Product Demand And Pricing Essay

448 WordsOct 30, 20112 Pages
Whether I grind my own beans and brew it at home, stop at Dunkin Donuts on the way to work or grab a cup at Java Wally’s before class, I start every day with a large, strong cup of coffee. About 56% of Americans or 175 million consumers do the same (The National Coffee Association of USA, Inc., n.d.). Currently, the price of that cup of coffee is increasing. Will the number of cups of coffee consumed in the US daily decrease as a result? A change in consumer demand in response to a change in price is measured by the price of elasticity demand. If there is large change in demand relative to the change in price, we say the demand is elastic. If there isn’t a significant change in demand relative to the change in price, we say the demand is inelastic. I don’t think the increasing cost of that cup of coffee will have a significant impact on demand. That is, I think that the demand for coffee is inelastic. There are three main factors that I believe contribute to this inelasticity. The first factor is likely due the additive nature of the caffeine in coffee. Many coffee drinkers, myself included, consider a morning cup of coffee a necessity, not a luxury. We can’t imagine starting the day without our morning cup of coffee. The second factor is the lack of substitute goods. When I wake up in the morning, a cup of coffee is the only thing that will do. The last factor is the price of a cup of coffee. A cup of coffee is cheap, relative to most people’s income. Even a large percentage increase in the cost of a cup of coffee is still only a small price increase. Those three factors are why I will keep buying and drinking coffee at the same rate, even as prices increase. Of course, the demand for coffee will only remain inelastic at and near the current price. As prices increase to a point they are no longer insignificant relative to one’s

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