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1.2.3 Spuds

Brits consumed 7.9% fewer fresh potatoes in 2013 as prices rose significantly. While the total market value increased 21.5% to £1.4 billion due to higher prices, the volume decreased to 1.5 million tonnes. In contrast, sales of tinned potatoes grew 19.2% to 19,000 tonnes. The average price per tonne of fresh potatoes in 2013 was calculated to be £933.30, a 31.5% increase from 2012. This represented a price elasticity of demand of -0.25, reflecting potatoes' inelastic demand likely due to lack of substitutes and importance in meals. Sales of tinned potatoes rose with fresh potato prices, showing they are substit

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110 views2 pages

1.2.3 Spuds

Brits consumed 7.9% fewer fresh potatoes in 2013 as prices rose significantly. While the total market value increased 21.5% to £1.4 billion due to higher prices, the volume decreased to 1.5 million tonnes. In contrast, sales of tinned potatoes grew 19.2% to 19,000 tonnes. The average price per tonne of fresh potatoes in 2013 was calculated to be £933.30, a 31.5% increase from 2012. This represented a price elasticity of demand of -0.25, reflecting potatoes' inelastic demand likely due to lack of substitutes and importance in meals. Sales of tinned potatoes rose with fresh potato prices, showing they are substit

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Tha Libra Fraudster
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© © All Rights Reserved
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Spuds

Brits ate 7.9% fewer fresh potatoes in 2013 as soaring retail prices took
their toll. Although the market size by value rose 21.5% to £1.4bn in
2013, this was purely the result of higher prices at the tills. The fall in
sales dragged the market size by volume down to 1.5 million tonnes. At
the same time volume sales of tinned potatoes soared 19.2% year-on-
year to 19,000 tonnes.
Source: The Potato Council, January 2014.

1) What was the average price paid per tonne of potatoes in 2013?

2) Work back through the figures to calculate


i. the market size by value in 2012
ii. the market size by volume in 2012
iii. The average price paid per tonne of potatoes in 2012

3) Use the above to calculate the price elasticity of potatoes in 2013.

4) Explain two possible reasons why the PED of potatoes is so low.

5) Calculate the cross price elasticity between fresh and tinned potatoes.
Briefly explain how the result shows you whether their relationship is as a
compliment or a substitute.
Puzzle Answers

1) What was the average price paid per tonne of potatoes in 2013?

£1.4bn/1.5m = £933.3

2) Work back through the figures to calculate


i. the market size by value in 2012: £1.4bn/121.5 = £1.15bn
ii. the market size by volume in 2012: 1.5m/0.921 = 1.62m
iii. The average price paid per tonne of potatoes in 2012:
£1.15bn/1.62m = £710

3) Use the above to calculate the price elasticity of potatoes in 2013:


price up 31.5% sales down 7.9% so PED = -7.9%/+31.5% = - 0.25

4) Explain two possible reasons why the PED of potatoes is so low.

 People may regard spuds as an essential part of a meal and


therefore buy them with little response to the price charged
 Potatoes perhaps have few real substitutes (even though rice and
pasta seem like substitutes, perhaps not in the minds of many
British shoppers)

5) Calculate the cross price elasticity between fresh and tinned potatoes.
Briefly explain how the result shows you whether their relationship is as a
compliment or a substitute.

Sales of tinned spuds +19.2%/Price of potatoes + 31.5% = +0.61. A


positive correlation between price of good A and sales of good B proves
that the products are substitutes.

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