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, withcoffee being the leading substitute. Common complements to tea are breakfastfoods, biscuits/cookies, and baked goods. The price elasticity of demand fortea is below one, making tea inelastic which is due to the sheer number ofconsumers that drink tea and cannot live without it. Tea can be either aninferior good or a normal good depending on the specificities of the market,but it is generally considered an inferior good. More expensive tea brands wouldbe considered a normal good since most people would rather buy the moreinexpensive option (the inferior good), but when the incomes of consumers go upthey are more willing to purchase the costly brand of tea.
Thetea market is considered to be in perfect competition since it exhibits manycharacteristics of perfect competition. One characteristic is an immense numberof consumers and firms buying and selling tea, due to the fact that tea is oneof the most popular drinks in the world, second to water. Another is thevastness of firms and consumers cause the producers not to be able to influencemarket price, making them price takers. The tea market could also be describedto be in monopolistic competition since the producers sell tea that isdifferentiated from each other by brand and quality. Themain producers of tea are China, India, and Kenya, with most of the tea leavescoming from Kenya. The U.S.
does not really produce tea, instead, it imports itfrom the leading tea producing countries, being the third largest importer oftea in the world. The factor that would affect the demand for tea would be adecrease in the price of a substitute, such as coffee. However, the demand fortea remains strong worldwide (including the U.S. where its demand is growing)which develops the taste of tea for consumers.
Furthermore, many consumersconsider tea as essential, causing the demand to be almost income elastic. Afactor that would affect the supply of tea are droughts in the major areas ofproduction (China, India, and Kenya) which would lower the supply of tea leavesneeded to produce tea. The production of tea requires tea leaves and the technologyto refine and package the tea for selling.