Coffee Prices free essay sample

Perfect competition in any competitive market supposed to be perfect in every respect. Perfect knowledge on the part of the buyers and sellers about market conditions must be meet, perfect mobility of the factors of production, and proximity to the market. Along with the perfect competition to have a perfectly competitive market, one must have pure competition. The market is said to be pure when, there is a large number of buyers and sellers, goods produced and sold are homogeneous, and there is Free Entry or Exit for any producer or seller. (Pink Monkey. Com) Because not all six conditions were satisfied, the coffee market is not a perfectly competitive market given the fact that the major industry leaders in the market are not price takers but rather price makers. When market conditions are perfectly understood there is no chance of a higher price being charged or paid. Price takers have to accept the market price as given. We will write a custom essay sample on Coffee Prices or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page (Pink Monkey. Com) Perfect knowledge on the part of the buyers and sellers about market conditions is the factor that wasn’t satisfied to make the coffee a perfectly competitive market. Because the supply and demand of the world is so uneven, with millions of small scale growers or producers of coffee beans, the market lies with the coffee roasting companies who buy the raw coffee beans and produce them into coffee based products. In the argument by Starbuck’s that paying higher coffee prices will increase demand and will ultimately increase the glut is not true. When buyers have power over the market price the purchasing power over coffee growers can force down the price that farmers receive for their products. If big players such as Starbucks started to pay higher prices for coffee beans, they would in turn pass the increase in price to their customers, driving the demand down and the surplus even higher. Because both the monopolistic competitor and the perfect competitor make zero economic profit in the long run, yes the coffee market is operating at zero economic profit. Because of the chronic coffee surplus that the millions of small scale growers are producing and given the ability of farmers to enter or exit the market, there was an increase in the number of farmers entering the market.