Among the biggest coffee drinkers in the world, euro-zone consumers are cutting back.
As one Milan café owner explained, “Since the beginning of the year most of our regulars cut their coffees from around four to two a day. Sometimes, instead of getting a cappuccino or other types of more expensive coffees, they just have an espresso. This is the effect of the crisis.”
Meanwhile, in Brazil, partially because of good weather, supply is up for the highest quality beans (arabica) that the Italians and Spanish prefer. In addition, not only have some Europeans begun to switch to cheaper robusta beans but also growers who had withheld their beans awaiting higher prices are now facing a decline that might mean they will sell at a lower price.
It all adds up to classic demand and supply. Because of declining income, the demand curve for troubled euro-zone economies shifted to the left. Meanwhile, with bountiful crops, supply shifted to the right. The result? Price tumbled. And indeed, arabica coffee prices are down 30 percent from a year ago.
Sources and Resources: While I discovered the current status of coffee beans in a Barron’s column, my coffee prices, here, and consumption, here (source of table below), this August WSJ article tells more about European demand and was the source of the above quote. Also, for a nice combination of stats and stories, you might enjoy this Reuters video.
Per Capita Coffee Consumption: 2006/2007
Posted by: adminEcon
Tags: arabica coffee beans, coffee drinkers, coffee prices, demand, equilibrium, espresso, euro zone, euro-zone recession, Finland, Italy, Spain, supply, UK, US
At a Christie’s auction, a painting of a candle by German artist Gerhard Richter sold for $16.5 million.
A recent documentary on this 80-year-old artist shows him painting in his studio and attending gallery and museum exhibitions of his work. Neither the film maker nor Mr. Richter say very much. We observe him as he very humanly and humbly assesses 2 paintings as he creates them. At exhibitions, sometimes his discomfort is evident.
While the movie is rather quiet, the art world has had an electric response to his presence. At exhibitions, photographers and adulation surround him. As the top selling living artist last year, his paintings sold at auction for a total of $200 million.
According to WSJ.com, the supply and demand sides of the market for Gerhard Richter paintings convey a typical success story. On the supply side is a prolific and talented painter whom art galleries and auction houses are “eager…to canonize.” With “a steady volume…but not a glut,” and a retrospective exhibit drawing massive crowds in Europe, the supply side appears to be ideally situated for high prices. Meanwhile, on the demand side, when an artist becomes a sensation, “tastemakers,” dealers, “status seekers” and collectors enter the market with considerable money to spend. Put the supply and demand sides together and you get astronomical prices. At the gallery that represents him in NYC, there is a waiting list for his multi-million dollar paintings.
The Economic Lesson
The Price of Everything, a very good book, explains high salaries. With limited supply, sufficiently affluent demand and a huge (adulatory) audience that technology can facilitate, 21st century markets for superstar painters or golfers or rappers can involve huge salaries. Here, a University of Chicago economist discusses the rationale and math behind superstar salaries.
In some ways, all pricey markets share the same characteristics, even with pigeons.
An Economic Question: Through a demand and supply graph for an artist superstar, how might you illustrate a high salary?
Rather than accept a 45% salary cut, the voices of Bart, Homer, Marge and Lisa have said this might be their last season. Reportedly paying close to $8 million a season to each of the major voices, 20th Century Fox Television said the show had become too expensive. NPR also tells us that Fox might make more money by ending the show than continuing it. The syndication rights alone could be worth close to $1.5 million for each episode.
In a counter offer that Fox rejected, the Simpsons’ actors said they would accept a 30% cut and a share of the profits. Meanwhile, producers for the series have agreed to pay cuts. A final decision might be announced today.
The Economic Lesson
The Price of Everything, a very good book, explains high salaries. One possibility is the huge audience that technology facilitates. More people mean more money. Here, a University of Chicago economist discusses the rationale and math behind superstar salaries. He even compares Luciano Pavarotti to Mrs. Billington, an 1801 superstar Italian opera diva.
An Economic Question: Through a demand and supply graph for a superstar, how might you illustrate a high salary?
Maybe the market is more powerful than the Congress.
First, some history…
Hoping that farmers would earn a living wage, in 1933, the U.S. government decided to subsidize crop prices. The goal was “parity,” a level of purchasing power that equaled what farmers could buy during their golden age, 1909-1914. To achieve parity farmers could receive a check that elevated market price to a target price.
Fast forward to 2011.
Farm income is soaring. Consequently, for many commodities, target prices are way below the market price. The target price of corn is $2.63 while its market price is near $7. For soybeans, $6 is the target and $13 the market. Translated into federal spending, farm subsidy totals are down by one half, from $22 billion to $11 billion.
Why? The power of the market.
The Economic Lesson
Involving demand and supply, a market is a process that determines price and quantity. For corn, you have ethanol, emerging economies, and China on the demand side. They are shoving corn’s demand curve to the right. No one person or government is making the decision. It is all about the interaction of many consumers and many producers.
So, when the Congress says it wants to cut spending, maybe the market can help.
An Economic Question: How would crop subsidies affect the quantity that the market supplies and demands?
The good news? We are driving more again–more miles than any year since 2007.
The bad news? We are driving more again–more miles than any year since 2007..
Here are the facts from a WSJ article.
With the recession and higher gas prices, mileage dropped by 3.6%.
But then, the recovery began, unemployment slightly decreased, and confidence built. The result? We drove more. More driving means more demand for gasoline that will contribute to escalating gas prices.
The solution? 3 possibilities.
1. Increase the federal gasoline tax. It has been 18.4 cents since 1993. A higher tax means less driving and less dependence on Middle East oil.
2. Release extra oil from U.S. emergency fuel reserves. Extra oil means cheaper gas, more driving and sustained recovery.
3. Do nothing.
The Economic Lesson
This is classic demand and supply. During 2007-2008, skyrocketing gas prices decreased quantity demanded, the recession (that began during December, 2007) shifted the demand curve to the left and equilibrium price dropped. Now, with demand reversing and Middle East concerns affecting (perceptions of) supply, the equilibrium gas price is rising.