Cambridge International as and a level Economics Ebook

Figure 2.7 
A change in the demand for PCs
49
Chapter 2: The price system and the microeconomy 

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SELF-ASSESSMENT TASK 
2.10
Coff ee break
Recent research has shown that 93% of UK households 
have bought instant coff ee in the last year. In addition, 
coff ee as a drink continues to increase in popularity, as 
consumers try variations such as cappuccino, espresso, 
mocha and latte. This expansion in demand has also led to 
an increase in the types of manufactured coff ee available, 
although instant coff ee remains the biggest seller.
Raw coff ee, when it leaves the plantation, is pale green, 
hence the name ‘green coff ee’ when it is traded. It is 
bought and sold on world commodity markets in London 
and New York. At any one time, the amount to be sold 
and the quantity that manufacturers and processors 
wish to purchase are key factors determining its price. 
Like any product, therefore, the price of raw coff ee 
is determined where market supply and demand are 
equated.
The final price of raw coff ee is very important for the 
economic well-being of millions of people living in 
countries such as Costa Rica, Kenya and Colombia, which 
are heavily dependent on this crop. Typically, farmers in 
such countries practise small-scale production – their 
plots of land might be no more than one or two hectares. 
It is therefore unrealistic for them to sell their product 
direct to the world market. So they usually sell their crop 
to a government-controlled agency that in turn releases 
stocks onto the world market, depending on market 
conditions.
An alternative approach, practised by major 
manufacturers such as Nestlé, is for coff ee to be bought 
direct from local farmers. This happens only in countries 
where Nestlé manufactures locally for export. In such 
circumstances, Nestlé off ers a ‘fair price’ to farmers to 
ensure a regular supply of green coff ee. This price is 
widely advertised as the minimum price that will be 
paid for supplies. It follows that the higher the quality, 
the higher the price. This arrangement ensures that 
farmers continue to grow coff ee, while providing Nestlé 
with regular supplies outside the uncertainties of the 
occasionally volatile world commodity market.
Read the feature below and then answer the questions that follow.