Microeconomics Essay Assignment
The consumer product I am choosing to write about is tea.
The most popular substitutes for tea are coffee and carbonated beverages, with
coffee being the leading substitute. Common complements to tea are breakfast
foods, biscuits/cookies, and baked goods. The price elasticity of demand for
tea is below one, making tea inelastic which is due to the sheer number of
consumers that drink tea and cannot live without it. Tea can be either an
inferior good or a normal good depending on the specificities of the market,
but it is generally considered an inferior good. More expensive tea brands would
be considered a normal good since most people would rather buy the more
inexpensive option (the inferior good), but when the incomes of consumers go up
they are more willing to purchase the costly brand of tea.
tea market is considered to be in perfect competition since it exhibits many
characteristics of perfect competition. One characteristic is an immense number
of consumers and firms buying and selling tea, due to the fact that tea is one
of the most popular drinks in the world, second to water. Another is the
vastness of firms and consumers cause the producers not to be able to influence
market price, making them price takers. The tea market could also be described
to be in monopolistic competition since the producers sell tea that is
differentiated from each other by brand and quality.
main producers of tea are China, India, and Kenya, with most of the tea leaves
coming from Kenya. The U.S. does not really produce tea, instead, it imports it
from the leading tea producing countries, being the third largest importer of
tea in the world. The factor that would affect the demand for tea would be a
decrease in the price of a substitute, such as coffee. However, the demand for
tea remains strong worldwide (including the U.S. where its demand is growing)
which develops the taste of tea for consumers. Furthermore, many consumers
consider tea as essential, causing the demand to be almost income elastic. A
factor that would affect the supply of tea are droughts in the major areas of
production (China, India, and Kenya) which would lower the supply of tea leaves
needed to produce tea. The production of tea requires tea leaves and the technology
to refine and package the tea for selling.