Factors Influencing Demand and Market Equilibrium of McDonald's Burger

Management Economics

Table of Contents
INTRODUCTION..........................................................................................................................3
MAIN BODY .................................................................................................................................3
1.The business and its main products.........................................................................................3
2. Factors influencing demand and Market equilibrium of McDonald's (in case of burger)......4
3.Substitute effect and income effect..........................................................................................9
CONCLUSION.............................................................................................................................12
REFERENCES.............................................................................................................................13
Books and journals....................................................................................................................13

INTRODUCTION
Management economics refers to the application of principles and theory of economics
in the normal course of business. The businesses and its management is always worried about
the effect of factors that determines the demand of its products and services. This matter can
easily be forecasted by the management through the application of economic principles and
theory. The present report is prepared by choosing McDonald's as a firm and Burger as its
product for presenting the impact on its demand due to changes in factors determining the same.
The various concepts associated with demand and market equilibrium along with the factors
affecting the same are taken into consideration in this report.
MAIN BODY
1.The business and its main products
An American fast food company known as McDonald's based in California, United
States was founded in 1940 by Richard and Maurice. The full name of McDonald's is
McDonald's Corporation is the biggest fast food chain in the world with more than 37,000
locations in more than 115 countries. The organization employs more than 200,000 workers
worldwide and has a market cap of more than $150 billion (Howse, 2018).
The establishment offers wide variety of products to its consumers but it is well-known
for its famous product “Burger”. The company offers different variety of burgers to various
consumers to fulfil the needs and wants of the clientele according to their tastes and preferences.
As in today's environment peoples are more conscious about their health and eating habits, the
McDonald's offers fresh and healthy burgers to the consumers, or we can say that the restaurant
offers meals which are approved by diet-experts. The establishment continuously trying to
innovate burgers to keep in mind the health consciousness amongst consumers. To add cherry on
the top. McDonald's also offers organic burger to customers in which except toppings the burger
buns are organic as well as its patty sourced entirely from organic beef. The food chain is also
famous for its speed of serving the customers as they serve 75 burgers per second to their
consumers which is also one of the major element for customers satisfaction. The KFC, Pizza
hut and Burger King are major competitors of McDonald's.

2. Factors influencing demand and Market equilibrium of McDonald's (in case of burger)
a. Price of substitutes: Substitutes of the products refers to the alternative options or
products that the consumer can buy in place of the actual product. These products are use in
place of each others. Such condition arises due to changes in price and supply of the original
product. If the price of one product falls then there would be decrease in demand of substitutes
(Howse, and et.al., 2018). There is direct relationship between the price of one good and the
demand for its substitutes. In case of McDonald's its substitute is Burger king where both of
them offers burger as their key offering in the market and are considered to be the competitors
of each other. When there is a slight change in the prices of burgers by Burger King it can easily
be indicated through the demand curve of McDonald's. In the current scenario McDonald's
burger are cheaper as compared to that of Burger King. This will cause a higher demand for
McDonald's burger over Burger King. The following graph shows demand and equilibrium
position of McDonald's.
Illustration 1: substitution effect
In the above figure it can be easily be seen that with the increase in prices of Burger King
Burger who is a close substitute of McDonald's burger, there is an increase in demand for
McDonald's burger. The market equilibrium will take place at the price and quantity intersects
each other.
b. Price of complements: Complement products refers to the pair of two products that
are used consumed simultaneously. They are also known as pair goods where the both the
products in the pair are used together and in the absence of one the other has no value (Wang