Paper 1 Practice: Lunara’s Meal-Delivery Market
Original topic-practice material
Lunara, its organisations and all numerical evidence below are fictional and were constructed for this case. This is one 30-mark case study, not a complete Paper 1.
Case Study: Convenience, affordability and packaging waste
Extract 1: A growing market
In Lunara City, independent restaurants sell delivered meal bundles through digital platforms. A bundle includes one meal and delivery. Higher household income and improved app reliability have increased consumers’ willingness to order at every possible bundle price. At the same time, a shortage of bicycle couriers has raised delivery costs.
Delivered bundles are not identical. Some households order mainly for convenience, while carers and people with limited mobility report fewer close substitutes. Restaurants can also offer collection, but this is less useful for the latter group. Three large platforms process about 78% of app-based orders, although restaurants may list on more than one platform. The city has not established whether this concentration gives platforms persistent market power.
Table 1 shows the initial weekly market schedules before either change. Quantities are measured in thousands of bundles.
Table 1: Initial weekly demand and supply
| Price per bundle (L$) | Quantity demanded (thousand bundles per week) | Quantity supplied (thousand bundles per week) |
|---|---|---|
| 4 | 110 | 50 |
| 5 | 95 | 65 |
| 6 | 80 | 80 |
| 7 | 65 | 95 |
| 8 | 50 | 110 |
Market researchers cannot determine whether the demand increase or cost increase will be larger.
Courier representatives report that fuel, bicycle-maintenance and insurance costs have risen. Platforms can attract additional couriers by raising per-order payments, but this may take several weeks. Restaurants say that they cannot expand kitchen capacity immediately during evening peaks. These details suggest that supply responsiveness may differ between the short run and the longer run.
Extract 2: A temporary pricing experiment
One platform reduced its average bundle price from L7. Orders rose from 60,000 to 75,000 per week. Assume that other important determinants remained unchanged during the experiment. The platform’s commission is a percentage of restaurant sales revenue, while restaurants also face food, labour and packaging costs.
The experiment lasted four weeks and covered off-peak orders only. The platform did not publish its per-order delivery cost or the number of users who switched from rival platforms. Its finance director warned that the higher sales revenue could coexist with a lower contribution per order. A consumer group also noted that the calculated elasticity applies to this observed price range and customer group, not automatically to all prices or peak-period orders.
Extract 3: Disposable packaging
Most delivered meals use disposable containers. City cleaners report higher collection costs and litter near parks. The council proposes a specific tax on each disposable container. Restaurants could switch to reusable-container systems, reduce packaging, raise bundle prices or absorb part of the tax. Smaller restaurants say that washing equipment is costly, while environmental groups argue that consumers currently ignore some clean-up costs.
Demand and supply responsiveness may increase over time as consumers change habits and firms adopt new equipment. Tax revenue would finance public waste collection.
A small voluntary reusable-container trial achieved a 62% return rate. Each reusable container must be returned, transported and washed before reuse; lost containers raise costs. The council estimates that cleaning and litter costs vary by neighbourhood and container material, so a uniform tax would only approximate the marginal external cost. It has not yet decided whether certified reusable containers would be exempt.
Extract 4: A maximum delivery price
Some households depend on delivered food when caring for relatives or during illness. A residents’ association proposes a legal maximum bundle price below the current market equilibrium. It argues that this will make meals affordable. Platforms warn that some couriers may stop accepting orders at the controlled price. The government could instead give targeted vouchers, subsidise delivery capacity or allow a higher price during peak periods.
Officials expect a ceiling to require rules on delivery fees, service charges and priority access, otherwise firms could reclassify part of the price. Vouchers could be limited to verified carers and low-income households, but eligibility checks would create administrative cost. A capacity subsidy might increase the number of couriers, although the government cannot easily distinguish genuinely additional deliveries from those platforms would have supplied anyway.
Questions
1
(a) With reference to Table 1:
(i) Identify the initial equilibrium price and quantity. [2]
(ii) Calculate the market shortage at a price of L$5. [2]
(b) Other things being equal, explain how the increase in household income and improved app reliability may affect the market equilibrium for delivered meal bundles. [4]
(c) Using the midpoint method and Extract 2, calculate the price elasticity of demand for the platform’s bundles and explain what happened to its sales revenue. [4]
(d) Assess whether a specific tax on disposable meal containers is likely to reduce packaging waste effectively. [8]
(e) Discuss whether Lunara should impose the proposed maximum price for delivered meal bundles. [10]
[Total: 30]
Suggested use
Allow about 75 minutes. Answer every part and use the supplied evidence selectively.
Answers and marking guidance: Paper 1 Lunara Meal Delivery — Answers.