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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 impact on local restaurants. When food delivery services like Just Eat or Deliveroo are utilized, they can lead to increased competition among local eateries, which may cause some small businesses to struggle or even close. This situation generates a negative externality, as the potential closure of these establishments affects the local economy, reduces job opportunities, and diminishes the variety of food options available in the community.
Step 2
With reference to Extract B, examine whether the demand for delivered food is price inelastic and income elastic.
Answer
The demand for delivered food can be considered price inelastic, as many consumers rely on these services for convenience and are less sensitive to price changes. Even when delivery fees increase, customers may still prefer the ease of home delivery over cooking.
Furthermore, regarding income elasticity, the demand for delivered food appears to be income elastic, particularly among higher-income individuals who can afford the extra cost of delivery services. As disposable income rises, people are likely to order food more frequently, 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
Increasing integration within the food delivery market could lead to several effects:
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Market Consolidation: As companies merge or acquire one another, fewer players in the market may reduce competition. This consolidation might allow dominant firms to raise prices, consequently affecting consumers negatively.
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Improved Efficiency: Integrated firms may benefit from economies of scale, leading to lower operational costs, which could translate to lower delivery fees or better service for customers.
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Strain on Smaller Firms: Smaller or independent delivery services may struggle to compete against these larger, integrated firms, potentially leading to a reduction in service variety available to consumers.
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Regulatory Scrutiny: Increased integration will likely attract attention from regulatory bodies concerned about monopoly practices, which could result in tighter regulation of the food delivery industry.