Lecture Notes: Market Dynamics and Interconnectedness

Introduction to Buffalo Wings Market

• Popularity Increase: Buffalo wings have shifted from a regional appetizer to a staple in national restaurant chains.
• Implications for Other Markets: The demand for buffalo wings affects broader markets, starting with chicken production.

Impact on Chicken Markets

• Chicken Wing Meat Demand:
  • The growing popularity of buffalo wings increases demand for chicken wing meat.
  • This demand shift raises both the equilibrium price and quantity.
• Chicken Thigh Market Dynamics:
  • Higher demand for wings leads to increased chicken production, which results in more chicken thighs being produced.
  • The surplus in chicken thighs leads to a decrease in their equilibrium price, despite increased quantity.
  • Example: Wing Stop temporarily became "Thigh Stop" due to these market dynamics.

Ripple Effect on Related Markets

• Sauce Markets: The increased consumption of wings may impact demand for buffalo and barbecue sauces.
• Meat Markets and Beyond:
  • Rising wing prices can affect pork and beef markets.
  • A chain reaction might occur affecting corn and water markets due to interconnectedness.

Government Subsidies and Market Impacts

• Milk Production Subsidies:
  • Government subsidies lower milk production costs, increasing supply and reducing price.
  • Consumers buy more milk at lower prices.
• Impact on Cereal Market:
  • Milk is a complement to cereal; thus, increased milk purchases increase demand for cereal.
  • This results in higher equilibrium prices and quantities for cereal.
  • Example: Kellogg’s benefits from milk subsidies due to increased cereal demand.

Future Market Expectations and Strategic Production

• Oil Market Predictions:
  • Expected decrease in demand for oil-made products due to the shift to electric cars or aversion to plastics.
  • Future Demand Impact: In five years, demand for oil will decrease, lowering prices and quantities.
• Current Market Reaction:
  • Anticipated future price decreases incentivize increased current oil production.
  • Producers prefer selling oil now while prices are high, affecting current supply and demand.
• Market Functionality Over Time:
  • Markets link products through time, guiding production decisions based on future needs.
  • Markets, without central planning, adjust to societal needs by influencing prices.