Activity 2b: The market for bubble tea
- Tastes and preferences may have been influenced by the desire to consume a product that can increase cognitive function and performance in the workplace/school. It has other reported health benefits which may also influence people to purchase more at each price level. The article also indicates that there is a link between café culture and consuming bubble tea with friends (there could be a peer influence on consumption). Many consumers simply choose the product because it tastes good.
- The law of demand states that as price of the product increases, the quantity demanded tends to decrease. It can also be stated that a decrease in price results in an increase in the quantity demanded.
- A movement along the demand curve is referred to as a contraction (left movement) or expansion (right movement) in reaction to the change in the own price of the good. all other factors (other than its own price) will result in a shift of the entire demand curve to the left (decrease in demand) or right (increase). This shows that a different quantity will now be purchased at each of the relevant price levels. Therefore, the key difference is that the movement along is caused by a change in its own price and shift is caused by a non-price factor.
- When the price of bubble tea falls then it becomes more attractive when compared to other beverages. For example, the price of coffee might stay the same, so the relative price of bubble tea has decreased so it appears more attractive to some consumers (substitution towards the relatively cheaper goad). The lower price means that it is also more accessible to households because it takes up a smaller percentage of their income {it is more affordable). This is the income effect.
- Cakes and biscuits could be seen as complementary products. This means that they are consumed together. When consuming bubble tea at a café, there might be a desire to enjoy the other products that are available.
- When more bubble tea manufacturers enter the market then there is increased competition in the industry. One way to attract customers away from an established provider is to offer a price that is below that is currently offered. As you learn in the next section, the increased number of suppliers also creates a surplus in the market so to attract new customers (expand demand) they need to lower the price.