Group Assignment BUS1BUE: Demand and Supply Factors Affecting KFC

This report examines the demand and supply factors influencing KFC's market dynamics, focusing on consumer tastes, the presence of substitute goods, and buyer income as key demand determinants. It also addresses the impact of chicken shortages on KFC's supply and pricing strategies, using market diagrams to illustrate shifts in equilibrium due to supply constraints. The analysis further explores the price elasticity of demand for KFC products and its implications for revenue. The report concludes by referencing academic sources to support its findings, providing a comprehensive overview of the economic forces shaping KFC's operations. Desklib provides access to similar solved assignments and past papers for students.

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Introduction
KFC is one of the most famous restaurants worldwide because there is a high demand for
their products. Demand refers to the need for certain commodities that the prospective consumers
are willing and able to purchase at a given rate. KFC is described as a desire but not a need since
customers can live without consuming KFC. However, there are several factors that lead to the
demand for KFC products.

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Consumer Tastes and Preferences
Consumers are classified into various categories following their different tastes and
preferences. Some consumers are vegetarians while others are meat eaters. Preferences are
mostly influenced by different cultures (Richards & Padilla, 2015, p. 134). The consumers with
increased preference for fried meat will increase their demand for KFC products while the
vegetarians will have a low demand for KFC products.
Presence of Substitute Goods
Burgers made by McDonald's are relatively cheaper than the ones made by KFC. This
makes the demand for KFC burger less and high demand for McDonald’s burger. This means
that presence of a substitute good will easily affect the demand for KFC products (Richards &
Padilla, 2015, p. 135).
The Income of the Buyers
Consumer’s income has a great influence on the products that they purchase. If people
have an average income, they purchase normal goods but if they have high levels of income, they
have a high demand for a good and if they have low income, they will purchase inferior goods.
KFC products are normal goods (Richards & Padilla, 2015, p. 136). This increases the demand
for the KFC products since the products are affordable on a monthly basis.
KFC products are elastic in their prices. This is because a small increase in price leads to
a massive change in the products that they sell due to the availability of the products (Richards &
Padilla, 2015, p. 138). A decrease in price will increase the demand for the products and hence
increase purchases and finally revenue increases.

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Question 4
There has been a shortage of chicken in the KFC firm. The shortage of Hens leads to a
shortage in the supply of food products from the firm. The initial demand at equilibrium equates
the market demand to supply (Richards & Padilla, 2015, p. 143). A shortage in the supply of
hens leads to an increased demand for food products. Due to the increased demand, the firm,
therefore, has to increase the prices to take advantage of the demand. Shortage of supply as
shown in the diagram below is shown by the shift of supply curve from S to S’. This shift causes
the prices to increase from Pe to P*. The reduction in supply is shown by the increase in the
quantity supplied from Qe to Q* (Richards & Padilla, 2015, p. 145). The decrease in the supply
of chicken will finally lead to low income for the firm in the long run. The graph below shows
the effect of a decrease in the supply of hens in KFC.

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References
Richards, T. J., & Padilla, L. (2015). Promotion and fast food demand. Journal of Agricultural Economics,
34(5), 132-145.