retical function of prices in a market economy: the current price levels in a market economy are those which will clear current markets.
In early-June 1998, the Wall Street Journal reported that coffee prices dropped as supplies of coffee increased (Sullivan, 1998). This statement may appear to be in conflict with the mechanism of the supply curve, but, in reality, there is not conflict. Coffee producers will provide greater quantities of their product as prices rise; however, when the supplies of coffee reach the point of saturation (there is no longer any unsatisfied demand for coffee), coffee prices will fall if the supply continues to increase. One might question why coffee producers would continue to increase supplies in such a situation. In point of fact, however, producers of agricultural commodities such as coffee are limited in the extent to which they can keep their products off the market because of storage capacities and perishability.
The excess coffee production is another outcome of El Ni¦o, in that the system caused the normally colder months in Brazil to be warmer, which, in turn, produced a bumper coffee crop. Prices are falling because the coffee producers have an excess supply on their hands. Once the market is cleared, prices will rise again.
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