;

I
Changes in the demand and supply of coffee explain why world wholesale coffee prices fell by nearly half from 1998 to 2004,
reaching their lowest level in three decades. The sharp decline in coffee prices threw millions of small coffee farmers and their
families in developing countries into extreme pov- erty, while multinational food companies (such as Nestlt) and coffee shops
(such as Starbucks) posted very high profits from coffee sales.
The problem in the coffee market arose from the fact that the supply of coffee increased faster than its demand, causing coffee
prices to fall. Since cof- fee prices fell faster than quantities increased, the earnings of coffee farmers also declined. This can be
shown with Figure 2-8, where D represents the world's demand curve for coffee and S represents the world's supply curve.
Curves D and S intersect at the equilibrium world price of coffee of $1 per pound and the equilibrium quantity of 10 billion
pounds per year (point E in the figure), giving coffee farmers a total revenue (income) of $10 billion per year. If, over time, D
shifts to D' and S shifts to S', the world price
Source: "Drou-ning in Cheap Coffee," The Econornisr (September 29, 2001). pp. 43-34; "Crisis Call to Coffee Growers."
Finutlcia/ Times (April 16. 2002). p. 23; "Price of Coffec Jumps to 10-Year High." Finuncial Times (October 15,2007), p.
18; "Coffee Prices
Stirred by Shortage". Financial Tinles (May 11.2009), p. 13: and http:Ncoffeeasean.org/details.asp?Ohject=2I
12463&News-ID=1755120 (December 2010).
to the world's demand and supply curves for coffee. Curves D and S intersect at point E, giving the equilibrium price of coffee of
$1.00 per pound and the equilibrium quantity of 10 billion pounds per year. If D and S shifted, respectively, to D' to Sf, the new
equilibrium point would be E". giving the price of $0.50 per pound and the quantity of 15 million pounds per year.
FIGURE 2-8 Demand, Supply, and Coffee Prices Curves D and S refer, respectively,
Million pounds of coffee per year
of coffee falls to $0.50 per pound and the quantity rises to 15 billion pounds per year (shown by new equilibrium point E" in the
figure). This, however, produces a total revenue (income) for coffee farmers of only $7.5 billion per year. If only D shifted to D',
the price of coffee would be $1.50 (point E' in the figure), while if only S shifted to S', the price of cof- fee would be $0.25 (point
E*).
From 2000 to 2002, the supply of coffee increased at twice the rate of the increase in demand as a result of new countries
(such as Vietnam) start- ing to produce and export coffee on a large scale and others (such as Indonesia and Brazil) sharply
increasing exports. This caused the price of coffee that growers received to fall from $1.40 per pound in 1998 to as low as $0.48
in June 2002, which was lower than the production costs of many poor small farmers. But then bad weather in producing nations
and higher demand in consuming nations came to the rescue, resulting in coffee prices rising to $1.58 in February 2008 (it was
$1.25 in December 2010).

• there is probably nothing that distorts a city worse than rent regulation. it accelerates the abandonment of marginal
buildings, deters the improvement of good ones, and creates wondrous windfalls for middle class. all the while harming
those it meant to help, the poor. the vast majority of economists agree. rent controls are price ceilings or maximum
rents set below equilibrium rents. although designed to keep housing affordable, the effect has been just the opposite, a
shortage of apartements. for example, figure 2.10 might refer to the market for apartement rentals in new york city.
without rent control (and assuming, for simplicity, that all apartements are identical), the equilibrium rent is 1000 and
the equilibrium number of apartements rented is 1.6 million. at the controlled rent of 600 per month, 2 million
apartments could be rented. only 1.2 million apartements are available at that rent, so there is a shortage of 800.000
apartments. indeed, apartment seekers would be willing to pay rent of 1.400 per month rather than go without an
apartment when only 1.2 million apartments are available..
• rent control inroduces many predictable distortions into the housing market. first, as we have seen, rent control results
in a shortage of apartements for rent. this is evidenced by the great difficulty and time required to find a vacant, rent-
controlled apartements usually cut maintenance and repairs to reduce costs, and so the quality of housing deteriorates.
because of the shortages to which rent control gives rise, however, apartements vacated as a result of inadequate
maintenance can be filled easily and quickly. third, rent control reduces the reurn of investment in rental housing, and
so fewer rental apartements will be constructed.fourth, rent control encourages conversion into cooperatives (since their
price is not controlled), which further reduces the supple of rent-controlled apartements. finnaly, with price allocation,
that is, nonprice rationing is likely to take place as landlords favor families with few or no children or pets and families
with higher incomes