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6 (a) With reference to Figure 1, calculate the three-firm concentration ratio for branded coffee shop chains - Edexcel - A-Level Economics A - Question 6 - 2022 - Paper 1
Question 6
6 (a) With reference to Figure 1, calculate the three-firm concentration ratio for branded coffee shop chains. (b) With reference to Figure 2 and your understanding... show full transcript
Worked Solution & Example Answer:6 (a) With reference to Figure 1, calculate the three-firm concentration ratio for branded coffee shop chains - Edexcel - A-Level Economics A - Question 6 - 2022 - Paper 1
Step 1
With reference to Figure 1, calculate the three-firm concentration ratio for branded coffee shop chains.
Answer
To calculate the three-firm concentration ratio, we need to identify the top three coffee shop chains based on the number of shops:
- Costa: 2,681
- Starbucks: 1,025
- Caffè Nero: 648
Next, we sum these values:
Now, we calculate the total number of branded coffee shops:
- Costa: 2,681
- Starbucks: 1,025
- Caffe Nero: 648
- AMT: 50
- Soho Coffee: 40
- Coffee Republic: 30
- Other chains: 3,748
Finally, the three-firm concentration ratio is calculated as:
ext{Concentration Ratio} = rac{4354}{6222} imes 100 \\ ext{Concentration Ratio} hickapprox 69.94\%
Step 2
With reference to Figure 2 and your understanding of price elasticity, examine two factors that may cause significant changes in the international price of coffee beans.
Answer
Two factors that may cause significant changes in the international price of coffee beans are:
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Supply Shocks: Factors such as extreme weather conditions (e.g., drought, hurricanes) can drastically reduce the supply of coffee beans, leading to a sharp increase in price.
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Demand Changes: Global market trends, such as an increase in coffee consumption in emerging markets, can lead to a rise in demand that outstrips supply, driving prices upward. This is reflected in fluctuating prices seen in Figure 2.
The price elasticity of demand can also influence how responsive the consumers are to price changes, thus affecting overall pricing.
Step 3
With reference to Extract A, assess whether this is the case for coffee shops.
Answer
Profit maximisation is indeed a central objective for many coffee shops; however, it varies by business model. Independent coffee shops often focus on quality and customer experience, balancing profit with customer satisfaction.
In contrast, larger chains like Costa and Starbucks may prioritize market share and revenues over profit maximisation to build brand loyalty and expand their customer base. The challenges highlighted in Extract A, such as rising costs and market competition, also indicate that coffee shops need to adapt their strategies, indicating that profit maximisation may sometimes take a backseat to maintaining business viability amidst challenging conditions.
Step 4
With reference to Extract B, discuss how changing consumer preferences can impact branded coffee shops.
Answer
Changing consumer preferences, particularly towards health-conscious options and unique coffee experiences, can significantly impact branded coffee shops:
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Health Trends: As customers become more health-conscious, coffee shops like Greggs are adjusting their menus to include healthier options, such as gluten-free choices. This shift can attract a new customer base and drive sales.
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Experience over Product: The emphasis on 'coffee shop experience' highlighted in Extract B implies that customers are looking for more than just coffee; they want ambiance, quality, and a unique experience. This can prompt cafes to re-design their spaces and services, requiring them to allocate resources in new ways to meet these demands.
The adaptation to these preferences is crucial for sustaining competitive advantage in a crowded market.