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Subway
Supply and Demand at Subway
Supply and demand refer to much of the product the firm produces and how much of a product the consumers want, and each of these is affected by a number of factors (Investopedia, 2011). Among the factors that affect supply are the expected demand, the expected price the firm will receive, the price of inputs and the competition in the market (EconPort, 2006). Thus, if there are more competitors, Subway might feel like demand was going to be lower, and then it would produce less. There is a relatively short lead time for ordering, which means that an individual store might be able to make changes based on changes in demand very quickly. For the company as a whole, supply decisions are about store openings and closings, and these can also be affected by internal factors, like the need for capital.
There are also a number of factors affecting demand. Real wages and disposable income affect how much money consumers have. Competition in the...
Price elasticity of demand is another factor, because it dictates what the demand will be at different price levels (QuickMBA, 2010). Thus, if consumers have more money to spend, Subway will probably benefit, but only if the company remains competitive.
Minimum Wage
If the government raised the minimum wage, this would affect Subway in a couple of ways. The first is that the company would have to pay its workers more. As a result, Subway would need to raise its prices, or see its margins reduced. Raising prices would normally decrease demand, but in the case of Subway the company might see increased demand to offset this decrease. The increase would come from minimum wage workers who are experiencing an increase in their disposable income as the result of the increased minimum wage. As these outnumber Subway workers who would get an increase, the net…
Works Cited:
Danzinger, L. (2007). The elasticity of labor demand and the minimum wage. IZA. Retrieved December 8, 2011 from ftp.iza.org/dp3150.pdf
Doyle, J. (2006). Employment effects of a minimum wage: A density discontinuity design revisited. MIT Sloan School of Management. Retrieved December 8, 2011 from www.mit.edu/~jjdoyle/doyle_mw_oct06.pdf
EconPort. (2006). Factors affecting supply. EcoPort. Retrieved December 8, 2011 from http://www.econport.org/content/handbook/supply/changeSupply.html
Investopedia. (2011). Economics basics: Demand and supply. Investopedia. Retrieved December 8, 2011 from http://www.investopedia.com/university/economics/economics3.asp#axzz1fzq8ullj
QuickMBA. (2010). Price elasticity of demand. QuickMBA. Retrieved December 8, 2011 from http://www.quickmba.com/econ/micro/elas/ped.shtml
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