nestle 2

(PRE-MID ASSIGNMENT)

(ECONOMICS)

Submitted To:

prof. Hina

Submitted By:

TAYYBA JAMEEL

SAJID IMRAN

M. AMIR

M. ADNAN

ZEESHAN ALI

KHURRAM SHAHZAD

Company Selected:

NESTLE FOODS LTD

Product:

History in Pakistan

1985 - Mr. Khawaja Selah-ud-din established PND (Pak National Distributors) in Bahawalpur first company of PND Group

_ 1985 - Unilever Retail Distribution in 40% geographies of Multan _ 1987 - Nestle as handling agent for entire Southern Punjab _ 1992 - Tariq Glass Industries (OMROC)

_ 2000 - Nestle Pure Life (drinking water) distribution in Lahore _ 2005 - Retail Franchise of Shell Pakistan Ltd

_ 2006 - Handling Agents of Shan Foods Pvt Ltd & Young’s Pvt Ltd

_ 2007 - retail distribution of 40% Lahore through M/S Wali & Company (PND Group Company) for English Biscuit Manufacturers (EBM) Pvt Ltd.

_ 2007 - 08 Nestle Pure Life (drinking water) operations in complete Lahore _ 2008 - Currently 40% Lahore is serviced through National Distributors (PND Group Company) for Nestle Liquid Products

_ 2009 - Asian Foods Pvt Ltd (Mayfair) as handling agent and retail distribution

for entire Southern Punjab

_ 2009 - Unilever Retail Distribution in remaining 60% geographies of Multan _ 2010 - Asian Foods Pvt Ltd (Mayfair) as retail distribution for Bahawalpur

---Critical success factors:

History:

The Swiss flag flies on our Headquarter building. But, inside, around 80 nationalities are

represented by our 1,600people working there

The world of Nestlé

By now you’ll have realised that Nestlé is a world of its own. It spans the globe. But more importantly, Nestlé employees come from all walks of life. Once they join Nestlé, they continue to expand their horizons. In keeping with the world in which we all live, Nestlé too, is constantly changing. But its values remain the same. The Company will go on providing high quality safe and trusted food and beverages for millions

of people, providing them with nutrition, health and

Nestlé. Good Food, Good Life

In 1988 the Nestle Pakistan, Switzerland based country acquired Milk Pak in Pakistan.

The Milk pack company was in Kabirwala. At that time, the teams from Nestle Switzerland made frequent visits to Milk pack for inspection purpose.

Whenever they

visited Kabirwala, they also checked the Multan market. During those days, the

milk pack market in Multan was very bad.

At that time, one of Mr. Salahuddin’s relative had come from Saudi Arabia. Salahuddin went to meet his friend in Bahawalpur where he met the marketing

.

Markets and Prices

When you need a new pair of running shoes, want abagel and a latte, plan to upgrade your cell phone, or need to fly home for Thanksgiving, you must find a place where people sell those items or offer those services. The place in which you find them is a mark t learned in Chapter 2 (p. 42) that a market is any arrangement that enables buyers and sellers to get

Information and to do business with each other.

A market has two sides: buyers and sellers. There are markets for goods such as apples and hiking boots, for services such as haircuts and tennis lessons, for factors of production such as computer programmers and earthmovers, and for other manufactured inputs such as memory chips and auto parts. There are also markets for money such as Japanese yen and for financial securities such as Yahoo! stock. Only our imagination limits what can be traded in markets. Some markets are physical places where buyers and sellers meet and where an auctioneer or a broker

Demand

Wants are the unlimited desires or wishes that people have for goods and services. How many times have you thought that you would like something “if only you could afford it” or “if it weren’t so expensive” Scarcity guarantees that many—perhaps most—of our wants will never be satisfied. Demand reflects a decision about which wants to satisfy

The Law of Demand

demanded and the lower the price of a good, the greater is the quantity demanded

Substitution Effect

When the price of a good rise other things remaining the same, its relative price— its opportunity cost—rises. Although each good is unique it has substitutes—other goods that can be used in its place. As the opportunity cost of a good rises the incentive to economize on its use and switch to a substitute becomes stronger. Income Effect

When a price rise,other things remaining the same, the price rises relative to income. Faced with a higher price and an unchanged income people cannot afford to buy all the things they previous bought. They must decrease the quantities demanded of at least some goods and services. Normally the good whose price has increased will beone of the goods that people buy less of.To see the substitution effect and the income effectat work, think about the effects of a change in the price of an energy bar. Several different goods aresubstitutes for an energy bar.

Demand Curve and Demand Schedule

You are now about to study one of the two most used curves in economics: the demand curve. You are also going to encounter one of the most critical distinctions: the distinction between demand and quantity demanded .The term demand refers to

the entire relationship between the price of a good and the quantity demanded of that good. Demand is illustrated by the demand curve and the demand schedule. The term quantity demanded refers to a point on a demand curve—the quantity demanded at a particular price.

Figure 3.1 shows the demand curve for energy bars. A demand curve shows the

relationship between he quantity demanded of a good and its price when all other influences on consumers’ planned purchases remain the same. The table in Fig. 3.1

is the demand schedule for energy bars. A demand schedule lists the quantities demanded at each price when all the other influences on consumers’ planned purchases remain the same For example, if the price of a bar is 50¢, the quantity demanded is 22 million a week. If the price is $2.50,the quantity demanded is 5 million a week. The other rows of the table show the quantities demanded at prices of $1.00, $1.50, and $2.00.We graph the demand schedule as a demand curve with the quantity demanded on the x-axis and the price on the y-axis. The points on the demand curve labeled A through E correspond to the rows of the demand schedule. For example, point A on the graph

shows a quantity demanded of 22 million

demanded schedule

Demand function

.nestle has increase the price of 1liter milk pack by Rs 10aaand the price became 110they do no change price of other product due to this the supply of the product should be reduce by the suppliers and the shortage of the milk pack

When the supply is reduced the demand is increase people required more milk but the supply is short

This position of market I always in summer season when the production of liquid milk is reduced and the demand of the packet milk should be increase

Pakistan has the fifteen largest milk produced country

The annual production of milk is 36 billion litter but the customer is facing the shortage problem Especially in summer season because the urban people required milk

The liquid milk is not available the people is have no more substitute Therefore they demand the packet milk

In this demand the nestle is no/1 choice of the people

Descriptives

N Minimum Maximum Mean Std. Deviation

demand 10 40.00 60.00 49.4000 5.89161 price 10 12.00 19.00 15.3000 2.21359 incom 10 100.00 100.00 1.0000E2 .00000 Valid N (listwise) 10 Frequency Table

demand

Frequency Percent Valid Percent

Cumulative Percent Vali d 40 1 10.0 10.0 10.0 43 1 10.0 10.0 20.0 45 1 10.0 10.0 30.0 47 1 10.0 10.0 40.0 50 2 20.0 20.0 60.0 52 2 20.0 20.0 80.0 55 1 10.0 10.0 90.0 60 1 10.0 10.0 100.0 Total 10 100.0 100.0 demand price

demand with price

price

Frequency Percent Valid Percent

Cumulative Percent Valid 12 1 10.0 10.0 10.0 13 1 10.0 10.0 20.0 14 2 20.0 20.0 40.0 15 2 20.0 20.0 60.0 16 1 10.0 10.0 70.0 17 1 10.0 10.0 80.0 18 1 10.0 10.0 90.0 19 1 10.0 10.0 100.0 Total 10 100.0 100.0

Cross Correlations

Series Pair: demand with price

Lag Cross Correlation Std. Errora -7 .103 .577 -6 .154 .500 -5 -.023 .447 -4 -.500 .408 -3 .184 .378 -2 .455 .354 -1 .192 .333 0 -.990 .316 1 .082 .333 2 .408 .354 3 .304 .378 4 -.505 .408 5 -.013 .447 6 .140 .500 7 .104 .577

a. Based on the assumption hatt heeries are not cross correlatedand that one of

Correlations

Partial Correlations

Correlations

Control Variables demand price

incom demand Correlation 1.000 .

Significance (2-tailed) . . df 0 7 price Correlation . 1.000 Significance (2-tailed) . . df 7 0 Proximities

Case Processing Summary

Cases

Valid Missing Total

N Percent N Percent N Percent

10 100.0% 0 .0% 10 100.0%

Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1 .990a _{.980 .978 .88192}

a. Predictors: (Constant), price

ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression 306.178 1 306.178 393.657 .000a

Residual 6.222 8 .778

Total 312.400 9

a. Predictors: (Constant), price b. Dependent Variable: demand

Coefficientsa Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) 89.714 2.051 43.743 .000 price -2.635 .133 -.990 -19.841 .000

Supply

A supply is more than just having the resources and the technology to produce something. Resources an technology are the constraints that limit what is ossible Many useful things can be produced, but they are not produced unless it is

profitable to do so. Supply reflects a decision about which technologically feasible items to produce

The quantity supplied of a good or service is the amount that producers plan to sell

during a given

time period at a particular price. The quantity suppliedis not necessarily the same amount as thequantity actually sold. Sometimes the quantity suppliedis greater than the quantity demanded, so thequantity sold is less than the quantity supplied. Like the quantity demanded, the quantity suppliedis measured as an amount per unit of time. For example suppose that GM produces 1,000 cars a day. The quantity of cars supplied by GM can be expressed as 1,000 a day, 7,000 a week, or 365,000 a year. Without the time dimension, we cannot tell whether aparticular quantity is large or small.

The Law of Supply

Other things remaining the same, the higher the

price of a good, the greater is the quantity

supplied;

and the lower the price of a good, the smaller is

the

quantity supplied

Price Quantity supplied

Supply schedule

(dollars per bar) (millions of bars per week)

A 0.50 0 B 1.00 6 C 1.50 10 D 2.00 13 E 2.50 15

Supply curve

Price

Supply curve

Y axis

X axis supply

In this diagram we can se that when the price increase the supply also increase and when the price is decrease the supply is also decrease

The supply curve is gone down to up word this show the positive relation with supply and price Supply is the function of price

price Supply price supply

Price

Frequency Percent Valid Percent

Cumulative Percent Valid 12 1 6.7 6.7 6.7 25 1 6.7 6.7 13.3 28 1 6.7 6.7 20.0 30 1 6.7 6.7 26.7 35 1 6.7 6.7 33.3 39 1 6.7 6.7 40.0 40 1 6.7 6.7 46.7 42 1 6.7 6.7 53.3 45 1 6.7 6.7 60.0 49 1 6.7 6.7 66.7 50 1 6.7 6.7 73.3 52 1 6.7 6.7 80.0 53 1 6.7 6.7 86.7 55 1 6.7 6.7 93.3 60 1 6.7 6.7 100.0 Total 15 100.0 100.0

Supply

Frequency Percent Valid Percent

Cumulative Percent Valid 5 1 6.7 6.7 6.7 9 1 6.7 6.7 13.3 11 1 6.7 6.7 20.0 13 1 6.7 6.7 26.7 15 1 6.7 6.7 33.3 17 1 6.7 6.7 40.0 19 1 6.7 6.7 46.7 23 1 6.7 6.7 53.3 25 1 6.7 6.7 60.0 27 1 6.7 6.7 66.7 30 1 6.7 6.7 73.3 35 1 6.7 6.7 80.0 36 1 6.7 6.7 86.7 40 1 6.7 6.7 93.3 45 1 6.7 6.7 100.0 Total 15 100.0 100.0 Descriptive Statistics

N Minimum Maximum Mean Std. Deviation

price 15 12.00 60.00 41.0000 13.12577

supply 15 5.00 45.00 23.3333 12.05148

Valid N (listwise) 15

Case Processing Summary Count Overall 15 Excluded 0 Total 15

Ratio Statistics for price / supply

Price Related Differential 1.121

Coefficient of Dispersion .212

Coefficient of Variation Median Centered 26.4%

price

Means

Case Processing Summary

Cases

Included Excluded Total

N Percent N Percent N Percent

supply * price 15 100.0% 0 .0% 15 100.0%

T-Test

Paired Samples Statistics

Mean N Std. Deviation Std. Error Mean

Pair 1 price 41.0000 15 13.12577 3.38906

Correlations

Correlations

price Supply

Price Pearson Correlation 1 .959**

Sig. (2-tailed) .000

N 15 15

Supply Pearson Correlation .959** ₁

Sig. (2-tailed) .000

N 15 15

**. Correlation is significant at the 0.01 level (2-tailed).

Proximities

Case Processing Summary

Cases

Valid Missing Total

N Percent N Percent N Percent

Regression Variables Entered/Removedb Model Variables Entered Variables Removed Method 1 pricea _{. Enter}

a. All requested variables entered.

Model Summary Model R R Square Adjusted R Square Std. Error of the Estimate 1 .959a _{.919 .913 3.55945}

a. Predictors: (Constant), price

ANOVAb

Model Sum of Squares df Mean Square F Sig.

1 Regression 1868.627 1 1868.627 147.488 .000a

Residual 164.706 13 12.670

Total 2033.333 14

a. Predictors: (Constant), price b. Dependent Variable: supply

Coefficientsa Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta 1 (Constant) -12.754 3.110 -4.100 .001 price .880 .072 .959 12.144 .000

a. Dependent Variable: supply

Sale function of nestle

The year in review has seen significant changes in our business environment, both at home in Switzerland and in many other countries where your company is active. Switzerland has seen changes in corporate law t hat directly impact your company. Challenges in the Middle East, Asia, Africa and Latin America contributed to a general slowdown in the emerging markets’ growth rates. The developed markets mean while, have continued to experience an aemic growth, at best. The results that we have achieve dinthis environment, therefore, are a tribute toour 333 000 employees, many

of whom have experiencedthese difficult challenges first hand.Sales were CHF 92.2 billion, with organic growth of

4.6%, incorporating real internal growth of 3.1% and pricingof 1.5%. After some years of inflation, raw materialcostswere subdued in 2013, and our commitment to deliveringthe right value propositions to our consumers resultedin a low level of pricing: our relatively strong real internalgrowth, considering the environment, suggests that wesucceeded against market. The trading operating profiwas CHF 14.0 billion and the margin increased by 20 basispoints to 15.2%. This performance was achieved whilst atthe same time increasing our brand support. The net profitwas CHF 10.0 billion and earnings per share were CHF 3.14.Underlying earnings per share were up 11.0% in constantcurrencies. Operating cash flow was CHF 15.0 billion. Inview of this performance and the company’s strong financialposition, the board is recommending a dividend per share ofCHF 2.15, up 4.9% from CHF 2.05 last year.The results in 2013 showed our determination to growyour company profitably and sustainably, allowing us todeliver over time the Nestlé Model of organic growth of5–6% together with improvements in our trading operatingprofit margin and earnings per share in constant

currenciesand in our capital efficiency. Indeed, our average organicgrowth has been 6.1% over the last ten years, during whichtime we also consistently improved our operating profitmargin. This performance reflects a focus both on ourshorter-term performance – seeking to grow faster thanour markets – and on the longer-term – making the rightdecisions to ensure sustainable profitable growth intothe future

Each year is a challenge in its own way, and 2013 wasno different. A more difficult trading environment requiredan intense focus on ensuring we maintained our edge inthe market. In 2013, guided by our strategic

roadmap, weconsidered how we could work smarter to deliver greatervalue for consumers and for you, our fellow shareholdersWe wanted to ensure we were agile enough to maximisethe opportunities presented by today’s fast-changingenvironment.

Milk is a complete diet and an important source of income for our farmers. In fact it is the top valued commodity in the entire agriculture. With annual milk production of over 35 million ton Pakistan ranks fourth in the world in milk production after India, United States and China. The dairy sector of the

country is not fully developed. The herd average herd size is 2-5 animals per farmer that denies the producer the economies of scale.

Unfortunately over 95 per cent of the dairy sector operates in informal sector but corporate sector in recent years has started penetrating the dairy

market. Most of the milk produced is consumed without any processing in the villages or through the milkman (Gawallas) in the cities. Since the milk production centres are in remote areas it takes at least 6-8 hours for the milkman to deliver the milk at the door step of the consumers. The problem in this regard is that the shelf life of milk is only 4 hours. Milk being a very precious commodity is kept at low temperatures and then processed to prolong its shelf life. This facility in Pakistan is available to only 3-5 per cent of the farmers; the rest preserve it through unhygienic and unhealthy

methods – details of which are given separately.

There are more than 8 million dairy farmers in the country and the average herd size is 2-5 animals per farm. Baring a few none of these farming

household are connected with the formal market.

As far as value is concerned dairy sector has a huge annual turnover of over Rs1400 billion (35 billion litres x Rs40 per litre) which is equivalent to $14 billion. Dairy farmers still adhere to old and traditional dairy farming

practices which is the reason that the productivity of its milking animals is very low compared with the developed

Explanation with diagram

2008 ₂₀₀₉ 2010 ₂₀₁₁ 0 1 2 3 4 5 tarang haleeb nestle tarang haleeb nestle

economies.

We must not undermine the efforts of resource less dairy farmers that have taken the milk production in the country from 5.895 billion liters in 1961 to 35.861 billion liters in2011. However the Chinese have outperformed our dairy sector during the same period. In 1961 they were producing only 1.529 billion liter of milk that increased by 2001 to 13.281 billion liters. In 2001 Pakistan was still way ahead of the Chinese with 25.646 billion liter of milk production.

Dairy sector growth increased phenomenally in last decade in China reaching 40.028 billion liters in 2011. The Chinese government adopted most modern techniques in the dairy sector. It improved the quality of its milking animals through artificial insemination. Improved the supply chain and processing of the milk. Indian dairy industry developed at par with Pakistan until the start of this century. They have developed cool chains for milk and are currently the largest producer of milk in the world replacing United States.

Milk, whole, fresh

(billion liter)

Years

Pakista

n

China

India

1961

5.895

1.529

19.840

1971

7.378

1.739

21.825

1981

8.715

2.755

33.271

1991

14.909

6.824

51.713

2001

25.646

13.281

79.918

2011

35.861

40.028

114.850

Summary Financial performance PKR Million 2012 2011 Chang e Sales 79,08 8 64,82 4 +22.0 % Gross Profit margin 27.2 % 25.8 % +1.4% Operati ng Profit margin 13.9 % 13.0 % +0.9% Net Profit after tax margin 7.4% 7.2% +0.2% Net Profit after tax 5,865 4,668 +25.6 % Earnings per share 129.3₂ 102.9₄ +25.6_%

SUBSITUTES

And when the price increase a larg number of substitute in the market is prevails

Haleeb

Haleeb is a compitators of the nestle it is the old compitators of the nestle it is use in the place of the nestle milk pack

Tetra Pack

Tetra pack is a small compitators of the nestle it is also a substitute of the nestle milk pack

Tarang

Tarang is a newly compitators of the nestle milk pack it is a substitute of the nestle milk pack

Olpers

Olpers is a big and new commpitators of the nestle it is a substitute of the nestle milk pack

Tea max

Tea max is a local compitators of the nestle milk pack is a substitute of nestle milk pack

Production of nestle milk pack

In the past, the federal and provincial governments invested their own and/or donor = resources in targeted livestock development projects in specific areas of the country

with specific objectives to develop the livestock sector. One such project was the Punjab Smallholder Dairy Development Project, which operated from 1991-98. The project was jointly funded by a loan from the International Fund for Agriculture Development (IFAD) and a grant from the United Nations Development Programm (UNDP) at a total cost USD 14 million. It targeted 27,000 poor rural households in 720 villages in six Tehsils (Wazirabad, Hafizabad, Phalia, Kharian, Norowal and Sialkot) in Gujranwala Division to raise milk production for home consumption and income generation. The project created village milk collectors to collect and deliver milk to public or private sector milk collection centres of existing processing plants in the project areas, built 72 kilometres of farm-to-market roads and helped to connect rural producers with organized marketing channels. The project also contributed toan improved cropping pattern with hybrid seed, improved grass varieties and fod

erproduction

Dairy Development in Pakistan

7

Public Sector Investment in Milk Processing and Marketing

Assuming that there was demand for clean, good quality milk in urban areas, thegovernment considered that milk processing could bring development in the

dairysector by linking production and consumer demand. A policy was pursued to createdairy processing and marketing facilities under government ownership and management through dairy development projects, such as the Punjab Livestock Project. During the mid 1970s livestock development projects were conceived for increasing milk production: for example a Livestock Development Project was started in 1975 as an umbrella pilot project in some districts of all four provinces with an investment of PKR 78.4 million (USD 21.2 million) of which a World Bank loan covered PKR 36.9 million (USD 10 million) and PKR 41.4 million was generated from a Punjab government grant and equity fund. The project mainly invested in Sheikhupura District, Punjab, with the objective of increasing milk production by improving productivity of dairy animals through increased semen production for buffalo and cattle, improving marketing through establishment of milk plants with UHT technology and selling processed milk.

The implementation of the project was delayed by four years due to a change in management and delay in installation of machinery. Once implemented, it helped in creating capacity to process nearly one million litres of milk per day but consumer preference was not yet geared to accept processed milk. Consequently, capacity utilization was very low and most enterprises ran at heavy losses: the Lahore milk plant ran at about one-third of its capacity and lost PKR 3.12 million in 1984. The government disinvested these enterprises in the 1990s after the adoption of macroeconomic structural adjustment policies and a different set of policies was pursued to encourage private sector investment in the dairy industry.

Facilitating Private Sector Investment in Dairy Processing

Since the mid 1970s, alongside establishing public sector dairy processing facilities, the government followed a policy to give soft loans (low interest, few collateral requirements) to private entrepreneurs in the dairy sector for dairy farming, milk collection and processing and also allowed duty-free import of dairy machinery that was not produced domestically. This policy increased private sector investment – both local and multinational - in the dairy sector. The Agricultural Development Bank of Pakistan (ADBP) financed a total of 32 milk-processing plants through this policy, in the process creating overcapacity for processed milk. Although there was no explicit policy to control informal trading, it was hoped that expansion of formal milk

processing and marketing would automatically reduce the importance of the informal sector: this did not happened as rapidly as was anticipated and only a few of the processing plants are still operational; others closed down due to inadequate milk supply, lack of management skills and insufficient demand for their products. This failure also meant that there was little impact on dairy production through

anticipated backward linkages.

Dairy Development in Pakistan

8

0% 5%

% 2009 2010 2011 2012 0 1 2 3 4 5 6 pakistan china india Axis Title Axis Title

government inter face

milk is necessity for every one it is an important part of our food the people who use the milk in packet do not about the packing and other thing which use it is the responsibility of the government to check every things

in the industry of the nestle the government check cleaness of milk and the place is clean the ingredient use in the milk is health to the people the packet is use saves the milk the milk has no germs and other harmful bacteria

after checking all these things the government of Pakistan provide the licence to the compony

Pakistan I a Islamic country the government see that the milk is provide to the people is halal and use the material in the milk is halal according to the Islamic rule

The government also see that any other compony can make the milk in this name

The government to see every because the people get healthy milk

In these all cases the nestle has cover all the above condition and provide the people healthy milk nestle provide the people pure life

Transportation cost

Nestle has facing the hgh transportation cost the nestle has get mik in the out of the city this the milk is rech in the factory and there furher process is taken and then is milk pack is send to the other area in these way a high cost of the transportation is facing by the compony which cause to increase the cost of the compony and the cost of the single units

Packing cost

Nestle use the packet in which the milk is packed is beautiful and the hard

The packet is made in this shape they protect the milk the packet is mad by three cover sheet that cover the milk .

The packet is made by three cover that increase cost of the product And the milk is packed by a new technology that cover the milk

Advertisement cost

Nestle has make a heavy advertisement to increase their sale level the nestle make a

commmercial many outlet to show their product this process increase the sale level and also increase the cost of the compony it is an impotant part of business that increase the sale all the compony make the advertisement and increase their sale level

Material cost

The nestle purchase the liquid milk by different dairy and then make them process to convert in milk pack and save them a number of day to purchase the milk is high cost increase the cost of nestle milk pack

Because of all these cost the nestle has creat a value in the market and goodwill

Ambient Dairy

Nestlé MILKPAK

only strengthen thebrand further but will also aid in the growth of the bottled water market. It makes “Pakistan’s Favorite Water” available in

all major segments across the market.

Home and Office Service was re-launched at the start of the year with the aim of providing better service to Nestlé Pure Life customers. New customers were also attracted by highlighting the improved and superior NESTLÉ PURE LIFE experience.

management REPORT

In order to delight customers, several promotions were offered throughout the season to provide them more value for money. Our product and communications strategy of keeping the ‘Consumer at heart’ helped us in further strengthening

consumer loyalty and trust that has further improve profitability in 2010.

.

Market equilibrium curve

Demand and supply schedule

Price Quantity Quantity Shortage (–)

(dollars

per bar) (millions of bars per week) 0.50 22 0 –22 1.00 15 6 –9 1.50 10 10 0 2.00 7 13 +6 2.50 5 15 +10

price Supply curve

e p

demand curve

Q demanded

An Example

The demand for milk is P = 800 - 2QD

The supply of milk is P = 200 + 1QS.

The price of a milk is expressed in cents, and the

quantities are expressed in milk kg per day.To find the equilibrium price (P*)

andequilibriumquantity (Q*), substitute Q* for QD and QS and P* for

P. That is, P* = 800 - 2Q* P* = 200 + 1Q*. Now solve for Q*: 800 - 2Q* = 200 + 1Q* 600 = 3Q*

And

P* = 800 – 2[200] = 400.

The equilibrium price is $4 a milk kg, and the equilibrium

quantity is 200 milkkg per day.

Shortage and surplus

surplus .p3

p

p 2

shortage

80 100 120

quantity demanded and supplied

this diagrame show the three dimension

equilibrium

in this point the demand of the milk pack is equal to the supplyof the milk pack in this point the buyer is agree to buy the nestle mik pack and seller is agree to sale the nestle milk pack and the market is equilibrium point no shortage no surplus

shortage

in the above diagrame we can see that when the price fall the demand increase and the supply reduced and the shortage occure of the milk pack

normally thus is done by in summer season when the production of liquid milk is reduced and the demand of the milk is high the people use the packet milk and the demand increase this is short period of time the nestle should not increase their production the cause of shortage

surplus

in the above diagrame we can see that when the price rise the supply of the milk pack increase and the demand decrease this is done in the winter season when production is high and the demand is low