This document discusses various concepts related to the demand for coffee. It notes that while coffee consumption is rising in consuming countries, coffee producing countries face lower prices and declining incomes. It then defines elasticity of demand and different types (elastic, inelastic, unitary). Price elasticity of demand for coffee is estimated between 0.25-0.5. Cross elasticities between coffee and tea in India are also provided. Income elasticity of demand for coffee in India is estimated to be 0.4, indicating demand increases moderately as incomes rise.

1. Each day nearly 2.5 billion cups of coffee are
consumed

2. The Coffee Paradox

 A coffee crisis in producing countries with a trend
towards lower prices, declining incomes and profits
affecting millions of people in the world’s poorest
countries.
 A coffee ‘boom’ in consuming countries with rising
sales and profits for coffee retailers and roasters.
 A widening gap between producer and consumer
prices only partly offset by the influence of Fair Trade
in the coffee industry.

3. Factors affecting Demand
of Coffee

 Nature of the product
 Availability of the substitute
 Price level of coffee
 Income of the consumers
 Taste and Preferences
 Prices of the related goods

4. Elasticity Of Demand

Elasticity of demand is an important variation on the concept
of demand.
Demand can be classified as elastic, inelastic or unitary.
 An elastic demand is one in which the change in
quantity demanded due to a change in price is large.
 An inelastic demand is one in which the change in
quantity demanded due to a change in price is small.
 A unitary elasticity demand is one in which the elasticity
coefficient is equal to one.

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7. Price elasticity of demand

 Price elasticity of demand(PED or Ed) gives the
percentage change in quantity demanded in response to
a one percent change in price (ceteris paribus, i.e. holding
constant all the other determinants of demand, such as income).

8. 

9. 
PRODUCT ELASTICITY OF DEMAND
COFFEE 0.25
Source: Economics: Private and Public Choice, James D. Gwartney and
Richard L. Stroup, eighth edition 1997, seventh edition 1995.
PRODUCT ELASTICITY OF DEMAND
COFFEE 0.50
Source : price elasticity of demand of fair trade coffee
Master thesis in economics by Niina Niemi,2009. HELSINKI SCHOOL OF
ECONOMICS

10. The Marshallian elasticities, answer the
question of “what is the effect of price change
on coffee consumption?
Source: COMMITTEE ON COMMODITY PROBLEMS, A DEMAND ANALYSIS FOR THE
TEA MARKET,2012.

11. Cross elasticity of Demand

Cross elasticity of Demand is defined as :The degree
of responsiveness of demand for commodity X on
account of a change in the Price of Commodity Y .
Exy = ( ΔQx/Δpy)(Py/Qx)

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13. 

14. Cross elasticities for India

COMMODITY BLACK TEA GREEN TEA
COFFEE 0.066 0.0325
Source : Committee on commodity problems, Intergovernmental
group on tea. Twentieth session. Columbo , sri lanka, 30th jan-1 feb
2012 – a demand analysis for the tea market

15. Income elasticity

Income elasticity of demand measures the
responsiveness of the demand for a good to a change
in the income of the people demanding the
good, ceteris paribus.
EY = (DQ/Q)(DY/Y)

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17. Indians consume a tiny 0.1 kilograms per year. But a “quiet
cafe revolution is sweeping urban India,” the BBC reported
in 2002.

The income elasticity of demand for
coffee in India has been estimated
to be 0.4
Source:
https://gsbapps.stanford.edu/cases/documents/IB53.pdf

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