income. These families are exposed to enormous risk, because the world price of coffee bounces up and down. For

example, in 1993, the world price of coffee was about 50 cents per pound. In 1995 it was four times as high, at $2

per pound. By 1997 it had fallen by half to $1.00 per pound. In 1998 it leaped back up to $2 per pound. By 2001 it

had fallen back to 46 cents a pound. By early 2011 it rose to about $2.31 per pound. By the end of 2012, the price

had fallen back to about $1.31 per pound. Since then, the price of coffee has continued to fluctuate.
124 5 • Elasticity

The reason for these price fluctuations lies in a combination of inelastic demand and shifts in supply. The elasticity

of coffee demand is only about 0.3; that is, a 10% rise in the price of coffee leads to a decline of about 3% in the

quantity of coffee consumed. When a major frost hit the Brazilian coffee crop in 1994, coffee supply shifted to the
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