1. the demand curve for coffee by Norwegians and the supply curve of coffee in Norway are identical horizontal lines.
2. the demand curve by Norwegians for coffee is a horizontal line.
3. the supply curve of coffee to Norwegian consumers is a horizontal line.
4. none of the above are true.
Choose the option that yields the correct answer.
The correct answer is option 3. Norwegians can purchase all the coffee they want to at the world market price. Therefore, the supply curve facing them is a horizontal line at that price. As the world price rises and falls, Norwegian consumers will reduce and increase their consumption of coffee as a result of the usual income and substitution effects of a change in price on the quantity demanded. So their demand curve for coffee will be negatively sloped.
Since Norway does not produce coffee, the supply curve of coffee by Norwegian producers is a vertical line coterminous with the vertical axis. The supply curve of coffee to Norwegian consumers would not be horizontal if Norwegians consumed a significant fraction of world output of coffee. An increase in Norwegian consumption in that case would lead to a non-trivial percentage increase in the world demand and would therefore result in some increase of the world price. The supply curve to Norwegian consumers would then be sufficiently upward sloping to merit portraying it as such on any relevant graph.