Brazil is the world’s largest coffee producer. There was a severe drought in Brazil in 2013-14 that damaged Brazil’s coffee crop. The price of coffee beans doubled during the first three months of 2014.
a. Draw and discuss a supply and demand diagram to explain the increase in coffee prices.
b. Are coffee and tea substitutes or complements? Explain.
c. What do you think the impact of this drought has been on the equilibrium price and quantity of tea? Draw a supply and demand diagram for the tea market to explain your answer.