South-Western EconNews: Foreign Luxury Cars Perform Better

Dog Treat Company Unleashed

Subject

Comparative statics

Topic

Supply and Demand
Equilibrium

Key Words

Supply, demand, economy, product, diversify, export business, costs, sales, go public, economic growth.

News Story

Three Dog Bakery is a company that sells gourmet treats for dogs. It started business ten years ago. The owners' dog, Gracie, was a fussy eater and wanted food with natural ingredients, so they started making homemade dog food. Then they found themselves supplying a dozen 1-pound dog biscuits to the local vet's office. After two years, demand was outstripping supply, fueled by the strong economy and owners' attachments to their dogs, so they rented a cheap storefront, bought an inexpensive industrial mixer, and diversified their products.

By the end of 2000, they will have 40 stores in the U.S. and Canada. They also ship overseas. Critical to their export business has been their Internet site which has allowed them to keep costs low. Also, sales on the Internet average $40 compared to $15 in stores.

The $10 million company is looking to go public now. The continuing economic growth shows no sign of waning, and dog owners continue to indulge their pets.

(Updated April 1, 2000)

Questions

1.	Draw a supply and demand diagram of the market for gourmet dog treats. Mark the initial equilibrium price and quantity.
	a) Show the effect of increasingly fussy dogs and loving owners on the equilibrium price and quantity.
	b) Which determinant of demand or supply has been changing?
	c) Has there been an increase in demand or supply or an increase in quantity demanded or supplied? Explain your answer.
2.	Draw a second diagram of the initial equilibrium in the market for gourmet dog treats.
	a) Illustrate the effect of the persistently strong economy on the equilibrium price and quantity.
	b) Which determinant of demand or supply has been changing?
	c) Has there been an increase in demand or supply or an increase in quantity demanded or supplied? Explain your response.
3.	Draw a third diagram of the initial equilibrium in the market for gourmet dog treats.
	a) Draw the effects on the equilibrium of buying relatively inexpensive machines and using the internet to sell overseas.
	b) Which determinant of demand or supply has been changing?
	c) Has there been an increase in demand or supply, or in the quantity demanded or supplied? Explain your answer.

Source

Dina Temple-Raston, " Canine cuisine fetches success," USA Today, February 17, 2000.