Question

Question Nine

Starbucks rents prime locations in cities and charges customers a very high price for coffee.

1. Why are people willing to pay such a high price for coffee? Explain.

2. Thinks of the resources that Starbucks uses. Which resources are not all that scarce and which resource is the scarcest? Explain.

3. How is the owner of the scarcest resource able to capture the high value customers attach to the coffee? Explain.

Answer 1

Ans

Because Starbucks has location advantage. Also people like to keep up with jonses. It's a status symbol to drink coffee in best cafes. Also service available in Starbucks is quite good

Coffee, labour, sugar etc are not scare as Starbucks can easily purchase them but land at prime locations is scare. The land in such places can be used for other commercial activities and thus demand for it is quite high relative to supply

By selling coffee at high price the owner earns enough revenue and captures the high value. Also there is no close competition