7M11932 -Managerial Economics College of Computing Technology (CCT)

PART 1

Identify and describe Product

Irish people deprived of enough fiber in their daily intake that affects their health in total. 80% of the people in Ireland are not getting fiber as they are not indulging in the sources in their diet. Half of a slice of bread in their diet can meet the lack of fiber and other nutrients requirements. A slice of loaf consists of milk, flour,  butter, salt, and yeast that improves the health of an individual. It is also a prominent source of vitamin B and rich in fiber.

Detailed analysis of the ingredients in a slice of bread and its relation to the health of Irish people is essential to know (Slice of loaf in ireland, 2018). The benefits of using whole wheat flor are to get calcium carbonate, iron, niacin, and thiamin in the body of a consumer. It also includes water, yeast, vegetable oil, salt, soya flour, and emulsifiers. All these things are required in keeping the good health of Irish people in meeting the fewer requirements of fiber in their diets.

A slice of bread or a loaf includes vitamin B1 and B3 that is also known as niacin and thiamin by consuming a part of this thing. Stating the nutritional benefits of having a slice of bread, this itself shows its demand in the market as everyone wants to be fit and healthy. Especially this product is essential for the Irish people in improving their standard of living and matches with their Lifestyle (Anderson, Slaughter, Laffey and Lardner, 2010).

State the elasticity of demand for the product

Price elasticity of demand is a measure to check the responsiveness of demand concerning the changes in the price of a product or service. Demand is said to be elastic when a minimal change in the demand is observed with the higher changes in the prices. For instance, changes in the demand when the price of bread increases from one value to another. The elasticity of the demand is denoted with the slope of the demand curve (Price elasticity, 2007). The slope of the demand reflects the effect of the process on the quantity demanded to understand the demand in the market.

Four criteria that determine the elasticity of a demand for a slice of bread in the Irish industry are as follows:

Substitutes- Higher the substitutes in the market, higher will be the price elasticity of the demand for a product (Almena and et. al., 2019). For instance, similar products available in the market for a particular commodity then that product is considered as more elastic as changes in the price will affect the quantity demands of the product. In the given case, a slice of bread has a lot of substitutes in the market but changes in the price of the product will affect its quantity demand in the Irish industry.

Necessity- This criterion says that the demand for an item is inelastic if it is a necessity product as the change in prices does not affect the quantity demand of the product. In the current case, the slice of bread is a necessity (Price elasticity of demand, 2019). So, the changes in the price of a product will not affect the quantity demand of the bread in the Irish industry.

State the product is necessity or luxury

The necessity and luxury nature of the product also affects the elasticity of demand for a particular product. The price elasticity of a necessity product is low and the luxury product is high as this depends on the tastes and the preferences of the commodity. In the current case, a slice of bread is a necessity product used in the daily routine of an individual in Ireland. Being a basic or necessity product, the price elasticity demand of the loaf is inelastic.

Show the plus or minus signs of coefficients of price and income

The regression measure is used to determine the relationship between the pice and the income of an individual to create a demand function. These two values are used in identifying the quantity demanded of a product. The values of the price of bread and the income of an individual are utilized to know the quantity demand of the slice of bread in Ireland.

It is estimated that the regression will generate the positive signs of coefficients to state the elasticity of the price of demand for a slice of the loaf in the Irish market (Huh and Friedman, 2019). The expectation is based on the elasticity of this commodity as this is a necessity product that every individual requires to include in its daily intake.

PART 2

Data collection

Name
How old are you?
18-25 years	4
25-30 years old	2
30-35 years old	2
35-40+years old	2
What is your profession
Student	2
Full-time employee	5
Part-time employee	1
Self-employed	1
Unemployed	1
What is your income
$500-$600	1
$600-$1200	2
$1200-$1800	4
$1800-$2500	1
$2500-$3000	2
$3000-$3500	0
$3500-$4000	0
$4000-$4500	0
How often you used bread or loaf in your daily routine?
Daily	5
Weekly	3
Monthly	2
Never	1
What's the price of bread you purchase?
$6-$7	4
$7-$8	3
$8-$9	2
$9-$10	1
$10-$11	0
$11-$12	0
$12-$13	0
$13-$14	0

 

State the demand function using regression

Quantity demanded	Price	Income
1	$       6.00	$                   500.00
1	$       6.00	$                   900.00
1	$       6.00	$                   900.00
1	$       6.00	$               1,500.00
1	$       7.00	$               1,500.00
1	$       7.00	$               1,500.00
1	$       7.00	$               2,150.00
1	$       8.00	$               2,750.00
1	$       8.00	$               2,750.00
1	$       9.00	$               2,750.00

 

SUMMARY OUTPUT
Regression Statistics
Multiple R	0.996542
R Square	0.993097
Adjusted R Square	0.867234
Standard Error	0.092893
Observations	10

 

ANOVA
	df	SS	MS	F	Significance F
Regression	2	9.930966469	4.965483	575.4286	1.72E-08
Residual	8	0.069033531	0.008629
Total	10	10

 

	Coefficients	Standard Error	t Stat	P-value	Lower 95%	Upper 95%	Lower 95.0%	Upper 95.0%
Intercept	0	#N/A	#N/A	#N/A	#N/A	#N/A	#N/A	#N/A
X Variable 1	0.190335	0.0135719	14.02422	6.48E-07	0.159038	0.221632	0.159038	0.221632
X Variable 2	-0.0002	5.06287E-05	-3.89579	0.004572	-0.00031	-8E-05	-0.00031	-8E-05

 

RESIDUAL OUTPUT
Observation	Predicted Y	Residuals	Standard Residuals
1	1.043393	-0.043392505	-0.52226
2	0.964497	0.035502959	0.427302
3	0.964497	0.035502959	0.427302
4	0.846154	0.153846154	1.85164
5	1.036489	-0.036489152	-0.43917
6	1.036489	-0.036489152	-0.43917
7	0.908284	0.091715976	1.103862
8	0.980276	0.019723866	0.23739
9	0.980276	0.019723866	0.23739
10	1.170611	-0.17061144	-2.05342

 

Demand Function

Qd= a+b1P+b2Y

Qd= quantity demanded of bread

a= constant term

b1= price of bread

P= coefficient denoting price of bread

= b2= income of individuals

Y= coefficient showing the income of individuals to afford the price of a bread

=  $6*0.19+$2500*0.02

= 1.14+50

= 51.14

Comment on the signs of coefficients

The expectation of the case study says that the price and the income of the commodity bread are positive considering the inelasticity of the slice of bread in the Irish Industry. The regression analysis shows the actual results about the relationship between the price of a slice of bread along with the income of an individual. The affordability of an individual to purchase the slice of bread in Ireland. This is essential to know the quantity demand for the reads sells in the market and how often people of the nation purchase the same. The results state the positive coefficient of the price and negative coefficient of the income to determine the demand function of the slice of the loaf in the industry (Enders, Du and Keller, 2019).

The prediction in part 1 goes wrong after generating the results that show both the positive as well as the negative signs of coefficients. This is incurred due to the narrow estimation by considering only the price elasticity. The income perspectives are not considered while making the estimation that did not match the actual results.

Determine the t-ratios of independent variables

Price	Income
$                                                        6.00	$                    500.00
$                                                        6.00	$                    900.00
$                                                        6.00	$                    900.00
$                                                        6.00	$                1,500.00
$                                                        7.00	$                1,500.00
$                                                        7.00	$                1,500.00
$                                                        7.00	$                2,150.00
$                                                        8.00	$                2,750.00
$                                                        8.00	$                2,750.00
$                                                        9.00	$                2,750.00

 

t-Test: Paired Two Sample for Means
	Variable 1	Variable 2
Mean	7	1720
Variance	1.111111111	705111.1
Observations	10	10
Pearson Correlation	0.903821072
Hypothesized Mean Difference	51.4
Df	9
t Stat	-6.652137625
P(T<=t) one-tail	4.67547E-05
t Critical one-tail	1.833112923
P(T<=t) two-tail	9.35094E-05
t Critical two-tail	2.262157158

 

T ratio or t-test is a measure used to analyze the data of price and the income to identify its impact on the demand for a slice of bread in the Irish industry. This says that the average price of a slice of bread is $7 and the average income of the individuals in Ireland is $1720. This says that this basic commodity is an affordable thing to fit in the income of individuals of this nation (Perron, Yamamoto and Zhou, 2019).

After considering the affordability for the product, the next important thing is to know the effect of these two variables on the overall demand of the commodity. The correlation among the price and the income is 0.9 which is a positive thing to show the positive impact on the demand for a loaf of bread. This is a basic or necessary product, which every individual need to include in its diet considering the nutritional benefits of it (Batanero and Gea, 2019).

One tail and two tail measures show the positive values that signify the increasing demand for this product in this product. The demand for the product gets increases as this is a necessity product and contains fiber to fulfill the required fiber content in the diet of Irish people (Schoenherr and et. al., 2019).

State the importance of R2 value and suggest results

The R2 value is a significant component in the multiple regression model to show the relationship between the dependent and the independent variables. In this case, this value tells the impact of price and income of bread on the quantity demand of the slice of the loaf. A higher value of R2 in a regression model depicts the appropriateness of the model in meeting the needs (R2 in regression, 2019).

R2 value, in this case, is 0.99which represents that 99% variations are there with the mean of the price and the income. This states the favourability of these two independent variables in determining the dependent variables. The quantity demanded gets increases with the current values of the prices and the income of the people in Ireland (Regression, 2019).

It is suggested to consider more things in the above regression model to increase the R squared value from 99% to even 100%. The observations of data will get an increase from 10 to 20 to get more data about the price and income to give more quality.

PART 3

Estimate three combinations of price and income using demand function

Y= a+bx
A	bx	Price
$6	1.0433925	$7.04
$6	0.964497	$6.96
$6	0.964497	$6.96

 

Y= a+bx
A	bx	Income
$2,500	1.0433925	$2,501.04
$2,500	0.964497	$2,500.96
$2,500	0.964497	$2,500.96

 

Price	Income
$7.04	$2,501.04
$6.96	$2,500.96
$6.96	$2,500.96

 

Calculate the price elasticity of demand and income elasticity of demand for combinations

Price	Income
$7.04	$2,501.04
$6.96	$2,500.96
$6.96	$2,500.96

 

Change in quantity demanded
Earlier	New	Change in %
10	51.4	41.4%
10	51.4	41.4%
10	51.4	41.4%

 

Change in Price
Earlier	New	Change in Price
$6	$7.04	17%
$6	$6.96	16%
$6	$6.96	16%

 

Price elasticity of demand	Change in price/Change in quantity demanded
	42.00%
	38.83%
	38.83%

 

Change in quantity demanded
Earlier	New	Change in %
10	51.4	41.4%
10	51.4	41.4%
10	51.4	41.4%

 

Change in Income
Earlier	New	Change in Price
$2,500	$2,501.04	0.04%
$2,500	$2,500.96	0.039%
$2,500	$2,500.96	0.039%

 

Income elasticity of demand	Change in price/Change in quantity demanded
	0.04%
	0.039%
	0.039%

 

Comment on the expectations on results

The elasticity of price of demand for the bread and the income elasticity shows its total effect on the demand of the commodity. The expectations were not met with the current results as the outcomes are not satisfactory. The results state that the elasticity of the income is very less in proportion to the price elasticity. The elasticity of the price and the income is compared with the changes takes place in the quantity demand of a slice of bread in the Irish Market.

The unsatisfactory performance of income in comparison to the price of the commodity does not bring positive and higher changes in the quantity. The income elasticity shows lower results due to minimal changes incurred in the new income prediction. This is the main reason for not generating favorable results in the income elasticity of demand for a slice of a loaf.

PART 4

Discuss the pricing strategies for the supply of product

Considering the pricing data of Bread in Ireland,  the pricing strategies used by the existing suppliers can identify. Different kinds of strategies that a seller can use in deciding the prices to steal the attention of the majority of the consumers to boost its sales. The prices are decided considering the competition in the market and also the market structure (Liu, Zhai and Chen, 2019).

Economic pricing- This pricing strategy considers by a supplier to consider the competition of the existing market by decreasing the margin just to ensure the survival in the market. This kind of strategy is suitable in the perfect competition market structure. In the current case, bread being a necessity product the suppliers do not use this strategy as they can raise the prices as it is a necessity product and the price is inelastic.

Premium pricing- As the name depict its intention of the strategy that this contains a higher margin for a seller that works well in the monopoly market structure. In the monopoly structure, the seller can rule the entire market with the power to increase or decrease the prices of all the products being on the topmost positions. In the current case, although bread is a necessity product sellers cannot use this kind of strategy as there is no monopoly for this commodity (Chen and et. al., 2019).

The suppliers of the bread and bakery in Ireland use the skimming method of pricing to market their kinds of bread and other confectionery items. Under this approach, higher prices are charged till the demand for the product in the market get decline (Bread and bakery, 2019).

Suggest an apt pricing strategy to the sellers of current product

Considering the current market and demand for a slice of the loaf in the Irish industry, it is preferable to use skimming and the economy pricing for the peak and lower demand period. The skimming method will work well in boosting the sales of the business in the peak period (Hadi, Chaharsooghi, Sheikhmohammady and Hafezalkotob, 2020). After the decline of the demand in the market, an entity can shift to economic pricing to cater to the needs of its consumers. In this way, the presence of the firm in the industry get secures. This method will also bring positive performance throughout the year.

REFERENCES

Books and Journals

Almena, A., and et. al., 2019. Towards the decentralisation of food manufacture: effect of scale production on economics, carbon footprint and energy demand. Energy Procedia, 161, pp.182-189.

Anderson, W.A., Slaughter, D., Laffey, C. and Lardner, C., 2010. Reduction of folic acid during baking and implications for mandatory fortification of bread. International journal of food science & technology, 45(6), pp.1104-1110.

Batanero, C. and Gea, M. M., 2019, December. Making Sense of Correlation and Regression. In International Congress on Education and Technology in Sciences (pp. 22-35). Springer, Cham.

Chen, D., and et. al., 2019. Reverse logistics pricing strategy for a green supply chain: A view of customers' environmental awareness. International Journal of Production Economics, 217, pp.197-210.

Enders, C. K., Du, H. and Keller, B. T., 2019. A model-based imputation procedure for multilevel regression models with random coefficients, interaction effects, and nonlinear terms. Psychological methods.

Hadi, T., Chaharsooghi, S.K., Sheikhmohammady, M. and Hafezalkotob, A., 2020. Pricing strategy for a green supply chain with hybrid production modes under government intervention. Journal of Cleaner Production, p.121945.

Huh, M. and Friedman, O., 2019. Young children use supply and demand to infer desirability. Developmental psychology, 55(12), p.2483.

Liu, J., Zhai, X. and Chen, L., 2019. Optimal pricing strategy under trade-in program in the presence of strategic consumers. Omega, 84, pp.1-17.

Perron, P., Yamamoto, Y. and Zhou, J., 2019. Testing jointly for structural changes in the error variance and coefficients of a linear regression model.

Schoenherr, D., and et. al., 2019. Identification of movement synchrony: Validation of windowed cross-lagged correlation and-regression with peak-picking algorithm. PloS one, 14(2).

Online

Bread and bakery, 2019. Available through: < https>th may 2020].

Price elasticity of demand, 2019. Available through: < https> [Accessed on 9^th may 2020].

Price elasticity, 2007. Available through: < https> [Accessed on 9^th may 2020].

R2 in regression, 2019. Available through: < https> [Accessed on 9^th may 2020].

Regression, 2019. Available through: < https> [Accessed on 9^th may 2020].

Slice of loaf in ireland, 2018. Available through: < https> [Accessed on 9^th may 2020].