RVHS_H2_ECONS_P1_Soln

© RVHS 2018 9757 [Turn over RVHS Y6 H2 Prelim II Suggested Answer – CSQ 1 (a) With reference to Table 1, compare the change in market value of the different UK food retailers between 2018 and 2023. [2] • All food retailers are expected to see an increase in market value [1], with the market value of online retailers and discounters expected to increase by a larger magnitude compared to that of hypermarkets and supermarkets [1]. (b) Using a relevant elasticity concept, explain why “Aldi has sought to open hundreds of new shops” during the recession. [2] • Aldi is a budget supermarket which sells mainly sells canned food and value-for money products [0.5]. During the recession where income is falling, there will be a rise in demand for Aldi’s products [0.5] since they are perceived to be inferior goods (YED < 0) [0.5] compared to its rivals. As such, Aldi opened up more stores to cope with the expected rise in demand for its products, which may possibly lead to a rise in their total revenue [0.5]. (c) Explain how “peak time” pricing qualifies as a form of price discrimination. [4] • Price discrimination is defined as charging diffe rent consumers different prices for the same product not due to cost differences. Under the “peak time” pricing, price of items rise when demand is high and fall when demand is low. • This is a form of 3 rd degree price discrimination as it satisfy all the 3 conditions needed for price discrimination to be carried out [0.5]. • The different prices are not due to cost differences. This is because no matter the time that the product is being sold, the cost incurred by the supermarket such as labour costs, rental, and utilities is the same [1]. • The supermarket owners are able to segment the market according to their PED whereby during peak time, the demand for certain items tend to be higher and more price inelastic compared to off-peak. For example, there is a lack of close substitutes for chilled food and drink items during heatwaves [1.5]. • As the supermarkets operate in an oligopoly, each firm has the ability to set prices due to the market power which they possess [0.5]. • Furthermore, as items such as ice-cream, ready -to-eat sushi, and yogurt have a very specific shelf-life or best-before-date beyond which they lose their freshness, consumers who bought them at a lower price cannot successfully resell these items to other consumers for consumption at a later time. Supermarkets are thus able to prevent resale of such perishable items by the consumer [0.5]. Note to marker: Identify as 3rd degree price discrimination (0.5m), the rest of the marks (3.5m), can be flexible in how you want to allocate amongst the explanations of the 3 conditions. For e.g., if student did not explain 2 nd condition that well to score 1.5m, can allow for the marks to be channeled to another condition if he is able to explain this condition well.

© RVHS 2018 9757 2 (d) Extract 3 mentions about the