Supply & Demand Analysis: Fast Food Industry
Determinants of Demand
The Determinants of Demand are variables that affect the overall demand of a market. In the text, there are 5 variables that are discussed. These include tastes, income, other goods, expectations, and buyers. These variables help define how the market will react to certain economic situations (Schiller, 2010). In this case, the economic factors and how they affect the fast food industry will be examined.
The first determinant for market demand is the overall desire for the product or service. In today’s society there is plenty of desire for fast food. The desire for fast food is due to the fact that it is cheap, easy ...view middle of the document...
This is due to fewer resources available to them due to the higher gas prices (Schiller, 2010).
Expectations is the fourth determinate of demand that is examined. The best way to describe this determinate as it relates to the fast food industry is the expectation that the consumer has in relation to the amount of resources (or income) in the future (Schiller, 2010). For example, if someone anticipates financial difficulties in the future, such as job loss, they will be more inclined to forego the convenience of fast food and eat at home. On the other hand, when a consumer expects to be promoted in the future, they will be more inclined to spend more money now and therefore, increase spending on goods such as fast food (Waters, n.d.; Schiller, 2010).
The last determinant of market demand is the number of buyers. As fast food industries introduce new products and new services there is an increase of the number of buyers who want the new product or service. This will, therefore, increase the market demand for goods and services that they provide. An example of this in the fast food industry was the introduction of McCafe by McDonald’s. In light of slowing sales, they introduced this new product line and as a result increased demand and increased sales (Bloomberg, 2007).
Determinants of Supply
Market supply is the amount of goods and services that sellers, such as fast food restaurants, are willing to provide at a specified price during a specific time period. There are six determinants of market supply which include: technology, factor cost, other goods, taxes and subsidies, expectations and number of sellers (Schiller, 2010, pg. 52).
The first determinant of market supply is technology. Technology has revolutionized the way that fast food restaurants have serviced their customers. On example is the technology that has been implemented in the kitchen. Fast food restaurants that have installed more advanced equipment have been able to increase their production and increase ultimately the product they are able to supply. For example, McDonalds went from being able to serve 77 cars in the drive-through to 90 cars in the drive-through per hour (Bloomberg, 2007). This new product has allowed them to increase the supply available.
The second determinant is factor cost. An example of this would be beef cost. As the cost of beef decreases the industry in turn can sell beef items, such as hamburgers, at a lower cost. If the price of beef increases, then it costs the industry more money for these items and the end result is that there may be fewer beef products and then the price goes up. Another example would be employee compensation. As the cost to keep more employees goes up then you will have less hiring and fewer employees resulting in less product. If the cost of employees decreases, you can have more people working at the restaurant which in turn produces more goods than the consumers demand (Basic Economics, n.d.). ...