Friday, February 15, 2008
Simple Supply and Demand
Every so often one of my kids will ask me why something costs what it does. I give the usual reasons - the cost of materials, availability of materials, costs of production, plus demand. The best example I've come up with for simple supply and demand dynamics is chicken wings.
Until recently, chicken wings were the cheapest piece of chicken you could buy. Grocers practically had to give them away or package them with whole cut up chickens to get rid of them. When we bought buckets of fried chicken at KFC, the unwanted wings usually ended up in the garbage. Then an enterprising person in Buffalo, New York, came up with the idea for buffalo wings.
Slowly, the taste for buffalo wings spread across the country. Now there are restaurants that specialize in buffalo wings with several variants. You can buy pre-seasoned wings at the grocery or make your own with some hot sauce, butter and a fryer. The price of wings has skyrocketed.
Each chicken has an equal number of wings, legs and breasts. Breasts used to be the prime piece of the chicken. Boneless, skinless breast ranks tops. The supply of each of the pieces is equal. But the demand has changed tremendously.
During Super Bowl weekend, the price of chicken wings in whatever form I could find in the grocery was higher than chicken breast fillets. With numerous restaurants serving wings plus all the Super Bowl parties that would serve wings, the demand was very high. Thus high prices for chicken wings in any form.
My son loves hot wings and asked me why the price for wings kept going up. When I gave him this explanation, he seemed to understand fully. And, for once, I did too.
Until recently, chicken wings were the cheapest piece of chicken you could buy. Grocers practically had to give them away or package them with whole cut up chickens to get rid of them. When we bought buckets of fried chicken at KFC, the unwanted wings usually ended up in the garbage. Then an enterprising person in Buffalo, New York, came up with the idea for buffalo wings.
Slowly, the taste for buffalo wings spread across the country. Now there are restaurants that specialize in buffalo wings with several variants. You can buy pre-seasoned wings at the grocery or make your own with some hot sauce, butter and a fryer. The price of wings has skyrocketed.
Each chicken has an equal number of wings, legs and breasts. Breasts used to be the prime piece of the chicken. Boneless, skinless breast ranks tops. The supply of each of the pieces is equal. But the demand has changed tremendously.
During Super Bowl weekend, the price of chicken wings in whatever form I could find in the grocery was higher than chicken breast fillets. With numerous restaurants serving wings plus all the Super Bowl parties that would serve wings, the demand was very high. Thus high prices for chicken wings in any form.
My son loves hot wings and asked me why the price for wings kept going up. When I gave him this explanation, he seemed to understand fully. And, for once, I did too.
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