37-AS_Micro_Market_Prices_EW - AS Micro EW Assignment (3)...

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AS Micro EW Assignment (3) Understanding changes in market prices and output: Coffee and Steel When supply and demand are in balance a market is said to have reached an equilibrium resulting in a state of rest. In microeconomics, equilibrium is reached at a price when quantity supplied balances with demand, there is no surplus or shortage that might drive prices lower or higher. The equilibrium is also called the “ market-clearing price ”. When a market is in a stable equilibrium, it requires an external event to cause this to change. Changes in market demand and/or market supply will bring about a new equilibrium price and quantity traded. Section 1: The international market for coffee This question asks you to think about supply and demand conditions in the world market for coffee. Read the extracts below and use these and the charts to answer the questions that follow. Chart A: Extract A : Emerging market drive global demand for coffee to fresh highs Global demand for coffee keeps climbing. Faster-paced lifestyles in China and other Asian economies where GDP growth has been strong have helped to keep consumption of coffee on an upward path. The International Coffee Organization (ICO) estimates that global coffee consumption rose 2.4 percent to a record 134.0 million 60-kg bags in 2010 - and the average growth rate is 2.5 percent per annum even at a time of global economic uncertainty. The growth in demand in China, where coffee is drunk chie±y in cafe chains or restaurants, is not expected to slow. A rise in prices has also failed to deter consumers in India although some blends have substituted cheaper robusta supplies for more expensive arabica coffee. Starbucks Coffee plans to more than triple its cafes in mainland China, from 450 currently to 1,500 by 2015.
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37-AS_Micro_Market_Prices_EW - AS Micro EW Assignment (3)...

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