Solution 1 Demand for coffee 1) Demand for coffee increases and demand curve shifts to the right.

This is because rise in demand for coffee is caused by people going to Starbucks in droves. The rise in demand for coffee is due to factors other than price, hence it signifies increase in demand.

2) Coffee mugs and coffee are complementary goods. If price of coffee mugs increases, it leads to decrease in demand for coffee mugs and hence decrease in demand for coffee. Demand curve shifts to the left. This is because fall in demand for coffee is caused by changes in price of complementary goods. The fall in demand for coffee is due to factors other than price of coffee; hence it signifies decrease in demand.

3) Tea and coffee are substitute goods. If price of tea decreases, it leads to increase in demand for tea and hence decrease in demand for coffee. The demand curve for coffee shifts to the left. This is because fall in demand for coffee is caused by changes in price of substitutes. The fall in demand for coffee is due to factors other than price of coffee; hence it signifies decrease in demand.

4) An increase in income will lead to increase in aggregate demand for coffee and demand curve for coffee shifts to the right. This is because rise in demand for coffee is caused by increase in income. The rise in demand for coffee is due to factors other than price of coffee; hence it signifies increase in demand. However, with increase in income, consumers may begin to demand superior varities of coffee and demand for inferior verities may fall.

5) Demand for coffee will contract and fall along the same demand curve. This is because fall in demand for coffee is caused by rise in price of coffee.

6) Demand for coffee will contract and fall along the same demand curve. This is because fall in demand for coffee is caused by rise in price of coffee due to civil war.

Explanatory Note:

Any rise or fall in demand due to factors other than price such as changes in tastes, prices of substitutes, complements and changes in income etc is referred to as increase or decrease in demand and shifts the demand curve to the right or left. Any rise or fall in demand due to price is known as extension and contraction in demand and happens along the same demand curve.

Solution 2 Supply of coffee 1) Increase in price of coffee leads to extension in supply along the same supply curve. This is because rise in supply of coffee is caused by rise in price of coffee. 2) This leads to an increase in supply and shifts the supply curve to the right. This is because rise in supply of coffee is caused by factors other than price such as technology and shifts the supply curve to the right. 3) Higher wages mean higher cost of production which means lesser profits. Hence coffee growers start growing less coffee and supply of coffee decreases shifting the supply curve to the left. This is because fall in supply is caused by factors other than price of coffee such as higher wages leading to higher cost of production and shifts supply curve to the left. 4) As firms merge and form a monopoly, they may restrict supply of coffee to push up prices. This shifts supply curve to the left as fall in supply is caused by factors other than price of coffee, in this case the monopoly behaviour of the firms. Explanatory Note Any rise or fall in supply due to factors other than price such as changes in technology, cost of production ,income etc. is referred to as increase or decrease in supply and shifts the supply curve to the right or left. Any rise or fall in supply due to price is known as expansion and contraction in supply and happens along the same supply curve.