Tutorial 2 Industry Application Questions PDF

Preview

Summary

Tutorial 2 – Industry Application Questions Describe the producers in your industry. For example, how many firms are in your industry? Are there some major players, and/or a range of smaller players? Who are the few biggest firms? What does a ‘normal’ firm look like in this industry? 3 marks The pro...

Description

Tutorial 2 – Industry Application Questions 1. Describe the producers in your industry. For example, how many firms are in your industry? Are there some major players, and/or a range of smaller players? Who are the few biggest firms? What does a ‘normal’ firm look like in this industry? 3 marks The producers in this industry include the following: Tea, Coffee and other foods, meat, poultry and small goods, dairy produce, fruit and vegetable wholesalers and liquor wholesaling. In the café and coffee shop industry, there are a total of 9,833 establishments ending financial year 16/17. This shows that there is a significant amount of freehold café’s within the industry and is quite a large growing industry. The Retail Food Group (RFG) Limited is biggest player within the industry, with a total of 4 coffee chains that are currently operating under their trading name. The RFG currently holds a 7.5% market share, with a significant difference of 4.3% between them and the next biggest market share holder, Minor DKL Food Group. DKL currently operates the Australian section of Minor International PLC. The two main establishments under this name are The Coffee Club and Coffee Hit. The last two minor players within this industry is Emirates Retail Leisure (Australia) Pty Ltd and Starbucks Coffee Australia Pty Ltd with both a market share of 1 and less than 1% respectively. A normal firm would be a shop that sells coffee, food and general beverages and employs at least 1 skilled worker, with many being unskilled casual laborers. 2. Who are the major buyers (demanders) of the products of your industry? Do buyers buy locally for local use, or is the product traded nationally, and / or internationally? 2 marks The major demanders of the products to come out of coffee shops and café’s are regular Australian households. Many buyers of the products are used locally, and not resold. Any product that is made out of a café or coffee shop is generally regarded for the consumption of the customer. No product is bought from coffee shops or café’s are generally for trade and are only for consumption. 3. How do buyers and sellers come together to trade in your industry ie how and where are the goods and services exchanged? 2 marks Under the 5 key selling industries listed on IbisWorld.com’s analysis of the market, each one is a wholesaler. All trading’s and exchanges would occur at a wholesaler plant, where each coffee shop would order or have a buyer that would directly or indirectly order through the seller. For instance, a coffee bean wholesaler would have direct orders from coffee shops/cafés that would supply them with the coffee bean. 4. Give examples of each of the 5 non-price factors of demand that would influence the demand for the key products in your industry. Which do you think are the 2 most important factors for your industry? 5 marks + 2 marks For preference, a new coffee or variety of coffee could enter the market which would influence demand. For instance, Chai Latte’ was a new entrant to the market and became very popular within the winter months and for those who are not coffee lovers but still liked a hot drink. Income is another factor, which if an increase occurred, the popularity of more restaurant/boutique café’s would heighten. This is due to the higher priced meals within these boutique café’s. The price of other products can also have an effect on the demand, for instance if the price of instant coffee significantly dropped or homemade coffee capsules then this may

have an effect on the demand of barista made quality coffee. The number of consumers can also increase demand on products, for instance if there was an article or news journal that stated coffee may increase health, the number of consumers may increase for the product. Finally, expectation of the price may increase or decrease demand for the product. If a national shortage was announced on coffee or milk, the expectation to pay a higher price would steer people away from barista made coffee. The 2 most important factors for the industry would be number of consumers and income as these two are the main sources of revenue for the industry. 5. Explain the difference between a movement along the demand curve, and a shift of the demand curve, in your industry. A movement along the demand curve is when there is a change in price for the product at hand. In the Coffee and café industry, an increase in a component of the product such as milk or sugar, would increase the unit price. This would lead to a movement along the demand curve as less would be demanded at a higher price. A shift of the demand curve would occur if there was a factor effecting demand, for instance if chai lattes suddenly were celebrity endorsed the demand curve would shift to the right, leading to an increase in demand. This would mean that the supply curve and equilibrium would be adjusted as well, in turn effecting supply and price. 6. Give examples of each of the 5 non-price factors of supply that would influence the supply for the key products in your industry. Which do you think are the 2 most important factors for your industry? 5 marks + 2 marks A change in the cost of inputs within this industry would relate to the change of import or labour prices. For instance, as coffee is not of Australian origin, the importing costs if risen, will make an impact on the supply to coffee shops within Australia. With changes to technology, as the market increased for coffee machines and the way they are made, it could have an increase to supply as the bean manufacturers would be producing more and more to keep up with demand. If there was an increase/decrease in the number of suppliers, supply would either increase or decrease respectively, however; due to the limited number of coffee chains within Australia, this extra supply could be unnecessary. If the expectations of prices to rise for coffee beans and food happened, the need to supply more would also happen. The suppliers would see an increase in the price of coffee related products, meaning they are cashing in on the chance to sell at this higher price. At this current rate of the industry, the two most important factors would be the changes of inputs and number of suppliers. If these two factors changed, there would be a dramatic shift in the supply curve, leaving a substantial demand, yet little supply, a shortage of coffee and products would occur.

7. Explain what would happen in the market for one of the key products in your industry if there was an increase in the cost of inputs to production. Ensure you draw a diagram and provide a full explanation of what would occur. 4 marks

We start at the equilibrium where P0 is equal to Q0. There is an increase in the cost of inputs to production for a standard cappuccino which causes a decrease in supply. This causes the supply curve to shift to the right from S0 to S1. At price P0, supplies only supply Q1, so there is now a shortage in the market. Consumers are willing to pay more to get more of the product, and so suppliers start to push up the price. This is a movement along the demand curve, D0. Suppliers are willing to supply more at higher prices than consumers are willing to pay and they move along their supply curve, S1. These forces continue to occur until the shortage is cleared from the market. This is done until the quantity demanded by consumers is exactly matched by the quantity supplied by suppliers at that price, at which point there is no further pressure on prices. This occurs at a new equilibrium at P1,Q1.

Industry report additional pages that will be useful for this week (you may also need to use previous weeks’ too in order to answer these questions)-: Grain Growing – Pgs 3 – 5, 13-15 and 20-22 inclusive. Cafes & coffee shops – Pgs 3-5, 12-14, 17-19 and 22-23 inclusive Supermarkets & Grocery stores – Pgs 3-5, 14-16, 19-21 and 23-27 inclusive Water supply – Pgs 3-6, 8, 13-15, 18-20 and 22-28 inclusive...