Posts Tagged ‘decrease in income’
Free coffees in McDonalds!
Posted on: November 10, 2009
As people’s income decreases because of the economic recession, the demand for McDonalds decreases as well. To bring demand back up again, McDonalds used advertisement. It now offers free coffees to consumers. This shifted demand to the right; more people are willing to eat McDonalds food to have a free cafe latte cup.
Demand decreased because of the recession, but went back up in order for McDonalds to increase its revenue.
Bread war: the lost of Hovis
Posted on: November 9, 2009
The increase in price of wheat and raw materials forced bread companies to increase the price of bread. However, out of the three comanies competing, Hovis, Warbutons and Kingsmill, only Hovis increased their prices in September. The other two companies waited till December to do so. Nervertheless, the demand for Hovis bread was too elastic, and as the price increased the quantity demanded drastically decreased.
The other two companies waited till December to increase their price of bread. Since the demand for Hovis bread decreased demand for Warbutons and Kingsmill bread increased (they are subsitute goods) as shown on the diagram below.
Then, in December, as the price of wheat still increased, Warbutons and Kingsmill decreased their supply, but the change is demand was not as drastic as Hovis since it increased back in September (as shown on the diagram below).
The dashed lines are a reminder of the increase in demand. As we can see on the diagram above, price increased but the quantity demanded did not decrease compared to the original position.
Because of the economic recession in the world since a couple of years, people’s income have decreased. For the Hovis bread, as income decreases, the demand decreases too; therefore Hovis bread is a normal good, since if we apply the formula for Income Elasticity of Demand (YED= (% change in demand) / (% change in income) ), the result will be positive.
There is an economic recession in the world today. People’s income decreased, and so did demand, as shown on the diagram below.
People are more willing to travel with low-cost companies because it takes a small proportion of their income. If we assume that revenue increases as demand is inelastic, then that is what JAL should aim for.Reducing the cost will help to lower the price of the ticket, as shown on the diagram below (this will not bring the revenue back to its original position but it will be better).
One way of reducing it is to reduce the number of hostesses by plane. This will not only reduce the costs of wages but also food. Airplanes still need hostesses, but less would not make much of a difference for passengers. Another way is to have more seats by plane; the cost will be more spread among passengers, and therefore the ticket can be cheaper. Some planes fly without being full, cheap tickets should be affordable soon before the departure of the plane so that JAL could still make a profit out of these seats supposed to be empty. Flying half empty is a waste of money because there are still as many hostesses, and as much food, and air used, as if they were full. In general, waste should be avoided as much as possible. Each possibility to avoid waste should be taken in consideration.
These options will reduce the cost of the flight, and therefore the plane ticket. People, since they will be spending a smaller portion of their income, will fly more; and, as the quantity demanded increases, revenue will increase as well.
Manon's Econ Blog 