Assume initially that the demand supply for premium coffees (one-pound bags) are in equilibrium. Now assume Starbucks introduces the world premium blends, demand rises substantially. Describe what will happen in this market as it moves to a new equilibrium. If a hard freeze eliminates Brazil's premium coffee crop, what will happen to the price of premium coffee?
In the late 2006 and early 2007, orange crops in Florida were smaller than expected, and the crop in California was put in a deep freeze by an Arctic cold front. As a result, the production of oranges was severely reduced. In addition, in early 2007, President George W. Bush called for the United States to reduce it gasoline consumption by 20% in the next decade. He proposed an increase in ethanol produced from corn and stalks and leaves from corn and other grasses. What is the likely impact of these two events on food prices in the United States?
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1. In case the demand for premium coffee goes up as a result of Starbucks introducing that blend the demand for the blend will rise. The demand curve will shift to the right. This will mean that the equilibrium price and quantity both will go up.
In case a hard freeze eliminates Brazil's crop it will reduce the supply of coffee. The supply curve will shift to the left and as a result the equilibrium price will rise and the equilibrium quantity will fall.
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