Demand and Supply of SUBWAY

Fred DeLuca was establishment the submarine sandwich shop (SUBWAY) at year 1965, in August. Bridgeport was the first store. Then, Dr. Peter Buck offered to become partner of Fred Deluca as he loaned 1000 dollar to Fred Deluca. They decided to open 32 stores within 10 years because SUBWAY had provided a high quality food, good customer service, found out a good location and operated low cost. Therefore, SUBWAY had successful to open 16 submarine sandwich shops at year 1974. Besides, they were started to do the franchising as they have not achieve their target. They were expanded SUBWAY brand to the whole world. Today, they have at least 40,000 restaurants in 103 countries. SUBWAY also became the largest submarine sandwich chain in the world. It is also become the choice for whole family can enjoy the foods together. Fred provides a very clear vision when he runs the SUNWAY® brand. This brand has produces a fresh, delicious and made-to-order sandwiches to the consumers (www.subway.com). The competitors for SUBWAY is McDonald, Burger King and so on. Although like this, SUBWAY also can opening the restaurants from Argentina to Zambia because the quantity demanded of SUBWAY is higher (world.subway.com ).

 

 

 

Law of demand is the higher the price of a good, the lower the quantity demanded where other things is being equal (Parkin, 2010). This is the relationship between the price SUBWAY goods and the quantity demanded. For example, if the price of SUBWAY is high, people will decided to reduce for buying the goods, so the quantity demanded will be fall. By the other side, drop the prices of SUBWAY will be increases the quantity demanded of SUBWAY because the quantity demanded increases as the prices fall. This can cause a high demand for SUBWAY and make the demand curve shift to the right.

 

Figure 1.1 shows there is a change in demand when any issues that will be influence the plan of consumer to purchase SUBWAY. If the demand for SUBWAY is increases, then the demand curve will shift to the right which is from D0 to D1, if the demand curve shift to the left from D0 to D2 then a decrease of demand will cause. But, change in quantity demanded is only change the prices while other factors remaining the same, this will cause a movement along the demand curve at the blue line. If there is an upward movement, then it is decrease in quantity demanded and a downward movement is an increases of quantity demanded for SUBWAY.

 

The law of supply stated that other things being same, producers are willing to sell a greater quantity of SUBWAY goods at a high price than at a low price (Parkin, 2010). There is a direct relationship between the price of SUBWAY and the quantity supplied. For example, earn profits of sell the goods is most of the suppliers hope to, not excluding for SUBWAY too (curriculumlink.org). As we know, the supply increases as the prices rises and decreases as the prices fall. Below is the graph about the change in supply and change in quantity supplied.

                                                        Figure 1.2

 

Elasticity is using the prices change to know the sensitivity of demand for goods or services. It is also called responsiveness (thefreedictionary.com). There are three type of elasticity of demand, such as price elasticity of demand, Income elasticity of demand and cross price elasticity of demand.

The price elasticity of demand is a sensitive of the goods of quantity demanded that change in price when other influences on buying plans remain the same.   The formula for the price elasticity of demand (PEoD) is PEoD equal to % Change in Quantity Demanded divided by % Change in Price (Lecture note). The price elasticity of demand is used to see the responsiveness of quantity demanded when the prices have change. If the price elasticity is high, the change of prices has a high sensitive toward to consumers. For examples, assume the SUBWAY goods increase the price from 16.90 dollar to 17.90 dollar, although the prices is just increases 1 dollar but the quantity demanded will be drop. This is because the price elasticity is high. Consumers are only buy the SUBWAY foods more when the prices is decreases and only buy a little SUBWAY goods when the prices is rises. By the other side, the low price elasticity is just has a little bit influence on demand when the prices change.

After that, the income elasticity is a respond of quantity demanded of goods base on the change of income when other things still remain the same. SUBWAY is a normal good because the income elasticity of demand is not less than zero. The normal good is the demand increases when the income increases and demand decreases when the prices of goods increases. (Lecture note) For example, if the income of consumers is not change and the price increases, they would not buy the normal goods often and most of them will change to a inferior goods as they can more affordable the prices. Therefore, if the prices of SUBWAY goods rises but the income of consumer still remain the same, the quantity demand curve shift to the left will be occur.

Lastly, cross elasticity of demand is a substitute or a complement change in prices to measure the responsiveness of demand for goods and other things still remain the same. The formula of cross elasticity is percentage change in quantity demanded divide by percentage change in price of substitute or complement. A substitute is according to positive side and complement is according to negative side. (Lecture note) For example, if consumer compare the promotion prices of McDonald and SUBWAY foods, it is too obvious for consumer to make a consumption choice as SUBWAY as the first choice than McDonald. This is because the price of SUBWAY foods is cheaper than McDonald. On the contrary, if the consumers just only compare the original price, this two maybe will have a same quantity of consumers as they can have a lot of choice for choosing in McDonald rather than SUBWAY as the prices almost the same. The consumer will be substitute McDonald to foods if the price of SUBWAY foods is fall.

The budget line is when the prices goes up, the consumers can affordable the budget all the point or below the budget line. When the prices rises it will influences of the quantity demand of SUBWAY foods decreases and the slope of the budget line will be increases. For example, SUBWAY has to do the promotion like "buy one get another one for free", breakfast sandwiches deal, "Sub of the day" and so on. Those examples price are under 7.50 dollar which is half and above cheaper than original sandwiches prices. Assume most of the consumers set 7.50 dollar as their budget then they still can afford the promotion prices. On the contrary, if the consumers need to use original prices buy the SUBWAY most of them could not afford the prices because it is over budget.

            Next, those quantity demanded also can influence by income effect. For example, when the income increase then the consumers feel they are rich and willing to buy more, although the prices of SUBWAY increases. By the other hand, if the price of SUBWAY is only increase 1 dollar, but the quantity demanded will be drop because the income is remains the same. Another way is the income remains the same but the prices of SUBWAY goods drop then the quantity demanded also will increases as the consumers have extra money willing to pay the prices which is under budget line. The last ways is the quantity demanded will fall when the income of consumers decrease and the prices of SUBWAY foods increase. Therefore, the demand and quantity demanded of SUBWAY foods can be influences by the incomes of consumers.

            Lastly, substitution effect is a person willing to give up brand A to get more of brand B. For example, the prices of McDonald drop, most consumers are willing to buy McDonald more than SUBWAY foods and the demand of SUBWAY will drop too. This is because most of the consumers will using the substitution methods to purchases some things they can afford or under their budgets.

 

          SUBWAY brand is a long- run and it is a perfect competition. According to the SUBWAY history and the total franchising shop, I believe that SUNWAY brand have a perfect competition in long run because Fred is using a low cost to operate his store and earn profit for every year ( subway.com). Refer to the figure 1.3, we can see the marginal costs(MC) is higher than average costs(AC), therefore it is make a profit at the yellow colour part. If the MC is lower than AC mean that it is a loss profit. If the point of MC and point of AC is meet together on the demand line mean that it is not profit or loss on the firm.

·         Please entre this website to see the news of SUBWAY brand in Malaysia : http://www.btimes.com.my/Current_News/BTIMES/articles/subb/Article/

 

 

                                                   Figure 1.3

 

REFERENCE LISTS

Subway Malaysia targets 27 more outlets 2013 http://www.btimes.com.my/Current_News/BTIMES/articles/subb/Article/#

subway.com (n.d.) The History Of Subway. Available at : http://www.subway.com/subwayroot/about_us/history.aspx [Accessed 22 October 2013]

subway.com (n.d.) Subway Home Page- Welcome To The SUBWAY® BrandIn Malaysia. Available at :  http://world.subway.com/Countries/frmMainPage.aspx?CC=MAL [Accessed 22 October 2013]

thefreedictionary.com (n.d) Elasticity. Available at :  http://www.thefreedictionary.com/elasticity [Accessed 24 October 2013]

Moffatt, M. (n.d.) Price Elasticity of Demand : A Primer on the Price Elasticity of Demand. Available at : http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm [Accessed 24 October 2013]

curriculumlink.org (n.d.) Review of the Laws of Supply and Demand. Available at :   http://www.curriculumlink.org/econ/materials/sdlaws.html [Accessed 22 October 2013]

Parkin, M. (2010)Economics. 9th ed. United States: Pearson Education.

 

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