Coffee brand, the quantity of the brand purchased will increase.
Supply for Nescafé Coffee
The supply of coffee is influenced by the prevailing market price for coffee. If the price of the coffee increases, suppliers will tend to supply more in a bid to increase their revenues. This leads to an increase in the quantity of coffee supplied in the market. On the other hand, if the price for coffee reduces, coffee supplies, reduce their supply in the market as a way of avoiding reduced revenues. This in turn reduces the quantity of coffee supplied.
Another factor affecting the quantity supplied for coffee is cost of inputs. If the costs of inputs for coffee increases, manufacturers will only be able to produce limited quantities due to the increasing costs. This will in turn lead to reduced supply of coffee. On the other hand, if there is a general reduction in costs of production of coffee, manufacturers will produce more due to the new affordability. This will increase the quantity of coffee supplied in the market.
Moreover, the price of competing alternatives to coffee like tea affects the quantity of Nescafé Coffee supplied. If the price of tea increases, coffee manufactures will shift their production from coffee to tea, which is more profitable. This will prompt suppliers of coffee to reduce their supply of coffee in the market as a way of shifting resources to tea. On the other hand, if the prices of tea reduce, manufacturers will shift from producing tea to coffee, thereby increasing the supply of the drink in the market.
Conclusion
The quantity of coffee, demanded by consumers depends on the dynamics that affects consumers and their consumption behavior. Therefore, the price of coffee and the price of other substitute products will influence the quantity purchased. In addition, changes in consumers’ income and preferences will affect the quantity supplied. On the other hand, the quantity of coffee supplied is influenced by the dynamics of suppliers such as the market price, price of alternatives and substitutes and the cost of production.
Reference
Mankiw, N. (2014). Principles of Microeconomics. New York: Cengage Learning