The price of coffee beans rose from $1.15 to $1.40 between June and August 2017. A possible cause of this rise is: a) Improved weather conditions in coffee-growing countries; b) An increase in national minimum wage in coffee growing countries.
The correct answer is b).The price mechanism is defined as the interaction between supply and demand for a good, which determines price such that quantities supplied and demanded are equal.An increase in national minimum wage of coffee-farmers increases the cost of production of coffee beans. This leads to a reduction in supply as producing coffee is less profitable at a given price, shown through an inward shift in the supply curve (show on diagram in online lesson space). A reduction in supply leads to a rise in price, in order to bring quantities supplied and demanded into equilibrium.This factor could have caused the price increase, however there are many other possible factors that reduced supply or increased demand for coffee e.g. an increase in incomes globally, increasing demand for coffee.
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