Analyze the demand function for a dinner at FancyFoods, a restaurant, given the four changes listed below:(a) The restaurant down the street, Gourmet Meals, features a two-for-one meal special.(b) The opera provides a coupon offering a 15 percent discount at FancyFoods with each ticket for the 6:00 p.m.show.(c) Always Round Tire runs a special on tires; a 30 percent reduction in price if you buy four tires.(d) The main employer in town provides a large increase in salaries for white-collar workers.
What will be an ideal response?
(a) A reduction in prices for substitute products will decrease the demand for FancyFoods. This will reduce the quantity of food demanded and the price of food at FancyFoods.
(b) The coupon represents a lower price of food at this restaurant and not a shift in the demand curve for FancyFoods. The demand function is unchanged. In response to a lower price of food, consumers will increase the quantity of food they demand from FancyFoods.
(c) Tires are neither complements nor substitutes for restaurant meals. A change in the price of tires will have no effect on the demand function for dinner at FancyFoods.
(d) This increase in income will shift the demand for dinners at FancyFoods to the right. This increase in demand will increase the volume of meals sold and the price of meals.
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