The interplay of supply and demand forces influences market equilibrium. Consider a hypothetical example of a coffee market.
Increase in Coffee Demand and Supply
• With a surge in global coffee consumption due to growing awareness of its health benefits, demand for coffee increases, shifting the demand curve to the right.
• Simultaneously, innovations in coffee farming and processing technologies reduce the cost of coffee production, leading to a rightward shift in the supply curve.
• Outcome: The equilibrium quantity of coffee increases significantly. The change in equilibrium price depends on which shift is more pronounced. If supply increases more than demand, the price may decrease, and vice versa.
Decrease in Coffee Demand and Supply
• Consider a situation where health concerns about caffeine lead to a decrease in coffee demand, shifting the demand curve to the left.
• At the same time, environmental challenges, such as climate change, affect coffee production adversely, reducing supply and shifting the supply curve to the left.
• Outcome: The equilibrium quantity of coffee decreases. The direction of change in the equilibrium price is ambiguous and will depend on the relative magnitude of the shifts in demand and supply.
