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1 (a) 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
1 (a) Using the information provided, explain one externality that arises in the food delivery market. (b) With reference to Extract B, examine whether the demand f... show full transcript
Worked Solution & Example Answer:1 (a) 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
Using the information provided, explain one externality that arises in the food delivery market.
Answer
One significant externality in the food delivery market is the impact on local restaurants due to increased competition from third-party delivery services. As food delivery options like Just Eat and Deliveroo proliferate, traditional restaurants face pressure to lower their prices or enhance their services to retain customers. This can lead to a reduction in the diversity of food offerings in the market, as smaller or less popular establishments struggle to compete, potentially harming local economies and the vibrancy of neighborhoods.
Step 2
With reference to Extract B, examine whether the demand for delivered food is price inelastic and income elastic.
Answer
In Extract B, it is suggested that the average spent by customers is £15 with a £5 delivery charge, indicating how price changes can influence demand. If the demand for delivered food is price inelastic, it means that a percentage change in price would result in a smaller percentage change in the quantity demanded. Given that consumers often perceive food delivery as a convenience rather than a necessary expense, they may continue to order despite rising prices. As for income elasticity, if incomes rise, consumers may be more likely to order food deliveries due to increased disposable income, suggesting an income elasticity greater than one, indicating that demand increases more than proportionately with income.
Step 3
With reference to Extract C, discuss the likely effects of increasing integration within the food delivery market.
Answer
Extract C highlights the potential for integration among food delivery services, which could lead to several effects. Firstly, increased integration may enhance efficiency through economies of scale, allowing companies to reduce operational costs and potentially pass savings onto consumers. However, this could also decrease competition as fewer players dominate the market, potentially leading to higher prices and reduced service quality. Furthermore, integration may reduce the diversity of options available to consumers, as larger firms may prioritize partnerships with bigger brands over smaller, local eateries. Ultimately, while integration can streamline operations and increase convenience, it may also result in negative consequences for both consumers and smaller businesses in the food delivery ecosystem.