Summary
To summarise, we have two main findings. The first is that there is a statistically robust linear relationship between wholesale and retail prices (albeit with greater variability in retail prices in high price regimes). The second, and perhaps more interesting, finding of this study is that there is an empirically observed break point in the volume–price relationship for onions, suggesting that volumes begin dropping when the price exceeds a certain threshold. Going by the empirically estimated demand curve, we suggest that the price elasticity of onions is negligible below a threshold, and is about −1 for prices above this threshold. The low elasticity at low prices indicates Indians’ preference for a fixed amount of onions in their diet. The zero elasticity regime is one of constant consumption, while the elasticity of −1 suggests constant aggregate expenditure on onions. Thus, we have met the original goals of this study. We have found a commodity whose demand curve can reasonably be estimated from readily available data and which in turn leads to an interpretation that is both simple and at the same time interesting. We suggest that this may be used as a classroom example in the teaching of managerial economics.
