CASE ANALYSIS ON ESTIMATION OF THE DEMAND FOR ORANGES BY MARKET EXPERIMENT

CASE ANALYSIS ONESTIMATION OF THE DEMAND FOR ORANGES BY MARKET EXPERIMENT

M.HARISH,S.AKHILESHSSIM

1

INTRODUCTION

Market experiment for estimation of demand of 3types of oranges-Florida Indian river , Florida interior , California oranges.Grand Rapid had best suited demographics Apt conditions for demand estimation.Nine Supermarkets.31 consecutive days.Price changes within 16 cents.Adequate supply.Length short enough to ensure no change in taste.

Price Elasticity

Elasticity is a measure of the responsiveness of one variable to another.The greater the elasticity , the greater the responsiveness.Price elasticity of demand is the percentage change in quantity demanded by the percentage change in price.

Cross Price Elasticity of Demand

Cross price elasticity measures the responsiveness of demand for good X following a change in the price of good Y.Measures to which degree a good is a substitute or complement.Cross price elasticity of demand between two complimentary goods is negative.Cross price elasticity between two substitute good is positive i.e., if price of one product increases , demand for rival product increases.

Demand Estimation

Estimate the amount of demand for a product or service.Demand Estimation for the firms product is essential and continuing.Estimated demand provides managers with accurate way to predict the future demand as well as set of elasticities.Helps now consequences of planned changes in prices , competitors price , variations in consumers income.

Market Experiments

Method of Demand estimation.Experiments conducted in market place.Select several markets with similar demographics.Change the commodity price in some markets and amount and type of promotion in the others.The firm could change, one at a time , each of the determinants of demand under its control in a particular market over time.Record the response of consumers.

Observations

Price elasticity for oranges is fairly high . PED for Indian river oranges of -3.07 indicatesthat1% increase in price leads to 3.07 & decline in demand.Cross Price elasticity of demand between two types of Florida oranges were larger than 1 , close to zero with respect to Californian oranges

Learning outcomes

For a one percent change in price of Florida Indian river oranges, there is a considerably high change in demand for Florida and vice-versa.Therefore this suggests the consumer regard the two types of Florida oranges as close substitutes , they did not view Californian oranges as such.While pricing , the producers of the two Florida varieties must carefully consider the price of each other but need not be concerned with the price of Californian oranges.

Price Elasticity and Cross-Price Elasticity of Demand for Florida Indian River , Florida Interior , California Oranges