Answer to Question #190405 in Microeconomics for Arwah Bashir

Question

with the help of graphs , show how these following changes are going to affect the market equilibrium . considering the shifting factors of KFC food chain supply (a) there are now better food ordering apps, with 50% less than before delivery charges. (b) news channel announces bird flu cases all over the country (c) government drives up the minimum wage scale workers employed in international food chain in country , as per new policy.

Answer 1

(a)

Better food ordering apps, with 50% less than before delivery charges will lead to increased demand and supply of KFC food as their prices fall.

In this, the original condition is when D and S are meeting in equilibrium, and Q, at price P. But with a rise in demand, the D will shift to D₁, and prices to P₁, and quantity to Q₁. This is where some shortage will be there. 

But then the supply will also rise to S₁, and the new equilibrium will have quantity at Q₂, and the price will be back to P. 

All this will be the result of a better functioning supply with the delivery apps that are being highly used. 

 

(b)

If there is an announcement of bird flu all over the country then a fast food manufacturing chain that mainly supplies chicken products will suffer a demand and supply shock at the same time. This will happen due to a fall in the supply due to the flu that will kill chickens and due to the news of bird flu their consumers will try to avoid chicken products and the demand will also fall. This can be seen in the graph below:

The equilibrium quantity will certainly decrease from Q to Q₁ as shown in the graph. But the effect on equilibrium price will depend on the magnitude of change in demand and supply. If supply decreases by more than the decrease in demand then the equilibrium prices will increase and if the demand decreases by more than the decrease in supply then the equilibrium prices will reduce.

(c)

When government drives up the minimum wage scale workers employed in the international food chain in-country that means it increases the wage rate in the economy.

The initial equilibrium is at e₁ where the Wage rate is $W and the quantity is Q₁. If the government sets the minimum wage at W₁, there is an upward movement of the supply curve of labor as the wages have increased which will increase the production cost of the good.

The supply of KFC will shift upwards to S₁ and the new price will be P₁ and due to an increase in price, demand curve moves upwards at A. So, due to the minimum wage set by the government, there is an excess supply (B-A). New price $P₁ and new quantity is Q₂.