OPPapers.com

A Smaller Piece Of The Pie

Nadja Moore Econ 2106 Date Due: 25th February 2008 A Smaller Piece of the Pie This article, which was taken out of the Wall Street Journal website, explains the troubling times large pizza corporations such as Dominoes and Pizza Hut have had. Due to the recession and a change in consumer tastes ,they have seen a decline through 2008 up till present day. On the one hand, people have become more conscious of spending money so they opt for the cheap allure of the dollar menu from Mcdonald’sand other fast food restaurants of the sort. On the other side of the spectrum, people are in search for increasingly health conscious food. Either way, these two changes in consumer tastes have led to a decline in sales. These changes in consumer tastes lead to a leftward shift in the demand curve meaning that demand has decreased. Pizza can be considered a normal good, meaning that if income increases, the demand for the product increases and vice versa. During these rough economic times, income has certainly gone down and many people have been laid off so the demand for pizza has certainly decreased. Usually when demand for a product decreases, in order for the company to soften the blow, it could lower its prices, making it affordable to more people. However, because the recession has hit many businesses, many of which have been affected drastically, this proves quite impossible for these pizza companies. The price of cheese “which represents about 40% of pizza pie cost”(Gibson) has risen significantly. According to the law of demand, if the price of a compliment ( in this case, cheese), the demand decreases. The demand decreases because the price of the finished good is raised due to an increased cost in production, again shifting the demand curve leftward. In an attempt to recuperate from the devastating blow in sales, pizza hut and dominoes are in te process of adapting to consumer tastes. Pizza Hut plans to do this by promising to make all of their pizzas from only...