Problem
Bush fires and drought have destroyed coffee plantations in Brazil, the world's leading producer of coffee. Manufacturers of coffee products are discussing ways of averting a projected shortfall in coffee in the next five years. Nestle, manufacturer of Nescafe and Nespresso, is teaming up with Brazil to trial plantations of new coffee specie that could mature in twelve months. With the aid of the demand and supply diagram, answer the following questions:
a. Analyse the impact of the drought and bush fires on the supply of coffee.
b. Suppose worldwide demand for coffee products increases soon after the drought and bushfires. Analyse the effect on the world equilibrium quantity and price of coffee.
c. Analyse the effect on the world equilibrium price and quantity of coffee, if the trial of the new specie is successfully. Clearly state any assumptions you make.