Agro Commodities & Agricultural Produts

Question by jamrabi: The demand for coffee is elastic, inelastic or unitary elastic and why?
A) “Market demand for wheat is relatively stable over time but market supply of wheat is very much influenced by the weather. For example, a natural drought decreases the supply of wheat and pushes up its prices while a bumper crop can severely depress wheat prices. Acts of nature thereby can result in large increases or decreases in the prices of agricultural commodities. The profitability of farmers becomes uncertain, as does the prices of food products and income needed to feed a household.”

Keeping in view the scenario (A), suggest the most appropriate action that the government should take in this situation in order to stabilize the wheat farmer’s income and to encourage them to continue farming whether there are bumper crops or droughts.

(B) “There is an awful lot of coffee in Brazil; it supplies a large share of the world market. In 1994, people first began to realize that a frost in Brazil would cause havoc with the 1995 harvest. The economist magazine at that time reported estimates that the 1995 crop would be less than that of 1994. It was obvious that coffee was going to be scarce in 1995. Anticipating this situation, speculators bought coffee in 1994, bidding up its price even before the supply fell. Following table shows the price rise of coffee during these years.

Years 199319941995
Price ($ ) 0.92.02.1
Export Quantity 11310285

Keeping in view the scenario (B), analyze whether the demand for coffee is elastic, inelastic or unitary elastic and why?

Best answer:

Answer by jemhasb
You could look at the EC (European Community) or wool in Australia.
The Australian Govt set up the wool board which bought up wool when world prices were low and sold its supplies when the price went up. Farmers were pleased when the government brought their wool but whinged when the wool was sold and the government made a packet of money (the farmers did too as they sol;d their wool at a high price)

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