Supply Shift Explains Price Drop

Steps:

• Identify the time period: 1997–2001 shows falling coffee prices.
• Analyze market forces: Price decrease indicates increased supply or decreased demand.
• Evaluate choices: New producers would boost supply, lowering prices.
• Confirm consistency: Option B matches the observed price decline.

Why B is correct:

• Entry of new producers increases market supply, shifting the supply curve rightward and reducing equilibrium price, per the law of supply.

Why the others are wrong:

• A: Continuous rise implies increasing prices, contradicting the observed decline.
• C: Health worries reduce demand (shifting demand left), but apply to 2001–2005, not 1997–2001.
• D: Good harvests increase supply, but occur in 2001–2005, not the relevant period.

Final answer: B