Coffee and the Relation of Economics
Coffee is much more than the hot, black liquid that millions of us drink every morning; it is a worldwide commodity that has been keeping us awake for hundreds of years. It seems that a coffee shop can be seen on every shopping center and a coffee pot in every work break room. Our lives today revolve around coffee, regardless if we drink it or not, and ironically it not only stimulates of senses but also our economy. We wouldn’t be able to imagine Bill Gates not with his cup of coffee making Microsoft in his garage, or Henry Ford waking up early to perfect the auto industry and the assembly line. The economics of coffee may not be a simple one to study, but it is one you will be kept up all night learning about.
There are three components for the coffee industry which is composed of the suppliers or the farmers, the manufactures or the producers and the consumers or the drinkers. All three of these components of the industry are fighting each other to make the most profit and salary, while also spending the least amount of money. This causes problems when the workers are demanding higher wages which will result in higher cost of production and lead to higher coffee costs. On the other side of the equation the consumers want their coffee to cost less and less for them, which is making workers work harder and for less money. All the arguing between these three aspects of the industry eventually results in a price which makes all the aspects of it happy, although each wants more the benefit them.
The market for coffee is an Oligopoly where there are four primary multinational corporations which dominate the industry which include: Kraft General Foods, Nestle, Proctor & Gamble and Sara Lee. In addition to these produces are coffee shops which include: Starbucks Coffee, Dunkin’ Donuts, Costa Coffee, and The Coffee Bean. The company is dominated by few powerful firms who can act interpedently and react from one another how it wishes. All the firms create a homogenous product in coffee, although some may be different, but not substitutes. In addition these firms are allowed to cut or rise prices, but the competition will react to the others decisions.
According to a John Hopkins University research study in a Seattle Times news article by Angela Stewart titled “Scientists find coffee really is addictive”, they discovered that “average American coffee drinker consumes 3.4 cups a day.” In addition the study also found the coffee and caffeine isn’t what give the addictive aspect, yet the effects and symptoms of withdrawal is what makes it addicting. The research also discovered that these symptoms can last between “two to nine days”.
The economical study of coffee is a very interesting topic to study, because most cases we study in economics revolve around rational people, yet people who are addicted are not rational. According to John F. Tomer in “Addictions are not rational: a socio-economical model of addictive...