Factors influencing price of tea in Kenya and Sri Lanka

Document Type:Essay

Subject Area:Economics

Document 1

On the other hand, the price of tea in Sri Lanka has been decreasing over the past 4 fours due to increase in the volume of production and supply. This was motivated by the favorable climatic conditions for cultivation of tea and availability of substitutes like coffee products. According to the law of demand and supply, the price of an item tends to increase whenever there are high demand and low supply. On the other hand, the price of the same item will decrease if there is a decline in the volume of demand while the supply is high. Accordingly, it is known the forces of demand and supply work to create an equilibrium between the quantities demanded and the amount supplied (Hildenbrand, 2014).

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However, it is important to note that if there is an excess supply of tea in the market, then companies will reduce their prices. This will lead to a change in the cost of tea to the equilibrium point. Therefore, it can be concluded that in 2015, the supply of tea had declined in Mombasa. This resulted in a general increase in demand more than the quantity available in the market. As a result, the equilibrium price shifted upwards thus resulting in a general increase in the price of tea. Accordingly, it seems like Mombasa was experiencing a cold climate hence prompting most people to purchase tea while Colombo was experiencing a hot climate such that only a few people were interested in tea.

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Factors Influencing the Demand of Tea in Kenya and Sri Lanka The demand for an item is influenced by a number of factors such as quality of a product, availability of substitutes, extent of advertising, and the need for complementary items (Seuring and Müller, 2008). In this case, it can be stated that the quantity of tea demanded in Mombasa was high because of its good quality while the quantity of tea demanded in Colombo was low due to poor quality. Secondly, the quantity of tea demanded in Mombasa was high due to the absence any substitute like coffee while the quantity of tea demanded in Colombo was low due to the availability of substitutes which were preferred by customers. It is also known that the quantity demanded is influenced by the extent of advertising.

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1 Showing how Demand and Supply affect Price Volatility From the above diagram, it can also be interpreted that volatility is basically influenced by the supply and demand forces. For instance, it is illustrated that when the quantity demanded is constant but there is a shit in the supply curve, the price volatility of tea will likely to change suddenly. As the equilibrium price and quantity demanded shifts from a lower point to a higher point, it clearly suggests that the quantity of items supplied is reducing significantly due to the increase in the price of the respective item (Bansal et al 2012). On the other hand, if the supply curve can shift to the left then it would imply that the number of items would increase due to a decrease in the associated price of the item.

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