Economics Report: Coffee Market Analysis and Consumer Preferences

This economics report provides an analysis of the dine-in coffee market in Manhattan, focusing on the application of supply and demand theory. It explores the market characteristics, including monopolistic competition, and examines how changes in consumer tastes and preferences, such as the shift from Australian to New Zealand roasted coffee beans, impact demand. The report also investigates factors influencing coffee prices, including geographical considerations like weather patterns, location of coffee shops, and the quality of coffee from different regions. The analysis includes the impact of holiday surcharges and concludes with a summary of the key findings regarding market dynamics and the influence of various factors on coffee prices and consumer behavior.

Running head: ECONOMICS 1
Economics
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Introduction
Previously, finding flat whites, avocado toast among other Australian cuisine in New
York was difficult. However, there has been a shift in events leading to a wide embracement of
American foods and drinks in the United States and beyond (Tucker, 2017). Haschka Tori, the
writer of “A suitcase and a spatula: Recipes and stories from Australians’ love for travel in
addition to Australians’ habit of sharing what makes them tick. This assignment discusses the
supply and demand theory in relation to the dine-in coffee market in Manhattan and the effects of
change of tastes and preferences from Aussie roasted coffee beans to NZ roasted variety. In
addition, the paper proposes reasons why geography might affect coffee prices.
Dine-in coffee market in Manhattan
Coffee is the highest consumed beverage in the world today especially in developed
countries such as United States, Europe, and Australia (Nikaido, 2015). Coffee beans however
are produced majorly in developing countries. The National Coffee Association based in New
York has established that millennials form the majority of consumers in the United States
accounting to around 44% since 2016 (National Coffee Association, 2016). The association
established that, there was a 12% increase in coffee consumption among millennials between
2009 and 2016. The consumption of individuals between 25 and 39 years also increased by 9%.
In contrast, there was a decline in consumption among adults aged 60 years and more. Figure 1
below shows a supply and demand curve of coffee in Manhattan.

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Figure 1
Evidently, the demand and supply of coffee in Manhattan is consistent with that of a normal
good whose demand and supply comply with the law of demand and supply. Coffee consumers
tend to consume more coffee at lower prices and less at higher prices (Feenstra, 2015). Producers
on the other hand supply more coffee when prices are high and less when prices are low. In the
above diagram, the supply curve is positively sloping while the demand curve is negatively
sloping. Point E is the equilibrium point where supply and demand are equal.
The demand for coffee in Manhattan is high leading to establishment of many coffee
shops started to meet the high demand .Birch coffee, Box Kite, Padoca are just but of a few
coffee shops in New York. The market can be characterized by many coffee shops offering
similar products and services although maintain independent control of prices and production
decisions. The market is also easy to penetrate with existing firms controlling a little portion of
the market share. These characteristics conform to that of a monopolistic competition market

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where existing firms use slight differentiation techniques to separate themselves from
competitors (Leamer & Stern, 2017).
Change in taste from Aussie-roasted beans to New Zealand roasted variety
The demand and supply of goods and services is affected by changes in taste and
preferences of customers. When consumer taste and preferences shift in favor of a product, its
demand rises as well as its supply. However, when consumer taste and preferences change in
favor of a substitute product, demand of the product declines (Farboodi, Jarosch & Shimer,
2017). The tastes of the American people keep changing as they embrace new products. Initially,
Australian cuisine such as flat whites and avocado toast could not be found in American
restaurants. Now, they are available in majority of American restaurants. It is predicted that the
preferences might again shift from Australian roasted beans to New Zealand roasted coffee
variety.

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Figure 2
Figure 2 above shows the effect of change in taste from Ausie roasted coffee to NZ
variety on the demand and supply of Ausie roasted coffee in Manhattan. The change in consumer
preference against the product led to a shift of the demand curve to the left as indicated by
demand curve D1. This implies that prices decline even when supply remains constant. The
equilibrium point shifts from point E to E1. Decline in demand as a result of shifting customer
base pulls supply. Suppliers in a market exist in response to demand of products and hence a
decline in demand leads to a reduction in quantity supplied. Normally in economics, factors that
affect demand or supply other than price lead to a shift in the curves price movements lead to
movements along the curves.
Prices of coffee in Pert
In 2013, the price of coffee rose to an unprecedented mark of $7.25 against the
expectation of many customers. The news prompted significant discussions online majority of

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the people complaining about what they termed as exorbitant prices. The café manager
responded to the complaints by explaining that the coffee priced at $7.25 was served in a cup of
double size to the normal cup. He added that the $ 7.25 included a 10% surcharge implemented
during public holidays. The public holidays surcharge was implemented by the firm to cater for
the employees pay which is two or three times normal pay.
The rise of coffee in the coffee chain during the period can be economically explained to
result from increased demand. Normally, during holidays people tend to spend their time with
friends and family. Most of them meet in coffee shops where they chat while taking coffee
leading to a rise in coffee demand. The increased demand influenced coffee shops and especially
Cafe Del Pescatore coffee shop in Perth to increase coffee prices to $7.25. From the law of
demand, when demand of products rise, their prices increase.
Effects of Geography on Coffee Prices
Geography can be a significant factor that affects prices of coffee. Geographical factors
such as weather patterns might affect demand of coffee. Research findings indicate that
individuals tend to consume more coffee during cold weather compared to in hot weather
(Parker, 2018). When cold, individuals consume more coffee to keep themselves warm. The
difference in coffee demand in cold and warm regions can affect pricing. Prices in cold areas
might be higher as a result of a higher demand while in hot areas, prices might be lower due to
less demand.
The location of coffee shops influences their pricing. Coffee outlets located within the
central business district of cities such as Sydney and Melbourne in Australia price their coffee
higher than small towns. This phenomenon results from the high cost of rent in major cities

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which coffee chains have to cover in their revenue. The major cities are also highly populated
leading to a higher demand that pushes coffee prices higher.
Geography might also affect quality of coffee from producer’s point of view. Different
geographical regions have different environmental factors and also adopt varying processing and
cultivation methods (Teuber, 2013). These variations have an effect of influencing coffee
quality. Since different regions might have their coffee supplied from different geographical
areas, the pricing might vary. High quality coffee are sold at higher prices compared to those of
lower quality.
Conclusion
The coffee market is a monopolistic competition market characterized by many firms
selling slightly differentiated products. Their coffee are differentiated based on brands and
customer service. Also, coffee is a normal product whose demand increases with a decline in
prices. Changes in consumer preferences in favor of New Zealand roasted coffee has an effect of
shifting the demand curve left wards and reducing demand of Ausie roasted coffee. Geographical
factors and especially weather patterns have a significant effect on coffee prices. Normally,
people consume more coffee in colder regions compared to hot areas.

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References
Farboodi, M., Jarosch, G., & Shimer, R. (2017). The emergence of market structure (No.
w23234). National Bureau of Economic Research.
Feenstra, R. C. (2015). Advanced international trade: theory and evidence. Princeton university
press.
Leamer, E. E., & Stern, R. M. (2017). Quantitative international economics. Routledge.
Nikaido, H. (2015). Monopolistic Competition and Effective Demand.(PSME-6) (Vol. 1391).
Princeton University Press.
National Coffee Association. (2016). what are we drinking? Understanding Coffee Consumption
Trends. The First Pull, 7.
Parker, S. C. (2018). The economics of entrepreneurship. Cambridge University Press.
Teuber, R. (2013). Geographical indications of origin as a tool of product differentiation: The
case of coffee. Journal of International Food & Agribusiness Marketing, 22(3-4), 277-298.
Tucker, C. M. (2017). Coffee culture: local experiences, global connections. Routledge.