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Dreams Coffee Case

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1. A) The slope of the PPF (production possibilities frontier) shows the opportunity cost of moving from one mixture of goods to another. The slope will always be a negative because there is a balance between the two goods, representing the principles of scarcity and opportunity cost. If the (production possibilities frontier (PPF) is a straight-line slope as shown above in the graph, then the slope is constant this means that the opportunity cost is will also be constant. The production possibilities frontier will not be linear as it will be a downward sloping curve because of the law of diminishing marginal returns. The law of diminishing marginal returns says that for every increase in a variable factor of production (labour), the …show more content…

Elastic demand (Ped >1) is when the demand is greater than the change in price, the demand on the change in coffee or pastry is said to be elastic, when coffee is elastic on the supply and demand curve then there will be a massive change in the demand for an item. When the calculation is calculated then the answer should reveal the products elasticity, if the answer is greater or equal to one, then the coffee in the dreams coffee shop will be considered elastic (Allsopp, 2012). Inelastic demand (Ped<1; Products such as coffee which are considered inelastic are products that customers think are necessities. The price of coffee will not change but the demand for it will. When the calculation for the coffee is done then the result should be less than …show more content…

The law of supply results comes from the marginal cost of producing a item or service to increase the amount that is produced which is helped to increase the profit. Producers are willing to supply any items if they can at least cover their opportunity cost of production. The graph below shows an example of how a supply demand curve should look. Market equilibrium Market equilibrium is when other companies forces balance with each other. Equilibrium will appear in the market when the price of coffee beans or any other item balances the plans of the buyers and the sellers. Equilibrium price is the amount when the quantity demanded is the same as the quantity supplied. The Equilibrium quantity is the amount of coffee beans bought and sold at the equilibrium price. The reason for the coffee beans price increase is due to the shortage of supply of the Coffee while the demand for it has decreased, there are many various factors that this has happened, • The price of related goods is made. • The number of suppliers •

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