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Using the information provided, explain one externality that arises in the food delivery market - Edexcel - A-Level Economics A - Question 1 - 2022 - Paper 3
Question 1
Using the information provided, explain one externality that arises in the food delivery market. (b) With reference to Extract B, examine whether the demand for del... show full transcript
Worked Solution & Example Answer:Using the information provided, explain one externality that arises in the food delivery market - Edexcel - A-Level Economics A - Question 1 - 2022 - Paper 3
Step 1
Explain one externality that arises in the food delivery market.
Answer
One significant externality in the food delivery market is the environmental impact of increased delivery services.
As food delivery becomes more popular, many delivery drivers are on the road more frequently, leading to higher carbon emissions. This congestion not only affects air quality but also contributes to urban traffic issues, which can increase travel times for all road users. Furthermore, the rise in plastic and packaging waste generated from food delivery contributes to environmental degradation.
These costs are not typically accounted for in the prices paid by consumers, leading to a negative externality that affects public health and environmental sustainability.
Step 2
Examine whether the demand for delivered food is price inelastic and income elastic.
Answer
In examining whether the demand for delivered food is price inelastic and income elastic, we can consider several factors.
Price inelasticity suggests that demand does not significantly change with price alterations. For delivered food, especially when sourced from popular platforms like Just Eat or Deliveroo, demand may be relatively inelastic. This is due to consumers' preference for convenience, indicating that even with slight price increases, many customers will continue to order food due to lack of alternatives or the convenience factor.
Conversely, demand could be considered income elastic, especially among younger consumers who may allocate a proportion of their disposable income to food delivery. With rising incomes, this demographic tends to spend more on convenience items, thereby increasing the demand for food delivery services. Overall, the interplay between price and income suggests varied elasticity but positions delivered food more as an essential convenience rather than a luxury.
Step 3
Discuss the likely effects of increasing integration within the food delivery market.
Answer
Increasing integration within the food delivery market can lead to several significant effects.
Firstly, with fewer firms dominating the market, consumers may face higher prices as competition diminishes. This can reduce the willingness to pay, leading to lower overall demand and potential loss of customers who seek more affordable options.
Secondly, integrated firms may benefit from economies of scale, enabling lower operational costs and improved service delivery efficiency, which could increase overall market profitability.
Finally, integration can facilitate innovation and improvements in technology, such as better tracking systems or enhanced customer service features, leading to a potentially better overall experience for users.
However, a balance must be struck to ensure that while firms benefit, consumers do not endure excessive price hikes or diminished service options.