Economics
Analysis of the deviation of prices on grocery products before and during economic crisis.
Contents
- Factor analysis of prices of grocery products in three years preceding economical crisis and during economic crisis……………………………………………………………………………………………3
- Building an economic model showing the influence of factors of production, quantity demanded, competition, transport costs, the change of currency rates, advertisement, and other methods of stimulation on the prices and sales of the grocery products in three years preceding the economic crisis. Analysis of the influence of the factors with the help of the economic model………………….……….……………………………………………………………11
- Building an econometric model showing the influence of factors of production during the economic crisis. Analysis of the influence of factors on the prices with the help of the econometric model………………………………………………………………………………………..26
- Comparative analysis of prices on grocery products before and during the economic crisis…………………………………………………………39
- Resources used……….…………………………………………………………………41
1.Factor analysis of prices of grocery products in three years preceding economical crisis and during economic crisis
For my extended essay I chose a grocery store in Moscow called “Sfera” to analyze the prices of the grocery products before and during economic crisis and also to look at the factors which influenced the change in price. For the products to look at I chose the most commonly used ones such as: bread, milk, meat, fish, sugar, potatoes, oil, cucumbers, tomatoes and tea.
Price of every product of this grocery store on which we are looking is the price at which the product is sold and it can be shown through the next formula.
P=P0+C+Pr+VAT
Where : P- is the price in which the product is sold to the customer (retail price)
P0 – wholesale price
C- is the costs of the grocery store.
Pr- is the profit of the grocery store.
VAT-Value added tax
The factors which are parts of the prices are shown in the tables 1-4.
Table 1
The factors on the price of chosen products in the grocery store “Sfera” in 2006.
| The product | Wholesale price(RUR) | The costs of the store(RUR). | The profit of the store(RUR). | VAT (RUR). | The price in the store(RUR). |
| 1 | 2 | 3 | 4 | 5 | 6 |
| Bread «Burozskiy» 750 g | 9,56 | 0,30 | 1,45 | 2,03 | 13,34 |
| Milk «Dobrynia» 1 l | 15,94 | 0,68 | 2,13 | 3,37 | 22,12 |
| Fillet of beef, 1 kg | 107,41 | 2,14 | 59,35 | 30,40 | 199,30 |
| Fish «Tolstolob», 1 kg | 27,50 | 0,85 | 9,95 | 6,89 | 45,19 |
| 1 | 2 | 3 | 4 | 5 | 6 |
| Sugar, 1 kg | 10,47 | 0,11 | 2,78 | 2,41 | 15,77 |
| Potatoes, 1 kg | 8,73 | 0,09 | 2,12 | 1,97 | 12,91 |
| Refined sunflower oil «Gold Sunflower», 1 l | 28,86 | 0,85 | 5,98 | 6,43 | 42,12 |
| Cucumbers, 1 kg | 8,39 | 0,24 | 0,98 | 1,73 | 11,34 |
| Tomatoes, 1 kg | 18,21 | 0,99 | 5,16 | 4,39 | 28,75 |
| Tea «Dilmah», 100 g | 39,15 | 0,55 | 12,12 | 9,33 | 61,15 |
Table 2
The factors on the price of chosen products in the grocery store “Sfera” in 2007.
| The product | Wholesale price(RUR) | The costs of the store(RUR). | The profit of the store(RUR). | VAT (RUR). | The price in the store(RUR). |
| 1 | 2 | 3 | 4 | 5 | 6 |
| Bread «Burozskiy» 750 g | 9,95 | 0,38 | 1,49 | 2,13 | 13,95 |
| Milk «Dobrynia» 1 l | 16,16 | 0,85 | 2,53 | 3,52 | 23,06 |
| Fillet of beef, 1 kg | 113,40 | 3,14 | 64,88 | 32,66 | 214,08 |
| Fish «Tolstolob», 1 kg | 28,88 | 1,01 | 10,09 | 7,20 | 47,18 |
| Sugar, 1 kg | 10,53 | 0,15 | 3,35 | 2,52 | 16,55 |
| Potatoes, 1 kg | 8,98 | 0,12 | 2,19 | 2,03 | 13,32 |
| Refined sunflower oil «Gold Sunflower», 1 l | 30,25 | 0,88 | 6,15 | 6,71 | 43,99 |
| Cucumbers, 1 kg | 8,73 | 0,29 | 1,13 | 1,83 | 11,98 |
| Tomatoes, 1 kg | 20,10 | 1,05 | 5,67 | 4,83 | 31,65 |
| 1 | 2 | 3 | 4 | 5 | 6 |
| Tea «Dilmah», 100 g | 39,53 | 0,59 | 13,39 | 9,63 | 63,14 |
Table 3
The factors on the price of chosen products in the grocery store “Sfera” in 2008 before September 18.
| The product | Wholesale price(RUR) | The costs of the store(RUR). | The profit of the store(RUR). | VAT (RUR). | The price in the store(RUR). |
| 1 | 2 | 3 | 4 | 5 | 6 |
| Bread «Burozskiy» 750 g | 10,05 | 0,41 | 1,54 | 2,16 | 14,16 |
| Milk «Dobrynia» 1 l | 16,30 | 0,95 | 2,68 | 3,59 | 23,52 |
| Fillet of beef, 1 kg | 124,49 | 3,55 | 65,99 | 34,92 | 228,95 |
| Fish «Tolstolob», 1 kg | 29,14 | 1,52 | 11 | 7,50 | 49,16 |
| Sugar, 1 kg | 11,30 | 0,28 | 3,55 | 2,72 | 17,85 |
| Potatoes, 1 kg | 9,13 | 0,15 | 2,58 | 2,13 | 13,99 |
| Refined sunflower oil «Gold Sunflower», 1 l | 30,85 | 0,92 | 6,45 | 6,88 | 45,10 |
| Cucumbers, 1 kg | 8,89 | 0,38 | 1,18 | 1,88 | 12,33 |
| Tomatoes, 1 kg | 19,71 | 1,58 | 5,84 | 4,88 | 32,01 |
| Tea «Dilmah», 100 g | 40,05 | 0,82 | 14,09 | 9,89 | 64,85 |
Table 4
The factors on the price of chosen products in the grocery store “Sfera” between 16.09.2008 and 22.07.2009
| The product | Wholesale price(RUR) | The costs of the store(RUR). | The profit of the store(RUR). | VAT (RUR). | The price in the store(RUR). |
| 1 | 2 | 3 | 4 | 5 | 6 |
| Bread «Burozskiy» 750 g | 11,83 | 0,49 | 0,35 | 2,28 | 14,95 |
| Milk «Dobrynia» 1 l | 19,59 | 1,21 | 1,01 | 3,93 | 25,74 |
| Fillet of beef, 1 kg | 195,48 | 6,95 | 38,38 | 43,35 | 284,16 |
| Fish «Tolstolob», 1 kg | 37,92 | 1,68 | 10,95 | 9,10 | 59,65 |
| Sugar, 1 kg | 15,30 | 0,35 | 2,18 | 3,21 | 21,04 |
| Potatoes, 1 kg | 12,10 | 0,21 | 1,09 | 2,41 | 15,81 |
| Refined sunflower oil «Gold Sunflower», 1 l | 36,75 | 1,01 | 4,85 | 7,67 | 50,28 |
| Cucumbers, 1 kg | 13,08 | 0,51 | 0,98 | 2,62 | 17,19 |
| Tomatoes, 1 kg | 25,18 | 1,99 | 5,14 | 5,81 | 38,12 |
| Tea «Dilmah», 100 g | 49,40 | 1,03 | 13,25 | 11,46 | 75,14 |
To count how did the prices change because of influence of the different factors I will show with the help of the table the difference between the components of prices in every period of time compared to the previous one(table 5-7).
Table 5
The change in the components of prices for grocery products in 2007 compared to the 2006.
| The product | The change in factors (+, –) | ||||
| Wholesale price(RUR) | The costs of the store(RUR). | The profit of the store(RUR). | VAT (RUR). | The price in the store(RUR). | |
| 1 | 2 | 3 | 4 | 5 | 6 |
| Bread «Burozskiy» 750 g | 0,39 | 0,08 | 0,04 | 0,10 | 0,61 |
| Milk «Dobrynia» 1 l | 0,22 | 0,17 | 0,40 | 0,15 | 0,94 |
| Fillet of beef, 1 kg | 5,99 | 1,00 | 5,53 | 2,26 | 14,78 |
| Fish «Tolstolob», 1 kg | 1,38 | 0,16 | 0,14 | 0,31 | 1,99 |
| Sugar, 1 kg | 0,06 | 0,04 | 0,57 | 0,11 | 0,78 |
| Potatoes, 1 kg | 0,25 | 0,03 | 0,07 | 0,06 | 0,41 |
| Refined sunflower oil «Gold Sunflower», 1 l | 1,39 | 0,03 | 0,17 | 0,28 | 1,87 |
| Cucumbers, 1 kg | 0,34 | 0,05 | 0,15 | 0,10 | 0,64 |
| Tomatoes, 1 kg | 1,89 | 0,06 | 0,51 | 0,44 | 2,90 |
| Tea «Dilmah», 100 g | 0,38 | 0,04 | 1,27 | 0,30 | 1,99 |
Table 6
The change in the components of prices for grocery products in 2008(before September 18) compared to the 2007.
| The product | The change in factors (+, –) | ||||
| Wholesale price(RUR) | The costs of the store(RUR). | The profit of the store(RUR). | VAT (RUR). | The price in the store(RUR). | |
| 1 | 2 | 3 | 4 | 5 | 6 |
| Bread «Burozskiy» 750 g | 0,10 | 0,03 | 0,05 | 0,03 | 0,21 |
| Milk «Dobrynia» 1 l | 0,14 | 0,10 | 0,15 | 0,07 | 0,46 |
| Fillet of beef, 1 kg | 11,09 | 0,41 | 1,11 | 2,26 | 14,87 |
| Fish «Tolstolob», 1 kg | 0,26 | 0,51 | 0,91 | 0,30 | 1,98 |
| Sugar, 1 kg | 0,77 | 0,13 | 0,20 | 0,20 | 1,30 |
| Potatoes, 1 kg | 0,15 | 0,03 | 0,39 | 0,10 | 0,67 |
| Refined sunflower oil «Gold Sunflower», 1 l | 0,60 | 0,04 | 0,30 | 0,17 | 1,11 |
| Cucumbers, 1 kg | 0,16 | 0,09 | 0,05 | 0,05 | 0,35 |
| Tomatoes, 1 kg | -0,39 | 0,53 | 0,17 | 0,05 | 0,36 |
| Tea «Dilmah», 100 g | 0,52 | 0,23 | 0,70 | 0,26 | 1,71 |
Table 7
The change in the components of prices for grocery products in the period of time from September 18, 2008 to 22, June 2009.
| The product | The change in factors (+, –) | ||||
| Wholesale price(RUR) | The costs of the store(RUR). | The profit of the store(RUR). | VAT (RUR). | The price in the store(RUR). | |
| 1 | 2 | 3 | 4 | 5 | 6 |
| Bread «Burozskiy» 750 g | 1,78 | 0,08 | -1,19 | 0,12 | 0,79 |
| Milk «Dobrynia» 1 l | 3,29 | 0,26 | -1,67 | 0,34 | 2,22 |
| Fillet of beef, 1 kg | 70,99 | 3,40 | -27,61 | 8,43 | 55,21 |
| Fish «Tolstolob», 1 kg | 8,78 | 0,16 | -0,05 | 1,60 | 10,49 |
| Sugar, 1 kg | 4,00 | 0,07 | -1,37 | 0,49 | 3,19 |
| Potatoes, 1 kg | 2,97 | 0,06 | -1,49 | 0,28 | 1,82 |
| Refined sunflower oil «Gold Sunflower», 1 l | 5,90 | 0,09 | -1,60 | 0,79 | 5,18 |
| Cucumbers, 1 kg | 4,19 | 0,13 | -0,20 | 0,74 | 4,86 |
| Tomatoes, 1 kg | 5,47 | 0,41 | -0,70 | 0,93 | 6,11 |
| Tea «Dilmah», 100 g | 9,35 | 0,21 | -0,84 | 1,57 | 10,29 |
As we can see from the tables 5-7 before September 18, 2008(the date when economic crisis in Russia began) prices on grocery products rose fairly slow. Analyzing the prices in the period of economic crisis we can see that they suddenly rose tremendously.
In 2008 in comparison to 2007 the wholesale prices for all the products on which we were looking went up. For example from table 5 we can see that price for the bread «Burozskiy» raised by 0.61 RUR. The components of the price changed as follows:
- Wholesale price – 0.39 RUR
- Costs of the store – 0.08 RUR
- Profit of the store – 0.04 RUR
- VAT – 0.10 RUR
The price for the fillet of beef went up by 17.84 RUR, because of the change of the components of price as shown
- Wholesale price – 5.99 RUR
- Costs of the store – 1.00 RUR
- Profit of the store – 5.53 RUR
- VAT – 2.26 RUR
The prices of the other grocery products rose correspondingly.
In 2008 compared to the 2007 the wholesale price for every grocery product beside tomatoes went up. The wholesale prices for tomatoes dropped 0.39 RUR. Retail price for every product went up. Also the raise in the retail for every grocery product was caused by the raise in every component of the price. In the case of tomatoes, raise in retail price was caused by the raise in every component of the price beside the wholesale price. The price for fish went up by 1.98 RUR because of the change of components as follows.
- Wholesale price – 0.26 RUR
- Costs of the store – 0.51 RUR
- Profit of the store – 0.90 RUR
- VAT – 0.30 RUR
The price for the tomatoes went up by 0.36 RUR, because of the factor of wholesale price it dropped by 0.39 RUR but because of the change of the other components of price it raised as shown
- Costs of the store – 0.53 RUR
- Profit of the store – 0.17 RUR
- VAT – 0.05 RUR
As we can see from the table 6 prices on the other grocery products in the same time period changed similarly.
In conclusion we can say that prices in the time period three years before the crisis rose fairly slow. Also we can see that in this time the price on grocery products went up because of the raise in the next components of the price such as wholesale price, the costs of the grocery store and the profits of the grocery store. The VAT also went up because of the rise in wholesale and retail price, on which the size of this tax depends.
If we look at the change of the prices on grocery products in the period of the crisis, we can note that they jumped up a larger amount than they did during those three years before crisis. This probably happened because of a bigger uncertainty of the management of the firm in the relation to the future business( the risks of realization the enterprise had grown), the rise in inflation, which caused the rise in wholesale prices and also the rise in the costs of the grocery store. The results of all this were that the wholesale prices of all the grocery products that we are looking at went up tremendously. The costs of the grocery store also went up.
The profit of the store from all the grocery products that we examined dropped. This could have been caused by the aspiration of the firm to stay on the market in the harsh conditions of the economic crisis, which caused the rise in the wholesale prices and also the competition between these types of stores. As the result the grocery store cut its profits to make the prices more attractive to the customer.( the prices though rose but not as much as they could if the store have kept its profits.)
VAT rose because of the rise in wholesale prices and the rise in the costs of the store.
If we look at the retail prices of the grocery products, the price jumped the most amount for the fillet of beef(+ 55,21 RUR)- by 19.4 %, because of the next factors: the wholesale price went up by 70,99 RUR, the costs of the store went up by 3,40 RUR, the VAT went up by 8,43 RUR. Because of the cut in the profits of the store it went down by 27,61 RUR.
The price for the fish “Tolstolob” also went up tremendously- by 10,49 RUR (by 17.6%), because of the rise in the components of price such as: wholesale price went up by 8,78 RUR, costs of the store went up by 0,16 RUR, VAT went up by 1,60 RUR. Because of the cut in the profits of the store it went down by 0,05 RUR.
On other grocery products which we examined the price changed similarly, this is shown in the table 7.