Demand and Supply

Topics: Supply and demand, Economic equilibrium, Price elasticity of demand Pages: 3 (953 words) Published: October 31, 2013

3. Demand and Price Elasticity
It is important to understand how price changes affect the demand of fast food especially for firm like McDonald that operates in a Monopolistic Market. When McDonalds offers its discounted Value Meal during lunch and dinner hours, the demand for McDonald’s products will increase. According to the law of demand, other things equal, the quantity demanded of a goods increases when the price of the good falls. (N.Geogory Mankiw et al.,2013). A change in price will affect the movement along the demand curve. Hence, when there is a reduction in McDonald products price, there will be a downward movement along the demand curve.

Graph 3.1 shows the inverse relationship between prices of McDonald’s Products and its quantity demanded. It depicts that when the price decreases, the quantity demanded will increase and vice versa. When other things being equals, a decrease in McDonalds products price from P1 to P2 will trigger a downwards movement along the demand curve from E1 to E2. When factors other than a change in price take place, there will be a shift in the demand curve. For example, when buyers are having doubt on the HALAL status of McDonald products, its demand curve will shift to the left as a result of decrease in demand. In graph 3.2 below, any change that increases the quantity demanded for McDoanld’s products at a given price shifts the demand curve to the right while any change that decreases the quantity demanded for McDonald’s products at a given price shifts the demand curve to the left.

The availability of substitutes for McDonalds products will affects its demand curve as well. The close substitutes for McDonalds are KFC and Pizza Hut. In this context, the pricing of McDonald’s product relative to its substitutes’ prices will affect its demand curve. Based on graph 3.2, when McDonald’s products is more expensive than its substitutes, the quantity demanded for its substitute...

References: Tatiana Andreyeva, Michael W.Long, and Kelly D. Brownell (2012), The Impact of Food Prices on Consumption: A systematic Review of Research on the Price Elasticity Demand for Food.
Wong Wei Shen (2013, June 6). Retrieved from www.thestar.com.my
N.Gregory Mankiw et al., 2013, Principle of Economics, Malaysia Edition, Cengage Learning Asia Pte Ltd, page 59
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