Price Behavior of Rice (Samba)

Microeconomics (BFIN11142) Group Assignment 01

Title Page
Course Code and Title Academic Year Semester Year Lecturers Assignment Topic : BFIN 11143-Microeconomics : 2010/2011 : Semester 1 : Year 1 : Ms. P. W. N. A. Kumari : Studying the Price Behavior of a Product H. M. A. L. Gunasekara W. M. S. S. B. Wijesundara W. S. V. Fernando N. S. Y. M. Wijerathna D.I. Weerarathna S. A. D. S. R. Gunawardana M. D. H. N. Thilakarathne

Student Numbers with Names : BM/2010/093 BM/2010/339 BM/2010/287 BM/2010/336 BM/2010/320 BM/2010/102 BM/2010/307

Table of Content

Page No:

1. Introduction to Product

03

2. Identification of Price Behavior of Normal Samba Rice

04

2.1 Analysis of Price Details of Normal Samba

04-06

2.2 Factors Influence for the Price behavior of Normal Samba rice

07

3. Application of Theoretical Economics and Conclusion

08

3.1 Market Structures

08

3.2 Conclusion

09

1. Introduction to Product
Most of the Sri Lankans prefer Rice as the main meal even if there are so many other tasty products available in the market. Consumers demand rice to the existing market price. But, the rice price is not the same every day. It fluctuates throughout the year. It is important to identify the price behavior of rice and to find out the reasons for that. This report is prepared gathering and economically analyzing data and information about one of the rice categories available in the market. We selected Samba rice for our purpose. This report explains the price behavior of Samba rice. Samba Rice is more popular among rice products. BG11 and BG11-11 are the kinds of paddies which give Samba rice. Large number of rice mills all over the Sri Lanka produces Samba rice and supply them to the market. Samba is issued to the market under several brands and kinds. When analyzing Samba rice market we can see different Samba products. Here, we have mainly focused on normal Samba rice price behavior.

2. Identification of Price Behavior of Normal Samba Rice

2.1.Analysis of Price Details of Normal Samba When analyzing the normal Samba price, it is important to gather information about Samba prices. Following table shows price details of normal Samba at several places. Place Date City Address Class Contact no: Description Price (Kg/Rs.)

Lanka Sathose, 20/03/12 Kelaniya Biyegeme road, Sinharemulle. Janetha Trade Kiribathgoda Center, No197, Kandy, Road, Kiribathgoda. Cargills Food City, No 222, Kandy Road, Kiribathgoda. D: D Trade Center, No213/2 Gala Junction, Kiribathgoda. Harshani Stores Makola 43/1, Makola Road, Makola Normal 0779958687 Normal 071-8348811 011-5049618 Super Market 011-2917715 Normal 011-2912572 Gov. 011-2910544

Normal Samba

66

Normal Samba

70

Normal Samba

66.50

Normal Samba

70

Normal Samba

70

Super traders, Kottikawattha No23, Kottikawattha. Normal 011-2569863

Normal Samba

70

Rathnasiri stores, Rajagiriya Nawala road, Kosinna, Rajagiriya. Normal 011-3083535 Normal Samba 70

Indika Supermarket, Kandy Digana, Rajawella. Super Market 081-2374102 081-5676488 Normal Samba

66.50

K & K Traders, Kadawatha Pintaliya Road, Kadawatha Vijitha Traders, Sapugaskanda No 721, Sapugaskanda, Makola Normal 011-5688015 Normal 011-4331301

Normal Samba

70

Normal Samba

70

In accordance with the data mentioned in the above table, different prices can be recognized in the market. The above price behavior can be analyzed more clearly by a chart using the prices and the classes of the retailers mentioned above.

Prices of Different Classes

Rs. 71.00 Rs. 70.00 Rs. 69.00 Rs. 68.00 Price Rs. Rs. 67.00 Rs. 66.00 Rs. 65.00 Rs. 64.00 Gov. Retailer Super centre Normal Retailer

2.2.Factors Influence for the Price behavior of Normal Samba rice. Several price setting factors were identified after carrying out some investigations and interviews with the retailers. Government intervention: Government has imposed a price ceiling of Rs.70 per Kg to protect the price stability and to prevent sellers form selling normal Samba at a higher price.

Pricing Policies of Retailer: When setting price, most of the retailers always try to maximize profit by setting the maximum possible price they can set. Some retailers consider their marketing strategies for setting prices. Most of the times, they try to keep a lower price without giving the first place to the cost to get competitive advantages. Government retailers (Lanka Sathose) take the price which is given to them. Social welfare is much considered when deciding the price by the government.

Other Factors: Rice production and supply also influence for the price. Prices of every rice category tends to increase within the periods which the production and supply of rice is lower. Prices tend to decrease within the periods which production and supply is higher. This is effectively happens only if government interference to the market is nil. The actions of rice mills also influence the price. Sometimes they create an artificial shortage in the market and try to increase the price by reducing the supply.

3. Application of Theoretical Economics and Conclusion

3.1.Market Structures There are several basic characteristics in a market. They are number of firms in the market, degree of product differentiation, ease of entry into and exit from the market and the nature of competition between firms. Four major markets can be identified based on these characteristics. They are, 1. Perfect Competition Market 2. Monopolistic Competition Market 3. Monopoly Market 4. Oligopoly Market Large number of buyers and sellers are in the Prefect Competition Market. The products which all producers produced are homogeneous. No entry barriers exist in this market and perfect knowledge of the present and future prices and cost can be taken without incurring any cost. In the perfect competition market, an individual cannot affect the price of the market. Hence, producer is a price taker and he can sell any amount of products at the established market price. Large number of buyers and sellers and no entry barriers can be seen in the monopolistic completion market as well. But, there is product differentiation. In monopolistic competition, two types of competitions can be seen. They are price competition and non-price competition. In price competition firms compete with each other based on prices and in nonprice competition firms use brand, product quality and advertisement for competing with each other. Sellers are non-price takers. They have some degree of control over the price they charge. Market structure in which there is a single firm selling products for which there are no close substitutes can be identified as the Monopoly Market Structure. Product in monopoly market is a special one. Significant market barriers exist in the monopoly. Perfect information cannot be taken without incurring any cost.

Oligopoly is the market structure in which there are few sellers. Every seller owns a significant proportion of the market. Actions of each seller will affect other sellers in the market. Entry barriers also exist in this market. 3.2.Conclusion Some significant characteristics of the Samba rice market can be recognized analyzing all the data and information discusses up to now. They can be pointed out as follows. A large number of sellers and buyers can be seen in the market. There is no dominant seller or buyer in the market. Any significant barriers for entry to the market cannot be identified when the existing firms make profits. A price competition can be identified and different prices exist in the market which means that the sellers are not price takers. Sellers have their own pricing policies and they are not independent in setting price unless the government intervenes to the market. When considering above characteristics, Samba rice market can be identified as a Monopolistic Competition Market.

References
http://kalyan-city.blogspot.com/2010/11/monopolistic-competition-meaning.html http://www.investopedia.com/terms/m/monopolisticmarket.asp#axzz1plKiyve1 http://dissertations.ub.rug.nl/FILES/faculties/eco/2003/l.t.d.hai/c4.pdf

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