Brazilian Drought and Coffee Harvest Term Paper

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On October 10, 2000, a drought destroyed the coffee harvest in Brazil. This became major news to the market economy and the consumers, because of the change that would occur in marketing system. This is a shift factor of supply because it raises the cost of supplying remaining coffee. The drought shifted the supply curve for Brazilian coffee in (towards the axis). The price of the coffee before the drought was $2.00 per bag. However, the price of the coffee skyrocketed from $2.00 to $4.00 per bag due to the shortage of demand. Since the quantity demanded exceeded quantity supplied, the invisible hand of the market pressured the price to rise to $4.00 so the quantity demanded equaled quantity supplied. In another word, since the prices have gone up, the consumers are buying less coffee than before.

Prices send "signals" to economic actors encouraging them to respond in certain ways to changing market conditions. In Brazilian coffee case, the supply shifted in while there was no change in the demand. For this reason, the price went up, and the quantity demanded went down.

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