Photo AI
1 (a) Using the information provided, explain the market structure that best describes the hand car wash (HCW) industry in the UK - Edexcel - A-Level Economics A - Question 1 - 2021 - Paper 3
Question 1
1 (a) Using the information provided, explain the market structure that best describes the hand car wash (HCW) industry in the UK. (5) (b) Examine two reasons why ... show full transcript
Worked Solution & Example Answer:1 (a) Using the information provided, explain the market structure that best describes the hand car wash (HCW) industry in the UK - Edexcel - A-Level Economics A - Question 1 - 2021 - Paper 3
Step 1
Using the information provided, explain the market structure that best describes the hand car wash (HCW) industry in the UK.
Answer
The market structure of the hand car wash (HCW) industry in the UK is best described as an oligopoly. This is due to several factors. Firstly, while there are numerous HCWs, the market is dominated by a few larger firms that have significant market power. These firms can influence prices and service offerings, leading to non-price competition. Secondly, barriers to entry in the HCW industry are relatively low. However, established firms often have advantages such as brand recognition and customer loyalty, which can deter new entrants. Lastly, the services provided tend to be similar, leading to a focus on marketing and customer engagement to differentiate between firms.
Step 2
Examine two reasons why the demand for HCWs increases during a period when consumer incomes fail to keep up with inflation (Extract A line 8).
Answer
One reason for the increase in demand for HCWs during times of stagnant consumer incomes is the perception of value. When incomes do not keep pace with inflation, consumers may seek more affordable luxury services, such as hand car washes, rather than high-cost alternatives like full-service car detailing. This makes HCWs an attractive option for consumers looking to maintain their vehicles economically.
Another reason is the changing consumer behavior towards spending. As disposable incomes are squeezed, individuals may prioritize spending on convenience and time-saving services. HCWs provide a quick and efficient option for car maintenance, leading to increased demand even when overall income growth is lacking.
Step 3
Discuss the likely effects of changes in the level of migration on firms such as HCWs in the UK. Use a market diagram and the information provided to support your answer.
Answer
Changes in the level of migration can have significant effects on firms such as HCWs in the UK. An influx of migrants can increase the labor supply, allowing HCWs to employ more workers at lower wages. This can reduce operational costs and potentially increase profitability. Additionally, a growing migrant population may lead to an increase in demand for HCWs, as new residents may seek out these services for vehicle maintenance, further driving up sales.
In a market diagram, this can be illustrated by a rightward shift in the demand curve, indicating increased demand for services, while a rightward shift in the supply curve reflects the increase in available labor. However, increased competition among HCWs to attract a limited customer base may arise, potentially leading to price wars.
Step 4
Evaluate the microeconomic and macroeconomic factors which determine the number of firms in an industry. Refer to HCWs or another industry of your choice.
Answer
Microeconomic factors affecting the number of firms in an industry include entry barriers, market demand, and competition. For example, in the HCW industry, low entry barriers enable new firms to emerge easily. However, established firms with strong brand recognition and customer loyalty can limit the market opportunities for new entrants.
Macroeconomic factors include overall economic conditions such as GDP growth, unemployment rates, and inflation. In times of economic growth, the demand for non-essential services like HCWs may increase, attracting more firms to enter the market. Conversely, economic downturns may deter investment and reduce the number of operating firms.
In summary, the interplay of these factors shapes the competitive landscape in an industry, directly influencing the number of firms present.
Step 5
Evaluate the microeconomic and macroeconomic effects of increased unemployment in an industry. Refer to HCWs or another industry of your choice.
Answer
Increased unemployment generally leads to decreased consumer spending, affecting industries like HCWs. Microeconomically, lower disposable incomes reduce demand for luxury services, pushing HCWs to lower their prices to attract customers, which can affect profit margins. Additionally, higher unemployment may lead to a larger labor pool, potentially increasing competition among workers for limited jobs, further driving down wages.
Macroeconomically, increased unemployment can lead to a slowdown in economic growth, which negatively impacts all industries. With reduced spending power, businesses may face significant challenges, and overall industry investment may decline as firms become more risk-averse. This can lead to a vicious cycle of declining demand and further unemployment, affecting long-term industry stability.
Overall, the interplay of these factors significantly influences industry dynamics during periods of increased unemployment.