Black Magic I:

Abstract

The first known coffee advertisement in 1652 claimed that coffee "quickens the spirits and makes the heart lightsome, . . . is good against sore eyes, . . . excellent to prevent and cure the dropsy, gout, and scurvy." While medical research has not borne out the full range of these claims, and has, in fact, even discovered some unwelcome sideeffects of the delectable beverage, there is something about coffee that keeps people buying and drinking it no matter what the price. In technical terms, its demand is price inelastic-when the price of coffee goes up by a given percentage, consumers' purchases will decline by something less than the percentage increase in price. Specifically, when retail coffee prices rise by 10 percent, purchases tend to fall by only 2 to 4 percent.