The market price of pizza in College Town decreased recently. Some students in an economics class suggest that the price fell because several new pizza parlors opened for business in the area?

Answer 1

== == * When there is only one store of any sort in an area they are going to make fairly good money such as the Pizza Parlor, but when new stores come into the picture then yes, business will fall dramatically for the "mom and pop" small business. This means all Pizza Parlors have to compete price-wise and come up with gimmicks to hold onto business and usually the small "mom and pop" Pizza Parlors fade away. I like to back the little guy. In the case of the first Pizza Parlor (if quaint and a lot of fun) I prefer to stick with the smaller business' not only because of the good old fashion charisma, but also more pride in the product they put out. The service may be quicker in the Pizza franchise, but that charisma is always lacking and their product ends up going up a little at a time anyway. It's up to the students in this case to decide which Pizza Parlor they prefer to go too. Obviously the one with the lowest price, but once they are in and you're a customer you're stuck with the prices they dictate. A good case for Economics is the Walmart franchise. It's interesting and mind-boggling. You'll see how "big business" works and once they get into the fold although there is some good to what they do there is more down-sides to it as well (such as employees not getting paid enough and unions not allowed in, not to mention turn-overs of employees.) In the case of Walmart vs a small town back east (small French town) the Union Reps came in and of course the employees wanted fair pay. As soon as the word "Union" came into play, Walmart played tough and sent a message world-wide that if you bring in unions we'll just close our store and that they did in this case. Their store gives employment to a lot of people and also brings interested consumers in from other towns. Is it right what Walmart is doing? It's what they call "good business" but, no, it's not right.

== == * Certainly if new pizza parlors come in and hold special sales (buy a pizza for $5 when it's normally $10, perhaps), all the competition is going to at least try to match the prices. If this lasts longer than a couple of weeks, something else is happening...because no one goes into business to make no money, and there's a break-even price on anything. Bread, milk, diesel, pizza, it's all got a price you HAVE to stay above if you want to stay on the good side of your creditors. Some of the things that could cause the price of pizza to decrease: 1. Lower ingredient prices. One quick way to lower ingredient prices is to combine orders. The dairy might offer to sell John's Pizza a ton of shredded mozzarella in five-pound bags at a 15 percent discount. A ton of mozzarella is an unbelievably huge amount for one pizza parlor, but five pizza parlors could handle it. Four phone calls--they might be in competition, but a 15-percent price reduction would be worth pooling their resources--and these guys have enough mozzarella to carry them through for a while. The same deal works with just about anything a pizza joint might use. 2. Lower overhead. Who makes pizza ovens? I don't know either but if the pizza oven salesman is in town selling new Super Efficiency ovens to four restaurants, he is going to knock on the door of the existing restaurant and try to sell one to him too. It cooks faster and uses less energy--what's not to love? Especially since the trade-in value of the old oven means he only pays $10,000 for the new one. 3. Lower personnel costs. Paying two cooks and three drivers is less expensive than paying ten cooks and fifteen drivers--and if they're wasting fewer ingredients and getting fewer tickets, that's even better.