Title: Mid Term Project Report

Subject: Managerial Economics

Batch: 2014-16

Section: D

Group No: 3

Group Members:
Serial No.

Name

Roll Number

Rakesh Kumar Choudhary

2014220

Nitika Kedia

2014183

Prem Maheshwari

2014203

Pooja Mangal

2014196

Pragya Nigam

2014200

Total Words in the Assignment: 1493

News Article
Mangoes turn juicier! Price of premium Alphonso variety almost
halves
Jayashree Bhosale, ET Bureau May 5, 2014, 12.40PM IST
PUNE: Alphonso mangoes have turned sweeter for domestic consumers this season as prices of the
premium variety have almost halved following an increase in supply and impact on other importers of the
ban clamped by the European Union. Although the EU does not insist on any specific type of treatment
for the mangoes, it imposed ban after detection of fruit fly in Indian mango.
Supply of Alphonso mangoes shot up many fold in tandem with sudden rise in mercury, which caused
simultaneous ripening in this season's crop. Therefore, prices of Alphonso mangoes started falling about a
fortnight ago.
Delhi gets limited supply of Alphonso mangoes, majority of which are exported each year. However, with
increased arrivals in Mumbai, rates fell in Delhi as well, from Rs 400-450 per dozen to Rs 350-400.
If Alphonso mangoes reach other parts of the country in large quantities, prices of other varieties such as
Safeda are also likely to fall. If Delhi gets more Alphonso mangoes this season, Safeda mangoes from
Andhra Pradesh are likely to turn cheaper due to the popular preference for Alphonso.
Source: http://articles.economictimes.indiatimes.com/2014-05-05/news/49633947_1_nathsaheb-khairealphonso-mangoe-sanjay-pansare

Introduction
The above article is discussing about effect of increase in supply and ban imposed by EU. Both these
factor collaborated and resulted in major fall in price of most premium variety of mango i.e. Alphonso.
Earlier because of export of Alphonso mangoes we were getting limited supply of Alphonso but with ban
from EU in effect. This year supply is higher and resulted in fall in price. The lower price of Alphonso
will affect other variant of mangoes as well, such as Safeda and in effect its price will go down as well.

News Analysis
1. Analyze European Market: As a part of analysis we will discuss the possible effect of ban on
Alphonso in European market. How reduction in supply affected the price and thereby the demand in
EU market?
There will be reduction in supply because of limited import by the EU. This can be explained through
the concept of Change in Supply.
Change in Supply: It suggest change in supply due to the change in the factors other than price. In
this case, it is ban imposed by EU on Alphonso. Price remaining constant this factor brings about a
change in supply.
The change in supply implies a change in the supply function itself. The entire supply schedule and
supply curve changes. As depicted in figure 1.

Fig. 1 Change in Supply towards left or decrease

Now, because of this change in supply the suppliers within EU have to increase the price to meet the
demand. This can be explained using the concept of Change in quantity demanded.

Change in Quantity Demanded: It refers to the change in amount of a commodity demanded as a

result of change in the price of commodity. Amount demanded rises or falls according to the fall or
rise in price. In such a case other factors influencing demand are held constant. The demand function
or the demand curve never changes, it moves along the curve. As depicted in figure 2.

Price

Equilibrium

Quantity
Fig. 3 Shortage in supply resulted in
rise of price

Fig. 2 Change in quantity demanded

Shortage of supply in Fig. 3 is due to ban imposed by EU on Indian Alphonso mangoes. The supply
of Alphonso reduced significantly and demand was as usual as last year. This created a huge gap in
supply and demand resulted in shortage of Alphonso mangoes. To restore the situation of equilibrium
and meet the supply and demand side, suppliers have to increase the price of Alphonso.
2. Analyze Indian Market: We will analyze the change in situation of Indian market due to abundance
of Alphonso in domestic market as an effect of increase in supply of mango crop and ban of Alphonso
by EU.
As an effect of extraordinary supply, the price of the Alphonso mangoes will decrease resulted in
increase in demand. This can be understood by the concept of Change in quantity demanded.
Change in Quantity Demanded: It refers to the change in amount of a commodity demanded as a
result of change in the price of commodity. Amount demanded rises or falls according to the fall or
rise in price. In such a case other factors influencing demand are held constant. The demand function
or the demand curve never changes, it moves along the curve.
As depicted in figure 4, we can see similar effect. There is a decrease in price that pushes the demand
side. Price is coming down from P1 to P2 correspondingly the demand is increasing from Q1 to Q2.

Fig. 4 Change in quantity demanded

Fig. 5 Excess in Supply, decrease in price

Excess in supply in Fig. 5 is due to the remarkable production of mango crop and ban imposed by EU
on Indian Alphonso mangoes. The supply of Alphonso in domestic market has increased significantly
and demand was as usual as last year. This created a huge gap in supply and demand resulted in
excess of Alphonso mangoes. To restore the situation of equilibrium and meet the supply and demand
side, suppliers have to decrease the price of Alphonso that can be resulted in increase in demand.
3. Compare between Alphonso & Safeda: We will discuss the effect of abundance of Alphonso on
other variety of mangoes such as Safeda.
As we have already discussed because of remarkable crop of Alphonso and ban imposed by EU on
Indian Alphonso resulted in huge supply in domestic market. This enforces suppliers to reduce the
price of Alphonso to encourage the demand in Indian market. Reduced price of Alphonso affected the
other variant of mangoes in this Safeda. As Alphonso is the most premium variant of mango,
suppliers of Safeda has to reduce the price of Safeda to increase the demand for this variety.
Above discussed phenomenon can be easily understood using the concept of Cross-Price elasticity.
Cross-Price Elasticity: It can be defined as a measure of the responsiveness of the demand for a
good to changes in the price of a related good; the percentage change in the quantity demanded of one
good to the percentage change in the price of a related good. Region on which it is define:
- Pxy

< +

EQx,Py = %Qxd
%Py

There are two types of Cross-Price elasticity one is for substitute goods another is for Complement
goods
Complement Goods: Goods for which an increase (decrease) in the price of one good leads to a
decrease (increase) in the demand for the other good. Region on which it is define: - Pxy

<0

Substitute Goods: Goods for which an increase (decrease) in the price of one good leads to an
increase (decrease) in the demand for the other good. Region on which it is define: 0 < Pxy

After analyzing both the definition we can clearly depict that in our case the relation between
Alphonso and Safeda is similar to Substitute Goods, as decrease in price of Alphonso results in
decrease in the quantity demanded of Safeda. So to counter the lower price of Alphonso the suppliers
of Safeda has to decrease the price to increase its demand. As described in Fig. 6

of
Alphonso

Fig. 6 Cross Price Elasticity between Alphonso and Safeda

of
Safeda

Managerial Implication
When we think of mangoes, first thing that come into our mind is direct consumption of mango like eat
them or prepare fruit salad, aamras etc. But in case of abundance of supply of mangoes, we should
certainly think of indirect usages such as prepare the whole beverage segment, fruit jam, pickle etc.
There are some companies which are doing the same, in beverage segment like Coca Cola, Pepsi, Parle
Agro with their products Maaza, Minute Maid Mango, Slice, Frooti etc. In jam segment companies like
Kissan, Fruto and many other small or medium size companies.
In case of abundance of mango as a manager of these companies we can procure mangoes at cheaper cost
and with the use of preservative can improve the expiration date. Currently some of the above discussed
products have more than 12 months of expiry date. Or as a manager in mango trading firm we can
encourage above discussed companies manages to increase their stocks at relatively cheaper rates and use
it later on. This will help the supplier of mango to maintain the supply side and get some additional value
for their mangoes. This will also help the jam and beverage company to increase their profitability.