Markets And Institutions

Units 1 to 5. “Coffee and Tea”
Answer Sheet Module I

MARKETS AND INSTITUTIONS

MARKETS AND INSTITUTIONS

Problem (20%) Supply and demand analysis provides excellent answers to manyquestions. It also provides a good start to understand reality. a) In the equilibrium of the coffee market, the quantity demanded and offered is 163,000 units which correspond to a price of 28$.

(Note: Axesare changed, as coffee price should be on ‘y’ and quantity should be on the ‘x’ axe)

b) If the price of coffee increases (from p1 to p2), and the quantity demanded too (from Q1 to Q2), then thecurve of demand would shift up and to the right (D2).


MARKETS AND INSTITUTIONS

Answer Sheet Module I Pag.: 2 de 4

c) Regarding the demand of tea, considering tea as a substitute good itscurve demand would shift to the left. The tea will become more competitive and there will be more demand for tea. d) In the case of coffee, the added value considering it as the difference between aparticular product's final selling price and the direct and indirect input used in making that particular product can be obtained considering both the selling prices and the costs of processing andproducing the coffee. At this point, we can what are the main factors that increase the coffee price. Among them we can find harvesting, coffee processing (dry or wet processing as a first step), cleaningand blending, roasting, extraction, packing and filling, transporting, distribution, marketing, selling and so forth. In next graphic we see the profit sharing between all the participants.MARKETS AND INSTITUTIONS

Self test questions 2) C 3) D 4) C 5) A 6) D

Development questions 7) What is a market according to your point of view? Some years ago I would have defined a market like aphysical place where buyers and sellers can trade with plenty of goods. However, nowadays markets are understand like any one of a variety of systems, institutions, procedures, social relations and...