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With reference to Figure 1, briefly explain the market structure that describes the UK branded coffee shop market - Edexcel - A-Level Economics A - Question 1 - 2018 - Paper 3
Question 1
With reference to Figure 1, briefly explain the market structure that describes the UK branded coffee shop market. The market structure of UK branded coffee shops c... show full transcript
Worked Solution & Example Answer:With reference to Figure 1, briefly explain the market structure that describes the UK branded coffee shop market - Edexcel - A-Level Economics A - Question 1 - 2018 - Paper 3
Step 1
With reference to Figure 1, briefly explain the market structure that describes the UK branded coffee shop market.
Answer
The market structure of UK branded coffee shops can be characterized as an oligopoly. In this market, a few firms, such as Starbucks, Costa Coffee, and Caffè Nero, dominate the market share. According to Figure 1, Starbucks holds 13%, Costa Coffee has 30%, and Caffè Nero shares 9%, while other smaller firms contribute to the remaining market share. This concentration indicates significant competitive interaction, where these firms must consider each other’s pricing and marketing strategies. The existence of brand loyalty among consumers also plays an essential role, allowing these firms to maintain premium pricing on their products.
Step 2
With reference to Figure 3 and other information provided, discuss the price and non-price strategies that Starbucks may pursue in a particular market.
Answer
In the context of price strategies, Starbucks can adopt a premium pricing strategy which has been evident in the pricing shown in Figure 3. The coffee prices for Starbucks are often higher compared to competitors like Costa Coffee and Caffè Nero. This strategy not only helps position its products as high-quality but also capitalizes on its brand image. In addition to price strategies, non-price strategies can include enhancing customer experience through unique store designs, premium product offerings, and loyalty programs that encourage repeat purchases. Starbucks might also diversify its menu with seasonal offerings or exclusive items that attract customers and differentiate it from rivals.
Step 3
Examine the advantages of using an indirect tax as a means of reducing the use of disposable coffee cups.
Answer
An indirect tax on disposable coffee cups serves multiple benefits in addressing environmental concerns. Firstly, it creates a financial incentive for consumers to reduce their usage of single-use cups by raising the cost associated with them, effectively nudging consumers towards more sustainable alternatives. Secondly, these tax revenues can be used to fund initiatives aimed at developing more sustainable recycling technologies or promoting reusable cups. Moreover, implementing such a tax can foster a positive public image for Starbucks, aligning the company with broader environmental stewardship and potentially attracting environmentally-conscious consumers.
Step 4
Evaluate the microeconomic and macroeconomic factors that may influence Starbucks’ decision whether to expand in a particular country.
Answer
Microeconomic factors include the level of competition in the market, consumer preferences, and cost conditions. Starbucks needs to assess the existing competitors in the target market, understanding their pricing, quality, and service levels. Additionally, consumer preferences, such as the increasing demand for specialty coffee or ethical sourcing, play a crucial role in the company’s strategy. On the macroeconomic front, factors like economic stability, exchange rates, and labor market conditions also significantly influence decisions. A favorable economic climate with increasing disposable incomes and a growing coffee culture would likely sway Starbucks to expand more rapidly.
Step 5
Referencing the information provided and your own knowledge, evaluate the potential economic performance effects of increased UK demand for coffee.
Answer
Increased demand for coffee in the UK could yield positive economic impacts such as job creation within the coffee shop sector and related industries, including agriculture, logistics, and retail. Moreover, it may lead to significant revenue growth for companies like Starbucks, bolstering their market presence and encouraging further investment into the UK market. However, the increase in demand may also pose challenges such as upward pressure on prices and potential supply chain issues if production cannot keep pace with rapidly growing consumer preferences. Overall, the net effects would depend on the elasticity of demand and the ability of the market to supply coffee sustainably.