Final answer:
The question concerns how the law of demand and supply affects the coffee market around a campus, resulting in disequilibrium when the price decreases. Historical shifts in coffee supply, due to events like the Brazilian frost or Vietnam entering the market, cause significant fluctuations in coffee prices due to the inelastic nature of coffee demand.
Step-by-step explanation:
The question revolves around the law of demand and the law of supply, which describes the behavior of the coffee market around a campus setting. As the price of coffee goes down to $2 per cup, the demand for coffee increases because consumers are willing to buy more at the lower price. However, producers are less incentivized to supply coffee at this price, leading to a disequilibrium where the quantity demanded exceeds the quantity supplied, causing a shortage of coffee.
A key example of how inelastic demand and shifts in supply affect coffee prices is seen in historical events. A severe frost in 1994 damaged the Brazilian coffee crop, reducing supply and causing a sharp price increase due to inelastic demand. Conversely, when Vietnam became a significant coffee producer in the late 1990s, this increased supply and resulted in a substantial drop in coffee prices.
These examples demonstrate how price fluctuations in the coffee market can occur due to varying conditions affecting supply, while demand remains relatively inelastic, signified by an elasticity coefficient of 0.3.