Final answer:
Closing two of seven coffee shops on the same street would likely increase competition among the remaining shops as they try to capture the larger market share. The coffee market is characterized by inelastic demand, meaning significant price changes may not lead to substantial changes in quantity consumed. Specialization and market-oriented adjustments play roles in how businesses operate efficiently within such markets.
Step-by-step explanation:
If two of the seven coffee shops located on the same busy street were to close, it would likely increase competition among the remaining coffee shops. When the number of suppliers in a market decreases, the remaining suppliers face less competition.
This situation allows them to potentially capture a larger market share of the remaining consumer base looking for coffee. However, the outcome could be influenced by various factors, including the elasticity of demand for coffee, changes in supply, and the remaining shops' capacity to meet increased demand.
According to the laws of demand and supply, when the price of a good changes, it affects both consumer behavior and producer incentives.
For a product like coffee, which has an inelastic demand (elasticity of about 0.3), a moderate rise in price does not lead to a significant drop in quantity demanded; therefore, close substitutes are less available or less preferred.
Furthermore, events that affect the supply of coffee, such as a major frost or the introduction of a large producer like Vietnam, can cause significant price fluctuations without much change in the consumed quantity, illustrating coffee's inelastic demand.
Specialization within coffee shops, where workers focus on specific tasks, may also lead to increased efficiency and profitability.
The concept of comparative advantage suggests that such specialization will allow the business to produce goods and services at a lower cost, potentially gaining more from trade, which is also applicable at a country level.
Market-oriented adjustments do not usually require government intervention, as prices and quantities naturally adjust through market signals.