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EMPERICAL TESTING OF PRICE ELASTICITY OF
DEMAND
for
NESCAFE ORIGINAL COFFEE
By
SAMIA SHAMSI
(09109003)
SUBMITTED TO
MR. EHSAAN ULLAH
GIFT UNIVERSITY
SCHOOL OF BUISSINESS SCHOOLSubmitted in Partial Fulfillment of the
Requirement of the Degree of
Masters of Business Science
2009
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I WANT TO DEDICATE MY PROJECT TO MY PARAENTS
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Acknowledgement
I want to thank ALLAH first of all who gave me the ability to perform this task and after
that I would like to thank my teacher Mr. Ehsaan ullah who have told me how to manage
my project as teacher he has fulfilled his task then I would like to thank my elder sister
as she is my helping hand and without her I could not be able to do this project after that
my friends they all helped me a lot in doing and completing this project because I have
done such kind of work first time in my life so they were proved to be very helpful for
me in managing and organizing this project.
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FORWARD
My project is about Nescafe original coffee. I have made a survey in the market about the
demand of the Nescafe original coffee. And from that survey I have gathered some
qualitative and quantitative data that how the demand of people changes when there is a
change in the price of coffee or may be in the prices of substitutes and complementary
goods of coffee. Here in this survey I have also focused the change in demand of coffee
when there is a change occur in the other factors like weather income etc so as I have
collected too many views I am going to change these raw views in to a shape of real
calculation that what is the market demand of Nescafe original coffee now a days and
which factors effects its demand the most at which percentage.
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CHAPTER#1
INTRODUCTION
1.1 LAW OF DEMANDS:
All else equal, consumers buy more of a good during a given period the lower its
opportunity cost (relative price) and vice versa.
Edition: 5th
Writer: Ralph t. byrns and Gerald w. stone
Chapter # 3: Demand and Supply
Page#58
Publisher: Addison Wesley
1.2 PRICE ELASTICITY OF DEMAND:
The price elasticity of demand (sometimes simply called price elasticity) measures how
much the quantity demanded of a good changes when its price changes. The precise
definition of price elasticity is the percentage change in quantity demanded divided by
the percentage change in price.
Writer: samuelson, nordhaus
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Chapter #4: Application of Supply and Demand
Page#66
Publisher: ..
1.3 DEMAND CURVE:
The demand curve represents the maximum price that an individual will pay for the
various quantities of a good the individual will
Happily pay
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Writer: David c. colander
Chapter#2: Supply and Demand
Page#39
1.4 INCOME ELASTICITY OF DEMAND:
Income elasticity of demand shows the degree of responsiveness of quantity demanded of
goods to a change is the income of the consumers. To put it more precisely, the income
elasticity of demand is defined as the ratio orproportionate change in the purchase of a
goods to the proportionate change in income.
Writer: Dr. M.M. parsad
Chapter#4: elasticity of demand
Page#56
Publishers: Educational publishers.
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1.5DEMAND:
A schedule of how much of a good or service people will purchase at any price during a
specified time period other things remain constant.Writer: roger Leroy miller
Page 46
Chapter#3: demand and supply
Publisher: Addison Wesley.
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1.6MARKET DEMAND:
Market demand which represents the sum of total of all the individual demands .The
market demand curve is found by adding together the quantities demanded by all
individuals at each price.
Edition: 15th
Writer: William nordhaus Paul a. samuelson
Publisher: McGraw hill. Inc
1.7SHIFT OF DEMAND:
If the prices of goods remain constant but some other influences on buyers plan changes,
there is a change in demand for that good.
Chapter#4: Demand and Supply
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Edition: 5th
Writer: Michael parkin
Publisher: Addison Wesley publishing company
Page#67
1.8 INCOME ELASTICITY OF DEMAND:
In economics, the income elasticity of demand measures the responsiveness of the
demand of a good to the change in the income of the people demanding the good. It is
calculated as the ratio of the percent change in demand to the percent change in income
Reference: Wikipedia the free encyclopedia
URL: http://en.wikipedia.org/wiki/Income_elasticity_of_demand_(YED)
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1.9TOTAL REVENUE TEST:
Total Revenue Test is a means for determining whether demand is elastic or inelastic. If
an increase in price causes an increase in total revenue, then demand can be said to beinelastic, since the increase in price does not have a large impact on quantity demanded.
If an increase in price causes a decrease in total revenue, then demand can be said to be
elastic, since the increase in price has a large impact on quantity demanded.
Reference: Wikipedia the free encyclopedia.
URL: http://en.wikipedia.org/wiki/Total_revenue_test
1.10 QUANTITY DEMANDED:
A term used in economics to describe the total amount of goods or services that are
demanded at any given point in time. The quantity demanded depends on the price of a
good or service in the marketplace, regardless of whether that market is in equilibrium.
The quantity demanded is determined at any given point along a demand curve in a price
vs. quantity plane.
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Reference: Investopedia
URL: http://www.investopedia.com/terms/q/quantitydemanded.asp
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CHAPTER#2
RESEARCH METHEDOLOGY
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CHAPTER#3
ANALYSIS
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1
1.Primary reason for using
coffee
taste 75%
customer
service 25%
2. Do you use
substitutes
yes 60%
no 40%
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3. People say that they
want to change the price of
Nescafe coffee
yes 65%
no 35%
4. People take coffee
in a day
1 time 65%
2times 30%
3times 5%
5. Time period since
people are using
Nescafe coffee
1year or more 50%
5years or more more 35%
10 years or more 15%
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6. Satisfaction of people
from Nescafe coffee
satisfied 80%
not satisfied 20%
7. As compared to other
products
Nescafe coffee ismuch
better 70%
same
30
%
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8. People
purchase
tin pack 35%
bottle 50%
sachet 15%
9. When complimentary
goods price changes the
effect on the demand of
coffe of people is:
demand
decreases 30%
demand remains
the same 70%
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10. Availability of coffee
in the market is:
easily
available 80%
not easily
available 20%
11. In which season people
use coffee most
winter 70%
summer 15%
rainy 15%
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12. People satisfied with the
services of company
agree 75%
neutral 25%
Disagree 0%
13. People use
sustitutes of coffee:
coffee of other
brands 90%
black
coffee 10%
4 people expect that
rices should be low
es 55%
o 25%
may be 30%
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15. How did people
firstly discover
Nescafe coffee
Advertisem
ent 60%
friends told
them 40%
6. People want to replace Nescafe
offee in future
es 80%
o 20%
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7. People think that the
aste of Nescafe coffee
an become better than
et:
es 65%
o 35%
18. People says that
Nescafe coffee is the best
available coffee in the
market:
yes
90
%
no
10
%
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e
QuantityDemanded
5 105
0 90
0 75
0 60
a
1
)7(355)
9
a
1
3
5
a
1
3
8
a
1
4
1
Price
Quantityde
manded
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NAME .. PROFESSION
Tick marks the best answer. Following is the survey of Nescafe original
coffee that what effect can be caused if the following situation will be
faced by the customers of Nescafe coffee:
Q#1: What is the primary reason of using Nescafe original coffee?
a) Price
b) Taste
c) Customer service
d) Other (give reason)
Q#2: Do you use substitutes of coffee like?
a) Cold coffee
b) Black coffee
c) Tea
d) Dont use substitutes
Q#3: What will you do if the prices of Nescafe original coffee will increases from
Rs.355 to Rs. 380?
a) Your demand will remain the same
b) Your demand will increase
c) Your demand will decrease.
Price demand
355 ..
380 ..
Q#4: If you could change something about Nescafe original coffee what would it be?
a) Its taste
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b) Its price
c) Other thing (give reason)
Q#5: How did you first discover Nescafe original coffee was available for purchase?
a) Advertising TV, newspaper, magazine, radio
b) Friends/Family/Someone told me about It
c) Saw it in the store/Browsing in store
Q#6: How many times in a day you take coffee?
a) 1 time
b) 2 times
c) 3 times
Q#7: How long have you been using Nescafe coffee?
a) 1 year or more.
b) 5 years or more.
c) 10 years or more.
Q#8: How satisfied are you with Nescafe coffee?
a) Just satisfied
b) Unsatisfied
c) Very unsatisfied
d) Extremely satisfied.
Q#9: Compared to other [PRODUCT CATEGORY] that are available, would you
say that Nescafe coffee is:
a) Much better
b) Same
c) Worse
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Q#10: What would you like to tell [COMPANY] about your satisfaction with the
Nescafe coffee?
Q#11: What would you purchase for fulfilling the requirement of coffee?
a) Tin pack.
b) Bottle.
c) Sachet.
Q#12: What will you do if the prices of the substitutes of coffee will fall?
a) Your demand for coffee will increase.
b) Demand for coffee will increase.
c) Demand for coffee will remain same.
Price demand
350
345
340
330
Q#13: What will you do if the milk price will increase?
a) Your demand for coffee will increase.
b) Your demand for coffee will decrease.
c) Your demand for coffee will remain the same.
Q#14: If you are not satisfied with Nescafe coffee tell the reason briefly:
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Q#15: Do you think that Nescafe original coffee is easily available in the market?
a) Always available
b) Sometime available
c) Sometime not available
d) Always not available
Q#16: In which season you use coffee most?
a) Winter season
b) Summer season
c) Rainy season
Q#17: Consider the total package of Nescafe coffee including customer service,
features and benefits, and cost. How satisfied are you with the product?
a) Agree
b) Disagree
c) Neutral
Q#18: If the (Company Product) were no longer available, what would you replace
it with?
Q#19: All things remains the same, over the next 12 months how likely are you to
replace Nescafe coffee?
a) High chances
b) Low chances
c) Certain
d) Not sure
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Q#20: Do you think there should be a change in price?
a) Yes
b) No
c) Doesnt effect
THANKS FOR YOUR CO-OPERATION