The price of coffee in all of its forms (from prepared drinks at Starbucks to wh
ID: 1159831 • Letter: T
Question
The price of coffee in all of its forms (from prepared drinks at Starbucks to whole beans at the grocery store) has suddenly doubled. What will you do? How (if at all) will your coffee-drinking habits change? What factors will influence you?
Consider the influence of the following:
Why do you drink coffee? For the taste? To socialize? For the caffeine?
What portion of your discretionary income do they currently spend on coffee? How would that change with the price increase?
How would your friends/families influence you?
Are tea or soda appealing substitutes?
Would timing of the price increase change your reaction? (e.g. final exam week versus summer vacation)?
Explanation / Answer
ANS:
If the price of coffee suddenly increases then what I will do will depand on various factors like:
1. why I drink coffee? - If it is because of the taste that means I have become habitual to it then my demand of coffee will be inelastic i.e. no matter price rises I will still continue to drink coffee; If it is o socialize then I might reduce my consumption as I can possibly lessen my social meetings.
2. income spend - If I am already spending a large part of my income it then price increase will not matter much as it be a just a little more extra because my attitude will be if i am already spending too much then spending a little extra does not matter much .
3. influence of family and friends : If my friends and family have a great influence on me then I might consider their opinion about this increase and whatever they suggest i might be motivated to take that action.
4. substitutes - If tea or soda are appealing substitues then i might decrease my demand of coffee and instead my demand for tea or soda will increase and vice-versa
5.timing - if the timing of change is like final exams then i might not reduce my consumption as during exams you need coffee while if it is vacation then i might reduce my consumption as coffee is not a necessity at that time and i can find other drinks to enjoy myself.
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