Demand and Elasticity of Demand in the Market for Burger King

This report analyses the demand and the elasticity of demand in the market for Burger King and the effects of certain factors on them. It describes the business, identifies the demand and market equilibrium, and determines the elasticity of demand in the market for the given factors. It also suggests adopting the pricing policy by the company. The subject is Management Economics 1.

MANAGEMENT
ECONOMICS-1

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Describe the business..................................................................................................................3
Identify the demand and market equilibrium..............................................................................4
Determine the elasticity of demand in the market for the given factors.....................................6
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
Economy is the system spread over a specific area that revels the nature and the level of
economic activities in that area. It is the wider concept used in economics which includes the
production, consumption, investment and the exchange of goods and services (Burke and
Abayasekara, 2018). Owning to the facts that resources are limited and every organisation is
giving their best in meeting the needs and desired of the individual. Demand and supply are the
two significant components of the market which ensure the existence of the firm in the market.
Burger King is an American chain of hamburger fast food restaurants and their headquarter is in
Miami-Dade country, Florida and the company is founded in 1953. This aim of this report is to
analyse the demand and the elasticity of demand in the market and the effects of certain factors
on them. Moreover, It will analyse the substitution and income effects on the demand and lastly
suggestion will be given for the adopting the pricing policy by the company.
MAIN BODY
Describe the business
Burger king is the multinational fast-food chain which is operating their business across
the world. They are serving in 17,796 locations. They have expanded their menu from a basic
burgers, French fires, sodas and milkshakes to the large and diverse set of products. The
company is operating 40 subsidiaries across the world. They are having franchises in the
different countries but they have faced the huge impact due their one of the franchisers but now
it is becoming one of leading fast-food chain in the world.
Chosen product
The company is offering wide range of foot items such as hamburger, milkshakes, mini
parcels and many more. The chosen product for this report is Hamburger which is typically
considered as the sandwiches consist of one of more patties of ground meat, usually beef which
is sliced under the bread roll or bun. It can be grilled, pan fried, smoked or flame broiled.
Reason for choosing product:
Burger King is known for their best burgers in the world so It would be easy to
understand the market scenario of the company in he large market by understanding the demand
and elasticity of demand in the market. This also helps in identifying the modification or
emerging changes in the eating habits of the people.
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Identify the demand and market equilibrium
Demand is the desire of the individual for purchasing specific goods and services and
having willing to pay for the consumption of such commodity.
All the factors remain constant as there is inverse relationship between the demand and
the price of the product. In context to Burger King, They are offering fast foods and if the prices
of the burger tends to high then the demand for the Burger decreases and when the price of the
burger tends to decreases then the demand for the burger increases due to change in the factors
available n the existing market. Such factors are Change in substitute goods, change in
complementary goods, income of the consumer, taste and preferences and future expectations.
Change in these factors tends to change in the demand of the goods of services in the target
market.
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Equilibrium is the state in which the demand of the commodity is equal to the supply or
can say they are balancing each other. As there is no change in the piece of substitute, price of
complementary, income of the consumer, taste and p[references and the future expectations.
Basically, increases in prices due to low supply tends to affect the demand of the company as
consumer will be buy such goods which are not affordable for them(Huang and et. al., 2019)
(Ahmad and Zhang, 2020). On other hand, Decrease in the prices due to higher supply will also
effect the demand of the market. When there is imbalance between the demand and supply then
this is the state of market equilibrium. In relation to Burger King If they tends to have sufficient
supply of the food items then the demand of the market can be fulfilled and they can able to
maintain market equilibrium. There are various factors which is having great impact on the
demand of the commodity which are explained as follows:
 Price of substitutes- These are the products which can replace another product as those
goods are giving same level of satisfaction. For example, Chicken grilled sandwiches are
the best substitute for Hamburger. When the prices of hamburger increases then the
demand for chicken grilled sandwiches increase due to low prices. On other hand, If the
price of hamburger decreases then the demand chicken grilled sandwich also decrease as
people will prefer to have hamburger.
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 Price of complements- These are the goods which is being used as the conjecture to the
other product. For example, Burger bun is the complementary goods for Hamburger. If
the price of burger buns increases then the demand for the hamburger tends to decrease.
On other hand, When the price of burger buns decreases then the demand for hamburger
increases due to low prices(Feld, 2019). As individual tends to have increase or decrease
in the price of the burger buns which affects their demand in the large market and they
will buy less due to higher prices of the commodity.
 Consumer income- It is the compensation or the salary which is being earned by doing
some sort of job or owning their own business. For example, if the individual is have
sufficient purchasing power so thy will move to premium quality goods or if they are are
not have sufficient purchasing power then then will stick to inferior or normal goods. In
context to Burger King, when the income of the consumer increase then the demand for
the hamburger also increase. On other hand, when the income level of the individual
tends to fall then the demand for the hamburger also deceases.
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 Consumer taste and preference- These are the aspect which is related to the choices
and preferences of the consumer due to emerging change in the market. For example,
change in the eating habits of the individual affects the demand for the product. When
there is no such change in the choices and the taste of the individual so there is no impact
in the demand of the product. In context to Burger King, when the taste and preferences
are in favour of hamburger then the demand for the hamburger tends to increases. On
other hand, when the choices and the preferences are not in favour for the hamburger then
the demand for the hamburger tends to downfall due to changing habits of the people.
 Consumer expectations- These are the aspects which define expectations of the
consumer for a particular product as they are expecting some change in an product which
can leads to decrease the demand of the existing products (Aste, 2019). In context to
Burger King, when the people is not like the product or they are expecting any change in
the product then the demand for the burger king tends to decreases. On other hand, when
the people is liking the hamburger then the demand for the hamburger increases.
 Demographics- these are the number of population using the particular product or can
say loyal customer of the brand. Hamburger is the luxury product which is having is not
being used by the individual but there is large group people aged between 18-35 who is
liking the burger. This will leads to increase the demand for the hamburger. On other
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hand, Decrease in the number of consumer tends to fall down the demand for the
hamburger.
From the above discussion, It is clear that these are the factors which is having major
impact on the demand of the product and services due to change in the eating habits, consumer
can switch to other product. In context to Burger King, when all above discussed factors having
no change then the demand for the hamburger remains the same and company can generate
higher profits.
Determine the elasticity of demand in the market for the given factors.
Elasticity refereed to the change in the quantity demand in relation to the change in the
price of the products due to change in the other factor in the market. Formula for calculating
elasticity of demand is given below:
Price Elasticity of Demand= % change in Quantity demand / % change in price
It is the technique for evaluating the elasticity of demand by economist that how the
change in price effects the change in quantity demand of the commodity. There are some product
which belongs in inelastic in nature as there is no change in the demands of the product due to
change in the price of the commodity as other factors remain constant. On other hand, some
goods are elastic in nature as there in the major effect with the change in the price of the product
reflect their change in demand. When the demand of the product changes with respect to change
in their price is known as elastic. In context to Burger King, Elasticity of demand is high as
consumer can shift to other brand due to large number of buyer and seller by which consumer
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can move to other product according to their choices and income level. Various actors which is
having great impact in the demand for the product are explained as follows:
 Substitute Effects: These are the goods which can be replaced with the other product as
there are many options available in the market which is having great impact on the
profitably of the company. When the price of the product tends to increase then the
demand for the substitute goods increase as they are offering product at lower prices. On
other hand, when the price of the current product decreases then the demand for the
substitute goods tends to fall down as company is offering product at affordable prices. In
context to Burger King, when the price of the hamburger increases then the demand for
for the chicken sandwich increase. On other hand, when the prices of hamburger
decreases then the demand for chicken burger increases. He demand for the such goods is
elastic as there are many seller of such product which are existing in the market.
Hamburger is the luxury product in which there that is not needed fro the survival for the
individual as it belongs to the demand and wants of the individual for which they are having
sufficient purchasing power to buy the Hamburger. Burger King is the company which is dealing
in monopolistic market where there are many seller of large firm and if they increases the prices
there the demand for such goods tends be fall down. Hence, The demand for such goods is
elastic due to many seller in the market who is offering burger and other product which is giving
same level of satisfaction so consumer can switch to other brand depends on their choices and
income level or the effect of substitute goods.
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 Income effects: Income of the individual is defined as the basic salary or the
compensation that is earned by the individual by doing some sort of work or owning to a
business. Income effects explains the change in the price of the commodity impact the
change in the quantity demand of the market as it shows the real income of the consumer.
Income is the main source of the individual by which they can have the better life or
enhance their living standards(Gholz and Hughes, 2021). As increase in the income of the
consumer tends to increase the demand of the particular commodity. On other hand,
downfall in income of the consumer tends to fall the demand for the given commodity.
Change in income makes the change in quantity demand of Hamburger as increases in
income increases the demand for the hamburger and decrease in income reflect the
downfall in the income of the consumer. The demand for Hamburger is elastic as
consumer is having wide choices of burger and their substitute as change in the price of
Hamburger reflects the demand for the Hamburger.
Income percentage spent on the purchase of hamburger is slight high as there are many
competitors of Burger king in the market due to which individual have to pay more for buying
hamburger. These are the main consideration of the individual that how they are spending on the
particular commodity so that they can move according to their budget.
What is the pricing policy that business employs and why?
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Industries are operating their business on large segment and thus they do not stick to the
particular pricing policy. They understand the target market, geographical demand, requirements
of the specific market. There are different factors which helps the companies to chosen their
appropriate pricing policy which can leads to generate higher profits and revenue. Various types
of pricing polices are explained follows:
 Geographical pricing: It is the pricing policy which being fixed by the individual to the
customer at different market location. It can be charge on the basis of target location and
their customers s that they can minimise the transport cost and contribute in higher
profits. This helps the company to cover the market as per the spending power of the
consumer present in the market so that they can be the market leader.
 Price discount and allowance: It is the pricing policy which is being used by the
company and give as the reward for the bulk buying, early payments and off-season
buying. This also includes cash discount to be given at the time of paying bill on time by
which they ca generate higher profitability and attract the large group of customer.
In context to Burger King, they can use the price discount pricing policy so that they can
influence the customer to make more purchase on specific discount and offers.
CONCLUSION
It is concluded from the above report that demand and supply are the two wheels of the
economy which reflect the changing perception of the individual with the emerging changes in
the marketplace. There is major impact of substitute goods and complementary goods and
demand is elastic due to change in the income level and the substitute effect of the product.
Increasing pricing of the product tends to downfall the demand for the given product in the target
market. There are various pricing policy such as geographical pricing and price discount and
allowance which is being used by the companies so that they can have higher profitability and
revenue. Organisation is suggested to choose the price discount and allowance policy so that they
can attract the large group of potential customers.
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