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1Surabhi Singh

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Economics HL

EXTENDED

ESSAY

How has the increase in price of

milk affected the demand formilk in the household sector in

the city of Jaipur?

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2Surabhi Singh

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Submitted by- Surabhi Singh

Candidate #

Word count-

Contents

1. Abstract......................................................................

.........Pg

2. Introduction................................................................

........Pg 3

3. Design of the

study............................................................Pg 6

4. Market

profile.....................................................................Pg

7

5. Theoreticalframework......................................................Pg 9

6. Hypothesis..................................................................

........Pg 13

7. Data

collection..................................................................P

g 14

8. Data

analysis......................................................................

Pg 16

9. Conclusion..................................................................

.......Pg

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10. Bibliography................................................................

.......Pg

List of vernacular

words .....................................................PgList of

figures......................................................................P

g

List of

abbreviation...........................................................Pg

11. Appendix.....................................................................

.....Pg

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Introduction

Jaipur is the capital city of Rajasthan, which is a state situated in the north

western part of India. Being a desert state, Rajasthan has an extremely dry

climate. Because of this, milk and milk products play a vital role in the daily

diet of the northwestern community of India. Milk is considered an essential

drink for the children especially and milk products such as curd, butter, ghee,

butter milk are consumed by all age groups in large quantities. Based on our

interview with Mr. Narendra Sonigra, Manager Liquid Milk, Amul, the Jaipur

milk market is estimated to be 12 lakh1 liters per day.

With the setting up of the National Dairy Development Board in 1965 and

Operation Flood2, which followed this, India has become the largest milk

producer in the world. However, per capita milk consumption in the country

for the year 2006-07 was extremely poor at 246 milliliters per day. This

figure was somewhat better for Rajasthan, at 408 milliliters per day3.

However,based on a survey carried out by Amul in 2007 in the city of Jaipur,

the per capita milk consumption in the city of Jaipur was surprisingly low at

268 milliliters per day. As compared to the recommended ___ milliliters perday by the World Health Organization. Besides the high population of the

country, the main cause for this low per capita consumption is low

productivity of the cattle and lack of extension services to the farmers, which

in turn leads to low productivity of the milchanimals.

Only about 18.55%of the milk production in the country is organized on the

lines of the famous Anand Pattern, which is a 3 tier federated co-operative

structure. In the state of Rajasthan, Saras (which is also a federated co-

operative) is the dominant organization. It commands about 55-60% share of

1 10 lakhs are equivalent to one million.

2 Operation Flood was a Government program started in 1970to increase the production ofmilk in the country.

3 http://www.nddb.org/statistics/milkprod_states_capita3.html

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the Jaipur liquid milk market. In 2007, Amul, the most popular milk and dairy

products brand in the country, entered the Jaipur market and started

retailing liquid milk (it was already retailing dairy products in the State).

Based on our discussions with Mr. Sonigra, Amul has been able to garner

about 10-15% share of the liquid milk market in Jaipur. About 20-25% of the

liquid milk market is catered to by the local dudhiyas (local milk vendors).

The rest of the liquid milk market is catered to by Goras (a local brand).

There are a few other local brands like Lotus but their sales are negligible.

The milk products market is dominated by Amul and Saras. Besides, there

are other small local vendors and brands but their market share is very low

as compared to that of these leading brands.

Large companies have tried to enter this market but they have not achieved

much success. For example, a leading FMCG company, Britannia, retails

dairy products such as butter and cheese in Jaipur and other parts of the

country. However, their market share should be minimal.

Saras, Amul and Goras are in the organized sector, having established

front-end and back-end supply chains. Local dudhiyas sell loose milk in the

local doodh mandis4. Besides, some of them also undertake home delivery,

while some quality conscious consumers come to their dairy to take milk (in

order to avoid any adulteration). In Jaipur, there are 3 local doodh mandis,

which sell about 1.3 lakh liters of milk every day5.

Thus, while the 3 organized players undertake processing and sell milk and

milk products in various varieties (such as high fat, toned and double toned

milk), the local dudhiyas only supply unprocessed milk.

The price of liquid milk and dairy products has increased significantly in the

last few years. For example, the local dudhiyas used to sell milk at about 18

4 Mandi- a market where fruits and vegetables are sold. Milk mandi market where milk issold

5 Data given by Mr. Narendra Singh Sonigra

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rupees per liter back in the year 2006 but this has increased to about 26

rupees per liter now in the year 2009. As milk is an essential part of ones

diet, this increase in price is a matter of serious concern to most consumers.

The price increase could especially have a significant impact on the poor.

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RESEARCH QUESTION

Milk is an important part of a common mans diet; it is the best source for

calcium. Any increase in price of milk could reduce its consumption and

have serious implications on health standards, especially of children.

Considering the dire consequences of this increase in milk prices, I decided

to study the impact that this could have on the demand of milk. To be

specific, the research question is-

How has the increase in price of milk affected the

demand for milk in the household sector in the city of

Jaipur?

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Design of the Study

Most colonies in Jaipur could be treated as homogenous units, comprising of

inhabitants from the high, middle and low income classes. Therefore, cluster

sampling was adopted and all respondents were chosen from 2 clusters -

Mahesh Nagar (a small area of Jaipur where I live) and the area in and

around my school. School is a place where people of all communities and all

classes can be found, be it the teachers, peons or the office staff.

Structured questionnaires were administered on consumers about how the

increase in milk prices affected their consumption of liquid milk and milk

products. Similarly, besides detailed discussions, questionnaires were

administered on milk retailers, local vendors. Further, discussions were had

with the following:

1. An unstructured interview was conducted with Mr. Radha Swami

Thandhani, Manager of the Gaushala. (Gaushala is a large area where

cows are reared for milk). Along with selling loose cow milk, the

Gaushala alsoowns the brand Goras. Besides the interview, a

questionnaire was also administered on him.

2. Mr. Ankur Chaturvedi, the Production Executive at the Saras processing

plant. Along with unstructured discussions, a questionnaire was also

administered on him6.

3. An unstructured interview was conducted with Mr. Narendra Singh

Sonigra, Jaipur Depot In charge, Milk, and Amul.

4. Discussions were had with the local vendors at the largest of the three

milk mandis.

Limitations of the study

6Appendix 1

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1. The sample may not be representative as only 100 consumers were

interviewed.

2. Even though the questions were explained in detail, there is a

possibility that due to lack of education, the implication of the questionmay not have been understood by the respondents.

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Market Profile

The milk industry in Jaipur is catered to by three-four organized players and

numerous local dudhiyas who are categorized under the unorganized

players. Jaipur market includes five major suppliers- Saras, Amul, Goras, local

vendors, the Gaushala and the villagers who come and sell their stock of milk

at the milk mandi.

Each of the five major suppliers holds a different market share. Saras has

gained preference over the last three to four years, hence dominates the

market. Amul recently entered the market; although it does not hold a big

market share it is still providing good competition to Saras and other

suppliers. Similarly the other suppliers in the unorganized sector- local

dhudiyas and milk mandi too hold a good market share and are giving quite

a competition

to the

others.

Figure 1

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The above figure 1 shows the market share covered by different suppliers for

the supply of liquid milk only.

Mahesh Nagar is an area where people of different incomes can be found,

hence, the consumption variation can be studied well in this area. Themarket area here is well distributed among all the five major suppliers. Saras

has many parlors and booths in the area; located at every 100-500 meters.

Amul has only two booths and three other retailers in the area. Goras also

has about five booths in the area, along with this it is the only branded milk

which does home delivery. Both Saras and Amul produce processed milk of

different grades while Goras supplies milk only of one grade. These firms run

on the basis of the Anand Pattern; they are owned by the milk supplyingfarmers. This helps to eliminate middlemen and thus increase profits.

The Milk mandis are catered to by the villagers who live on the outskirts of

Jaipur. Some local dudhiyas buy milk from the Milk Mandi and then do home

deliveries, whereas, some do the same with the milk sourced from their

home dairies itself. These home based dairies, (run by any local dhudiya) are

small in size but there are about 20-25 of these in this area. Consumers go

and buy loose milk from there itself.

Saras and Amul are the dominating firms in the milk products industry. There

are other brands too but, their sales are much lower as compared to those of

the two dominating ones. Goras produces only cow-milk products and it is

the leading brand for them. Other than companies there are local shops who

sell dairy products as well. The sweets caterers are the best example of this;

other than this there are local shopkeepers who sell products like curd,

cottage chesse, buttermilk (lassi), skimmed buttermilk (chaach), etc.

Saras and Goras have their dairy plants set up in Rajasthan itself. Amul does

not have a dairy plant in Rajasthan; it gets its needed milk and products from

the Banaskantha dairy, situated in Gujarat.

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Theoretical Framework

MARKET TYPE

The market forms exist in four types, which can be categorized under four

headings-

Perfect competition

Oligopoly

Monopoly

Monopolistic competition

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OLIGOPOLY There are many firms present in the market but a few large

firms dominate the market. These large firms enjoy economies of scale and

often are able to sell their products at lower prices than other firms. The

products sold are so similar that even a minimal increase in the price could

have a large fall in the quantity demanded.

There is high interdependence in an oligopolistic market. Thus, while any

price reductions may be matched by competition (so as not to lose any

market share), price increases may not be followed suit by the competitors.

This implies that an oligopolistic firm will have a kinked demand curve, as

shown in Figure 3. The demand will be relatively elastic if a firm increases its

price but it becomes much more inelastic if the price is reduced.

WHERE IS FIGURE 3

MENTION HERE THE MILK MARKET IS AN OLIGOPOLISTIC

MARKET

ELASTICITYo PRICE ELASTICITY OF DEMAND (PED)

It is the measure of responsiveness of the quantity demanded for a

commodity as a result of change in price of the same commodity. It helps in

calculating the response of consumers to a change in price of a product. The

demand curves are always downward sloping and hence, the values are

negative.

PED = % change in the quantity demanded% change in

price

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PED varies as the elasticity of one good differs from the other. Some are

classified as inelastic and some as elastic goods. Inelastic goods have very

less or no substitutes and usually are necessary for a high standard of

living. On the other hand, elastic goods are those with many substitutes

and are usually of a luxurious nature. Milk has an inelastic demand as it is

necessary for keeping good health.

o CROSS PRICE ELASTICITY OF DEMAND (PEDx,y)-

It measures the relative sensitivity of the quantity demanded of a good with

respect to a change in the price of another related good. Cross-price

elasticity measures the closeness of substitutes and the relevance of

complements7.

PEDx,y = % change in the quantitydemanded for x

% change in

price of y

o PRICE ELASTICITY OF SUPPLY (PES)

It is the measure of responsiveness of the firms to increasing the quantitysupplied on the market due to a change in price.

PES = % change in the quantity supplied% change in

price

Similar to PED, the elasticity of a product supplied varies from one good to

another. Goods are classified in different order with respect to having

inelastic, elastic and unitary supplies.

o INCOME ELASTICITY OF DEMAND (YED)-

7,8 Economics- In terms of The Good, The Bad and The Economist, - Matt McGee; published

by IBID Press, Victoria.

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It measures the relative sensitivity of the quantity demanded of a good with

respect to a change in peoples income.8

YED = % change in the quantity demanded% change in income

Goods are classified accordingly, being income inelastic and income elastic.

Income inelastic goods are those where the proportional increase in the

quantity demanded is less than the increase in the income. Income elastic

goods are those where the proportional increase in the quantity demanded is

more than the increase in the income.

8

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Hypotheses

Milk is likely to have an inelastic demand (it being necessary for good

health); With an increase in the price of milk, there is likely to be aninsignificant decline in the demand for milk.

It is also hypothesized that with increasing incomes and prosperity in India,

the demand for milk should have increased. Besides, this increase should

have been more in the poorer sections, since they would now have the

capability to satisfy their minimum nutrition requirements.

Further, another hypothesis is that with increasing prices of milk and given

the necessity to consume milk, consumers could have shifted to a lower

grade of milk.

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Data Collection

PRIMARY DATA

Questionnaires were administered on the people around my house and

the staff of my school, which include teaching staff, and other

employees from the watchmen to the sweepers.

Questionnaires were administered on the representatives of the

following organized players -

- Amul

- Saras

- Goras

Questionnaires were also administered on vendors at the following

retail points -

- Milk Mandi

- Local Dudhiyas

- Booths and parlors

- Local Shops

Interviews were had with

- Mr. Narendra Singh Sonigra, Depot in-charge (Milk) Jaipur, Amul.

- Mr. Radha Swami Thandhani, the Manager of the Gaushala.

- Mr. Kajod Sharma, the Union leader of the doodh mandi.

Discussions with Mr. Ankur Chaturvedi, Production Executive, Saras

during the visit to the Saras Dairy plant in Jaipur.

SECONDARY DATA

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Secondary data has been sourced from various websites and books

referred to in the bibliography.

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Data Analysis

Milk is a drink which is consumed on a daily basis in one form or the other. It

is one of the essential food items which are required every day and hence itshould be available to all, be it of any income group. Because of this, liquid

milk has an inelastic demand.

REASONING FOR THE INCREASE IN THE MILK PRICES-

The price of milk has increased significantly in the past two years. From

Rupees 18 per liter of full fat milk in the year 2006, it has gone up to

Rupees 26 per liter of full fat milk in the year 2008, which is approximately a

44% increase .As per the information obtained from the research, the main

reasons behind this increase in price are-

- Major increase in the cost of production

- Shortage of supply

- Increase in demand

1. The cost of production of milk has been increasing over the years.

The main reason for this increase in the cost of production is the increase

in the cost of feed. The cattle feed comprises of both wet and dry fodder.

The wet feed comprises of a mixture of various food materials which are

cooked together and then served to the cattle. Dry feed, locally known as

tura or bhusa, is served directly without any processing. Given below is

the increase in the cost of feed.

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As the average rainfall has decreased from 611.6 mm to 573.7 mm9 in

the state of Rajasthan, the farmers are forced to use diesel fueled pumps

to water their crop fields. With fuel prices increased by about 100%, the

input cost for the cultivation and harvesting of food crops has increased.

India experienced a real estate boom till 2008 (before the global credit

crisis), because of which property prices rose significantly. Making use of

this opportunity, many farmers sold their land, which led to a shortage of

agricultural land. This resulted in reduced supply of cattle fodder and

high prices. Besides, cost of other factors such as labour (200%) and

groundnut cake (135-140%) also increased.

2.The shortage of supply of milk is another major reason for the increase

in milk prices. This shortage is due to the increase in demand for red

meat. With changing taste buds and increasing prosperity, the people of

Jaipur are shifting towards red meat which is giving the farmers a good

incentive to sell away their cows and buffaloes for a good sum. The

butchers who paid only Rupees 4,000 6,000 three years ago are now

willing to pay Rupees 18,000 20,000 for a buffalo today. Hence, a lot of

cattle are being slaughtered in order to fulfill the growing demand for redmeat.

3. Other than increase in the cost of production and shortage of supply of

cattle, the other main reason for the increase in the milk prices is the

increasing demand for the product itself. As per the research, there has

been an increase in the demand for milk. The local vendors at the milk

market and Mr. Ankur Chaturvedi were persistent to point this out as a

major reason for the increase in prices. There has been an increase in

demand because of an increasing population. Further, with increasing

incomes, changing lifestyles and a higher health consciousness, people

9http://www.imd.ernet.in/section/nhac/dynamic/endofmonsoon.htm

http://www.imd.ernet.in/section/nhac/dynamic/endofmonsoon.htmhttp://www.imd.ernet.in/section/nhac/dynamic/endofmonsoon.htm

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are consuming more of milk, milk products and milk based drinks. A lot

many coffee shops opened in the last two years, leading to an increase in

demand for milk.

CHANGING PREFRENCES

Traditionally, most of Jaipur consumed unprocessed milk by purchasing it

from the local vendors. But recently this has changed with a greater demand

for processed milk. Saras has been in the Jaipur market since a long time,

but its sales for liquid milk have increased only in the recent times. Based on

our interview with Mr. Sonigra, Amul too has found high demand for its milk.

The reasons for this shift are as follows:1. Higher health consciousness (demand for fat free milk has increased).

2. Assurance of good quality and unadulterated milk by the organized

players.

3. Local vendors sell milk based on a take or pay model.

However, no such Convenience, in terms of is another ground on

what basis this change has taken place. Consuming milk from the local

vendor meant going to the local vendors dairy at a particular time

and then waiting for your turn to come. Even if the local vendorsused

the required utensils, quantity remained a reason of concern. As the

milk was fetched and sold right away, a lot of foam would lie in the

container and hence, consumers would always complain. Other than

this, mixing of water would often be a matter to concern and

arguments between the vendor and the consumer. The price of milk

would be same for all income groups and the quantity that one would

purchase was also fixed (no fluctuations on every day basis). Whereas

on the other hand, processed milk is available in different grades to

suit a consumers choice and financial status. Also, mixing of milk is

never a concern and so is not the quantity. Along with this, processed

milk can be purchased at any time of the day and from any source

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that comes your way. The different grades of processed milk available

are as follows-

Saras supplies with five types of everyday use processed milk-

o Saras gold (full cream milk)

o Saras shakti (standard milk)

o Saras taaza (toned milk)

o Saras smart (double toned milk)

o Saras fat free (skimmed milk- fat free)

The toned and full cream milk are purchased most in this area. Saras also

produces long shelf cow milk, whose demand as compared to the other

everyday use milk is not much in the area.

As for Amul, it supplies three qualities of everyday use packed milk-

o Amul gold (standardized milk)

o Amul shakti (toned milk)

o Amul taaza (double toned milk)

Amul also supplies long shelf milk which is of four types-

o Amul gold (standardized milk)

o Amul shakti (toned milk)

o

Amul taaza (double toned milk)

o Amul slim and trim (fat free)

o Amul cow milk

Goras produces only one grade of cow milk.

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MILK MARKET TYPE

The milk market would be categorized as an oligopolistic market rather than

being a monopoly. One could argue about this milk market being a monopoly

as Saras dominates more than 50% of the market, but this would not be soas the other firms (suppliers) are giving it good competition. Along with this

there are no such barriers to enter this market, and all have the good

knowledge about the products and price.

In an oligopolistic market, firms tend to have interdependence between

them. If any firm increases its price then its sales will decrease to substantial

amount. Although, if a firm decreases its price, then it cannot be assumed

that its sales will increase. Milk market shares the same theory; the prices of

milk are more or less similar still there are differences in the quantity

consumed from each firm. The prices are still in coordination with the other

suppliers present in the market. Even though Saras owns more than 50% of

the market, it still does not hold the power to be a price giver. If the firm

tries to increase its prices much higher than the other brands or suppliers

available in the market then it will lose its consumers as they will switch to

the other suppliers available in the market.

PRICING

The prices of the branded goods (milk and milk products) are fixed by the

firms or companies and hence the consumers cannot bargain with them.

Even the local vendors, who sell their milk to fixed consumers (bandhi), sell it

at a fixed price which is decided in the beginning of the month as the

payments are done on monthly basis. A routine change in price is seen in the

milk market where the some villagers sell the milk to brokers who then

further sell it the consumers. Other villagers sell their milk themselves. The

price of milk may differ from one seller to other as it is based on the fat

present in the milk; which is merely tested on fingers.

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Analysis

In analyzing the impact of the increase in price on the demand for milk in the

household sector, the population was divided into 3 categories, based on the

type of tenement. The primary data found strong correlation between

income levels and the type of house that the respondents lived in, which is

shown below.

Income categories Type of tenementLow income Kuccha houseMedium income Semi-pucca houseHigh income Pucca house

Table 02: represents the different categories based on the type of

house

Source:

The price of milk has increased significantly in the last two years. Table XX

below gives the estimated increase in price per litre of different grades of

milk.

Price per litre (in Indian

Rupees)

December

2006

December

2008

% increase in

the Price

Full fat 18 26 44.44

Standard 16 22 37.5

Toned 15 20 33.33Double toned

milk

13 17.5 34.61

Cow milk 16.5 19 15.15

Figure : xx

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Source: Based on discussions with the suppliers and confirmed by Mr

Chaturvedi, Production _________.

As can be seen from Table XX, while the increase in price of buffalo milk (in

nominal terms) has ranged from 33% to 44%, the price of cow milk (in

nominal terms) has increased only by 15.15% since December 2006.

Table XX below analyzes the increase in the price of milk in real terms, ie, in

inflation adjusted terms. In arriving at the increase in price in real terms, the

Consumer Price Index Urban Non-Manual Employees (CPI UNME) has been

considered to measure the inflation during the chosen period.

December 2006 December 2008 % increaseCPI (UNME)

Index10

483 569 17.8

Price (full fat

milk)

18 26 44.44

Price

(Standard mik)

16 22 37.5

Price (Toned

milk)

15 20 33.33

Price (Double

toned milk)

13 17.5 34.61

Price (Cow

milk)

16.5 19 15.15

Table XX:

Source:

10http://mospi.nic.in/stat_act_t4.htm

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Thus, while all varieties of buffalo milk have experienced an increase in price

in inflation adjusted terms, the price of cow milk has failed to keep pace with

inflation. This could indicate a preference for buffalo milk in the city of Jaipur.

There are various factors which determine the demand of a product,

economically stated as the determinants of demand. Price, income, prices of

other commodities, change in tastes and preferences, availability of

substitutes are some major determinants of demand. In this study, the

income and price has been looked upon in detail.

The demand for milk is highly inelastic as milk is considered as an important

ingredient of everyones daily diet. As the demand of any good is majorly

affected by any change in price and income, liquid milk is just one of such

products. The table below shows the variation of quantity demanded

between each income group11.

December

2006

December

2008

% change in

demand

Low income

group

0.80 1.02 27.5

Middle income

group

0.82 1.39 69.5

High income

group

1.82 2.56 40.65

Figure xx

Source: based on the questionnaire administered on the consumers.

On a weighted average the consumption of liquid milk now (December 2008)

in low income group is 1.02 liters; 1.39 liters in middle income group and

2.56 liters for the high income group. There has been a substantial amount

of change in the consumption as compared to two years back (December

2006) which has been represented in the figures above. The figures

11 Appendix

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represent an increase in quantity demanded, much higher in the middle

income group than in the high income group. The reason being, the ability to

fulfill ones basic needs, the consumers belonging to the high income group

were capable enough to fulfill their basic needs like consumption of liquid

milk, back in 2006 as well. With increasing incomes the middle income group

has increased its demand and therefore representing a higher increase in the

quantity demanded.

December

2006

December

2008

% change in the

expenditure

Low income

group

17.215 21.045 22.25

Middle income

group

17.58 22.03 25.31

High income

group

16.055 20.055 24.91

Figure - xx

Source: based on the questionnaire administered on the consumers.

The table above represents the increase in expenditure on liquid milk. The

major reason behind this increase in expenditure is the increase in incomes

of each income group. The Per-capita income-based, Gini coefficient has

moved up by 13% for rural India 0.38 in 1995-06 vis--vis 0.41 in 2004-05

and as much as 15% in urban India 0.39 vis--vis 0.43. At the all-India

level, the Gini coefficient has moved up from 0.43 (1995-96) to 0.45 (2004-

05)12. These figures depict an increase in the incomes of the people of India

(this data was the most recent data available).

According to the basic law of demand, with an increase in the price of a good

there should be a decrease in the quantity demanded13. But this is not the

case for liquid milk as despite an increase in its price the demand has12 The Economic Times: India rising, Bharat awaits trickle to turn into flood. 7 Feb, 2008, 0100 hrs IST, TNN

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increased. The table above (figure XX) represents an increase in the prices of

different grades of milk available in the Jaipur market. Demand and price are

negatively correlated, but in the case of liquid milk there is a positive

correlation, that is even the quantity demanded is increasing with an

increase in the price. This is basically because of an increase in the increase

in incomes. Income and demand have a positive correlation that is with an

increase in the price the demand also increases.

As stated before, the demand of a product depends on the various factors

simultaneously and can be measured though different econometric models

like multiple regression models and factor analysis. But these measures are

not yet taught; therefore individual factor elasticity could not be computed.Although as increase in price seems to have no impact on the demand, the

PED is primary based on the increase in incomes and can be assumed to be

0.114.

The Indian government has improved the budgets and hence the incomes

have increased. This has had a major impact especially on the low and

middle income groups as their living standards have improved. The per

capita incomes have increased by about 10.468%; the household sectors

contribution in the gross capital formation increased from Rs

5,00,036 crore in 2006-07 to Rs 5,78,775 crore in 2007-0815. This

shows an increase in the overall incomes of all groups.

13 Economics- In terms of The Good, The Bad and The Economist, - Matt McGee; published by

IBID Press, Victoria.

14 Rakesh Saxena: Dynamics of Demand for Milk in this Millennium; Published in Indian

Dairyman, December 2000.

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%change

in

demand

% change in

demand because

of increase in

prices

% change in

demand because

of increase in

incomes

Low income group 27.5 -2.225 29.725

Middle income

group

69.5 -2.531 72.031

High income group 40.65 -2.491 43.141

Figure xx

Source: figure xx and data calculated on the basis of the questionnaires

administered on the consumers.

As there increase in price seems to have a minimal effect on the demand of

liquid milk, it can be clearly stated that the increase in demand is mostly

based on the increase in incomes. The table above represents the change in

demand for liquid milk due to the increase in the incomes. The middle

income group is

%change in

demand

% change in

incomes

PEY

Low income

group

29.725 13.88 2.14

Middle income

group

72.031 5.169 13.93

5High income

group

43.141 15.45 2.79

Figure XX

Source: % change in demandbased on table 1

% change in incomes--- based on the data from the NSSO16

15 http://www.domain-b.com/economy/general/20090130 income up.html ---based on CSO

figures

16http://mospi.nic.in/rept%20_%20pubn/ftest.asp?rept_id=523&type=NSSO;

http://mospi.nic.in/rept%20_%20pubn/ftest.asp?rept_id=527&type=NSSO

http://www.domain-b.com/economy/general/20090130%20income%20up.htmlhttp://mospi.nic.in/rept%20_%20pubn/ftest.asp?rept_id=523&type=NSSOhttp://mospi.nic.in/rept%20_%20pubn/ftest.asp?rept_id=523&type=NSSOhttp://mospi.nic.in/rept%20_%20pubn/ftest.asp?rept_id=523&type=NSSOhttp://mospi.nic.in/rept%20_%20pubn/ftest.asp?rept_id=527&type=NSSOhttp://www.domain-b.com/economy/general/20090130%20income%20up.htmlhttp://mospi.nic.in/rept%20_%20pubn/ftest.asp?rept_id=523&type=NSSOhttp://mospi.nic.in/rept%20_%20pubn/ftest.asp?rept_id=527&type=NSSO

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The percentage change in demand because of increase in incomes varies for

each income group. The table above shows the PEY for each income group.

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Conclusion

Milk is a good with high inelasticity.

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