A market consists of groups of buyers and sellers of a good or service. Market equilibrium represents the price at which the quantity of goods supplied is balanced with the number of goods consumers are willing and able to buy.
Consider the market for coffee:
Assume first that there is a heatwave that damages a large portion of coffee beans. Describe how this would affect equilibrium in the market for coffee. Specifically, does demand or supply shift, in which direction, and what is the effect on equilibrium price and quantity?
Next, assume there is a new study that finds enormous health benefits to coffee consumption. Again, describe how this would affect equilibrium in the market for coffee. Specifically, does demand or supply shift, in which direction, and what is the effect on equilibrium price and quantity?
Now, extend your analysis to what might happen if both of these events (weather which damages coffee beans and positive news on the health benefits of coffee) happen
simultaneously. What might the end result be for equilibrium price and quantity in the coffee market? Can you be sure of what the result will be for both equilibrium price and quantity?