Supply and demand analysis of McDonald's services

Supply and Demand Analysis of McDonald's

In this text, I examine the demand as well as supply of one of McDonald's products. Most particularly, I describe the various things that would lead to a change in the demand as well as supply of the product produced in this case. Further, in addition to highlighting the effects of minimum wages on McDonald's, I also outline some pros and cons of price controls.

For ease of analysis, I concern myself with only one of the products offered for sale by McDonald's i.e. A chicken sandwich. Several things would change the demand for chicken sandwich offered for sale by McDonald's. To begin with, the demand for chicken sandwich could be determined by buyer numbers. As Tucker (2010) points out, population growth can bring about an increase in buyer numbers. For instance, if a certain city experiences a sudden growth in population, the various McDonald's restaurants located within that city would experience an increase in the demand for chicken sandwiches. Next, increasing income levels are likely to result in an increase in the quantity of chicken sandwiches demanded. The reverse is true. With an increase in income levels comes an increase in the amount of disposable income. In this case, individuals would use their newly acquired purchasing power to demand more chicken sandwiches. Decreasing income levels erode the purchasing power of people hence leading to a decrease in the amount of chicken sandwiches demanded. Changes in tastes and preferences could also affect the quantity of chicken sandwiches demanded. According to Tucker (2010), consumer preferences can be influenced by advertising. Should McDonald's embark on an aggressive marketing campaign for its chicken sandwiches, this would have the effect of increasing the demand for the same.

On the other hand, the supply of chicken sandwiches could be influenced by the number of sellers. When there are many sellers of chicken sandwiches in the market apart from McDonald's, it is likely that the quantity of chicken sandwiches supplied would increase. Next, according to Tucker (2010), "businesses are always considering shifting resources from producing one good to producing another good." With that in mind, should McDonald's realize that there is more profit to be made in the production of cheeseburgers as opposed to chicken sandwiches, it could shift its production resources towards the production of cheeseburgers. This would decrease the supply of chicken sandwiches while increasing the supply of cheeseburgers. Lastly, increasing production costs of producing a unit of chicken sandwich relative to the other products that McDonald's produces would make the company decrease the production of chicken sandwiches given that the higher production costs in this case are most likely to result in lower profits. Such a move by the company will result in a decrease in the supply of chicken sandwiches.

Were the government to raise minimum wages, this would lead to an increase in the demand for goods offered for sale by the firm. Hence in this case, McDonald's sales would increase leading to an increase in the level of profitability. The reasoning here is that increased minimum wages would enhance the purchasing power of individuals. With that, they will demand more of McDonald's products.

Although price controls have some distinct advantages, they also have a number of disadvantages. For instance, price controls could have the effect of bringing down the prices of essential goods like bread. This can help protect consumers from exploitation. Indeed, according to Carbaugh (2010), housing is made more affordable through the implementation of rent controls. It can also be noted that the government can use price controls to stimulate the production of a certain good considered essential. Carbaugh (2010) notes that during the Great Depression, the government sought to sustain both prices as well as farmers' incomes through the imposition of price floors. Thus price controls can be used to protect certain sectors.