Supply, Demand and Price Elasticity Paper
There are few things more universally accepted, admired, and demanded for than coffee. Coffee is one of the most common beverages throughout the United States and world alike, yet there are a number of substitutes available for coffees that create relatively high price elasticity for the product. When trends for designer coffee peaked, for instance, when Starbucks was new, or when the supply lessened during the Arabica shortage of 2011, the prices for the commodity spiked (Harrington, 2011).
Coffee as a beverage has a number of substitutes available. If the consumer is simply looking for caffeine, there are a number of teas, sodas, and energy drinks that can easily be substituted. Similarly, as a breakfast beverage one can substitute milk, orange juice, tea, or water. The coffee's brand is also easily substituted if one were comparing brand specific. Coffee is a luxury item, and not a necessity which creates a bigger impact of substitutions on the market value of the commodity. Necessary items such as medication, especially those without generic substitutes, have relatively low price elasticity as the demand for the good does not diminish as the price increases. For coffee, which is a luxury item, the increase of the price greatly decreases the demand for the good (Ayers 2003).
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