MBA 132: MANAGERIAL ECONOMICS

CIA – 1 ASSIGNMENT
REPORT ON ELASTICITY OF DEMAND

A Report submitted in partial fulfillment of the requirements for the degree of

Master of Business Administration

Submitted
By
Kiran Karthick P
2027430

Submitted to
DR. SANGEETHA

MBA PROGRAMME
SCHOOL OF BUSINESS AND MANAGEMENT
CHRIST (DEEMED TO BE UNIVERSITY), BANGALORE
JULY 2020
INTRODUCTION:
The purpose of this assignment is to analyze the income and price elasticity based on the price
change for each products. In this study I have chosen five various products sold in the market. This
also includes cross elasticity analysis for a product comparing it with the substitute product and
how the change in price of the first product influences the sales of the substitute product.

PRICE ELASTICITY:

Price elasticity is the measure of how the change in price or supply to the demand affects the
product or a service

INCOME ELASTICITY:

Income elasticity is the measure of how the customers buying behavior and the quantity demanded
changes with the change in income of the customer.

CROSS ELASTICITY:

Cross elasticity measure the change in demand of a product with respect to the change in price of
the substitute product.

SUBSTITUTE PRODUCT:

Substitute product is the good that can be used in the place of another good. For example Coke in
the place of Pepsi.
PRODUCT DESCRIPTION

*TETLEY TEA

Tetley is a tea manufacturing company founded in Yorkshire, England. Tetley is the largest tea
manufacturing company in Canada and United Kingdom and second largest in United States based
on consumption. Since 2000 Tetley has become a subsidiary product of TATA and the
headquarters is based in Kolkata.

*AAVIN MILK

Aavin milk is a trademark and famous milk company in Tamilnadu. Aavin milk is one of the most
consumed milk in Tamilnadu which is of good quality. It also sells various milk products in and
around Tamilnadu.

*MILKY MIST PANEER

Milky mist, is a company known for its milk products and especially for their Paneer. The Paneer
produced by milk mist has low fat and is of good quality and is preferred my many customer who
finds it to be healthy.

*AASHIRVAAD ATTA

Aashirvaad. Is one of the prominent sellers of wheat in India. From whole wheat, multigrain to sugar
release control, Aashirvaad lets you choose the kind of atta you need to serve your family with the softest
rotis and parathas.
ANALYSIS.

1. TETLEY TEA.

SURVEY

A total of 5 customers who use Tetley tea were surveyed.

 A 40 year old business man

 Father
 A friend
 My neighbor
 Brother

DEMAND

As Tetley is a daily product the demand of the product doesn’t change drastically. When the price
is low the demand of the product increases but the revenue doesn’t change more.

ANALYSIS

For the Tetley tea, the price change has a drastic effect in demand but the total revenue does not
increase. When the price of the product is 115 the market demand is 119 and the price elasticity
was 0.79% and is inelastic. When the price of the product is 125 the income elasticity is 0.94 and
yields the maximum profits.

PRICE SUGGESTIONs
From the data we can clearly see that the total revenue of the product increases with the increase
in the price. The product yield maximum revenue when it costs 125 and minimum when the price
is 105. Hence it is okay to increase the price up to certain 9% or certain limit.

2. AAVIN MILK

SURVEY

A total of 5 people who use Aavin milk were surveyed.

 My family
 Cousin
 Neighbor
 Grandparents
 A friend.

DEMAND

Milk is a daily product which is used almost in all the households of India. The demand for milk
is always there. When the price decreases the demand increases up to a certain limit but with the
increase in price revenue increases.

ANALYSIS

For Aavin milk the demand is very high when the price is reduced and the demand decreases when
the price is increased. When the price of the milk is 20 the demand is 182 with a income elasticity
of 0.36 and when the price of the milk is 27 the demand decreases to 148 which is a drastic change
in demand.

PRICE SUGGESTIONS

From the data we can clearly see that the total revenue increases with the increase in price though
the demand decreases. When the price is 20 the total revenue is 3640 and when the price is 27 the
revenue is 3996, hence the price of the product can be increased.
 3. WHEAT (AASHIRVAAD)

SURVEY

Five families who used Aashirvad wheat were surveyed.

 Neighbor
 A nuclear family
 Friend
 Cousin’s family
 Neighbor

DEMAND

The demand for wheat was high in all the families that I surveyed. Every family uses aashirvad
wheat at least thrice in a week. When the price of the product decreases the demand increases to a
great extent as they stock up the wheat.

ANALYSIS

For the Aashirvaad wheat the demand increases when the price decreases the demand of the
product is 80 when the price is low at 40 and the demand of the product decreases when the price
increases to 60. Thus there is drastic change in the demand of the product when the price changes.

PRICE SUGGESTIONS

From the data we can clearly see that the total revenue increases with the decrease in the price for
wheat, when the price is 40 the total revenue was 3200 and when the price was increased to 50 the
revenue was 3050 and when the price was again increased to 60 the revenue was 3120 thus when
the price of the product is low the demand increases.

4. PANEER (MILKY MIST)

SURVEY

A survey was collected from 5 people who use milky mist panneer.

 A friend
 A musician
 Neighbor
 Family
 Aunt

DEMAND

Though paneer is not used by all the households the demand for paneer increased with the decrease
in the price and the customers who use paneer are more satisfied when the price of paneer goes
down.

ANALYSIS

For this product (Milky mist paneer) the demand increases when the price decreases when the
price of the product is 110 the demand is 53 and when the price is decreased to 100 the demand
increases to 70 and if its decreased even more to 90 the demand increases to 81. Thus with the
decrease in price the demand increases

PRICE SUGGESTIONS
From the data we can clearly see that with the decrease in price the total revenue increases when
the price of the product is 110 the demand is 5380 and when the price of the product decreases to
90 the demand is 7290 which is a immense change in the revenue. Hence paneer can be sold at
low price to increase the sales, demand and the revenue.

5. COKE

SURVEY

A survey was collected from 5 people who drink only Coke.

 A friend
 brother
 Neighbor
 Cousin brother
 A dancer

DEMAND

Though coke is not a necessary product it has some loyal customer who buy it even when the price
increases. In the case of coke also when the price decreases the demand increases

ANALYSIS

For this product the demand increases when the price decreases. When the price of the product is
42 the demand of the product is 47, when the price is decreased to 35 the demand is 72 and when
the price is 30 the demand is 76. Thus the demand increases with the decrease in price.

PRICE SUGGESTIONS

From the data we can clearly see that when the price decreases the revenue increases, when the
price of the coke is 42 the revenue is 1974 and when the price of the product is 35 the total revenues
of the product is 2520 and when the price was reduce again to 30 the revenue was 2280. Thus the
company can reduce the price upto certain level.

CROSS ELASTICITY

I have calculated cross elasticity for the product Coke with its substitute product Pepsi, both of
which are beverages.

ANALYSIS

When the price of the substitute product decreased the demand of the main product started
decreasing. When the price of Coke and Pepsi both were 30 the demand of Coke was 76 and the
demand of Pepsi was nil. When the price of Coke was 42 and Pepsi was 30 the demand of Coke
was 18 and the demand of Pepsi was 36. Thus when price of substitute product is the demand shifts
from the main product to the substitute.

PRICE SUGGESTIONS

With accordance to the cross elasticity analysis when the price of main product is low the demand
for substitute product increases thus the main product can change its pricing strategy with respect
to the competitor

CONCLUSION

From the data collected and analyzed, it can clearly be seen that the price of the product affects
the demand and revenue of a product and when the substitute or complimentary products price is
less than that of the main product, the demand tends to increase for the substitute product. With
the help of this calculation we can find ways to increase the revenue and also identify how much
the price can be increased or decreased.