Question

State whether each of the following events will result in a movement
along the demand curve for McDonald’s Big Mac hamburger or whether
it will cause the curve to shift. If the demand curve shifts indicate
whether it will shift to the right or to the left, and draw the graph to
illustrate the shift. Briefly explain your answers.

a. The price of Burger King’s Whopper hamburger declines.

b McDonald’s distributes coupons that offer a $3 discount on the
purchase of a Big Mac.

c Because of the shortage of potatoes, the price of French fries
increases.

Answer 1

We are operating in the market for McDonald’s Big Mac hamburger

a. The price of Burger King’s Whopper hamburger declines.

Big Mac hamburger and Whopper hamburger are substitutes of each other. When price of a product declines, the demand for its substitute decreases. In this case, when Whopper hamburger becomes cheaper, the demand for Big Mac hamburger will decrease. Since there is no change in the own price of Big Mac hamburger, there is no movement. And since there is a change in the price of a substitute, there is a shift. In this case there is a leftward shift.

b McDonald’s distributes coupons that offer a $3 discount on the purchase of a Big Mac.

Since coupon reduces the price of Big Mac hamburger, its quantity demanded rises. There is a decrease in its own price so there is a downward movement along the demand curve for Big Mac hamburger and not a shift since other factors are held constant.

c Because of the shortage of potatoes, the price of French fries increases.

For Big Mac hamburger, French fries are complements. Now French fries are expensive, they will be demanded less and so the demand for Big Mac hamburger will decrease. Since there is no change in the own price of Big Mac hamburger, there is no movement. And since there is a change in the price of a complement, there is a shift. In this case there is a leftward shift.