A+Tall+in+Mumbai?+Maybe,+soon-+Kaki

Title of article: A Tall Frappuccino in Mumbai? Maybe, soon.

Date: January 13, 2011

Source: http://edition.cnn.com/2011/WORLD/asiapcf/01/13/india.starbucks/index.html

Summary:

Starbucks Coffee Company has officially announced a signed agreement with an Indian coffee company, Tata Coffee Company limited, allowing Starbucks to branch in the Indian coffee market. This would be fall into microeconomics, because it has to do with individual firms. India is a country with a growing economy, giving Starbucks an opportunity to take advantage of the countries’ potential. According to estimates, the Indian coffee market has been growing around 40% each year, making it reasonable for Starbucks to join in and become another coffee supplier. Simply looking at the Indian coffee market, this would be an increase in supply of coffee production as resulted from a determinant, in this case, number of producers. But the reality of Starbucks opening in India would require a setup of all the factors of production.

India, being a dominantly tea drinking nation, has also begun making that shift to drinking coffee. Unfortunately, this decision has its risk. Because the majority of the population is still suffering from poverty, a Venti Frappuccino may still be an unaffordable luxury for most people. This could be shown in a decrease in quantity demanded for Starbucks coffee, as a result of a high price above equilibrium price set by Starbucks. This could potentially lead to a surplus if most consumers could not afford Starbucks coffee.

Key Terms From the Article:

1. Microeconomics: A branch of economics that studies the behavior of individual firms or companies make as to how they best allocate scarce resources. This article discusses Starbuck’s global coffee market, and because it is specific to one company and one type of product (food and beverage), so it would be considered to focus on microeconomics. 2. Factors of Production: Everything needed to run an economy, categorized in four main categories, land, labor, capital, management. The main focus of the article talks about how Starbuck’s forms a new partnership with an Indian coffee bean supplier, making this possible for the company to branch its market to India, opening stores and expanding the company. But to do this, that would mean an increase in the factors of production, because they would need to buy land, hire local workers, and have managers to run all of it. 3. Supply: a stock of a resource from which a person or place can be provided withthe necessary amount of that resource 4. Demand: the desire of purchasers, consumers, clients, employers,etc., for a particular commodity, service, or other item 5. Increase in Supply: Increase in total output of a market, caused by a determinant of supply and not by a change in price 6. Determinant: Number of Producers (Starbucks becoming a future supplying coffee beverages) 7. Change in Quantity Demanded: A change in how much consumer is willing and able to buy, as a result of a change in price 8. Surplus: When the quantity demanded is less than quantity supplied at a fixed price in a market.

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Evaluation:

With Starbucks opening in India, there are several problems that they must face apart from opening up a branch of stores and hiring workers. They must consider how many stores to open to avoid the possibility of surplus. Generally speaking, Starbucks coffee is a luxury good that the majority of the Indian population probably could not afford, so in my opinion, it would be wise to open a small amount of stores so that it meets only the demands of the wealthier minority. This would avoid the issue of surplus if all the planning goes well. Starbucks would also have to face competition by other coffee companies that produce similar substitute beverages, so it would be wise to come up with a series of products that are unique and irreplaceable.