INTRODUCTION

This research was done to satisfy the requirement of the Caribbean Examination Council (CXC) for the Caribbean Advanced Proficiency Examination (CAPE) for an Internal Assessment (IA). This investigation will help the researcher to revise economic principles learnt as well as to apply these principles to a current topic which is relevant to Jamaica. The topic chosen concerns the effects of GraceKennedy Company Limited (Grace) on the Jamaican economy through the sales of its Tropical Rhythm juice line in particular the 200ml. This research will examine whether the sales of Grace Tropical Rhythms meets the consumer satisfaction of the Jamaican economy. GraceKennedy Company Limited is the oldest and largest distributors of consumer products in Jamaica. Grace Tropical Rhythms is one of the companys most popular lines. Grace Tropical Rhythm is a delicious range of exotic Caribbean Fruit and/or Vegetable blends. The ingredients are specially formulated to capture and maintain their natural flavours.

Company Profile GraceKennedy is one of the Caribbean's largest and most dynamic corporate entities. The company started in Jamaica on February 14, 1922 by Dr. John J. Grace and Mr. Fred William Kenned 1922 as a small trading establishment and wharf operators. It has expanded and diversified over the years, changing from a privately-owned enterprise to a public company listed on the stock exchanges of Jamaica, and Trinidad & Tobago. Today, the GraceKennedy Group comprises a varied network of some 60 subsidiaries and associated companies located across the Caribbean and in North and Central America and the United Kingdom. Its operations span the areas of food processing and distribution, banking and
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finance, insurance and remittance services, together with an investment in building materials retailing. In 1995, GraceKennedy developed its 2020 Vision, with objective being to transform the company from a Jamaican trading company to a global consumer group with its roots in Jamaica. Today, GraceKennedy is substantially larger and stronger, measured by its growth in revenues, productivity, profits and market value. Its mission continues to be, 'To take the taste of Jamaican and other Caribbean foods to the world and world-class financial services to its region.

DEFINITIONS OF THEORETICAL TERMS

Certeris Paribus- Latin for, all other things being equal. Concentration Ratio - the percentage of market share owned by the largest number of firms in the industry. Consumer - one that consumes, especially one that acquires goods or services for direct use or ownership rather than for resale or use in production or manufacturing. Consumer Goods - goods that satisfy human wants through their immediate consumption or use such as food or clothing. Demand - the amount of good or service that consumers are willing or able to buy. Factors of Demand - price of the good; prices of related goods that is substitutes and compliments; income; preferences; expectations; number of buyers; government policies population
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 Elasticity - Measure of the responsiveness of demand and supply of a good or service to an increase or decrease in its price. o Factors Affecting Elasticity - Ease of Substitution; Time Period and Level of Inventory Elasticity of Demand - The degree to which demand for a good or service varies with its price. Normally, sales increase with drop in prices and decrease with rise in prices. o Types of Elasticity of Demand include: Price Elasticity of Demand; Income Elasticity of Demand and Cross Price Elasticity of Demand

Income Effect - With a lower price of good A, the consumer has more real income. If he/she bought the same amount of goods as before there would be money left over. This means the consumer has more purchasing power because good A is cheaper.. Types of Goods o Normal Good: a good the demand for which increases as income increases. The income effect is positive and the substitution effect is positive. Therefore as price increases, demand falls, and vice versa. Normal goods have a positive income elasticity of demand. o Inferior Good: a good the demand for which decreases as income increases. Inferior goods have a negative income elasticity of demand. The income effect is negative, but is outweighed by a positive substitution effect. Therefore as prices increase, demand falls, and vice versa.

o Giffen Good: a good where the income effect is so negative as to completely outweigh the substitution effect. As prices increase, demand increases, and vice versa. This means that Giffen goods would have a positive price elasticity of demand. Types of Market Structures o Perfect Competition o Monopoly o Monopolistic Competition o Oligopoly Supply - the quantity of a product that a producer is willing and able to supply onto the market at a given price in a given time period.

AIMS AND OBJECTIVES Aims Examine the factors that that affect demand of Grace Tropical Rhythm. Develop an appreciation of the various methods used by economists in analyzing economic problems. To apply economic theory to the critical issues which affect the small open Caribbeantype economy.

Objectives Module 1 Topic 2: Consumer Demand To explain effective demand To identify the factors that affect demand; To explain price elasticity, income elasticity and cross elasticity of demand To differentiate between normal, inferior and giffen goods;

Module 2 Topic 1: Market Structure Outline the goals of the firm Explain the concept of market structure
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METHODOLOGY

Descriptive vs. Analytical Research: The distinction between descriptive and analytical research is based on the question it asks. Descriptive research attempts to determine, describe, or identify what is, while analytical research attempts to establish why it is that way or how it came to be. The descriptive research uses description, classification, measurement, and comparison to describe. Both methods were employed in carrying out this research. Secondary sources were examined to provide the necessary data.

MODULE 1 GraceKennedy Group comprises a varied network of some 60 subsidiaries and associated companies located across the Caribbean and in North and Central America and the United Kingdom. Its operations span the areas of food processing and distribution, banking and finance, insurance and remittance services, together with an investment in building materials retailing. The consumer division GK Foods is involved in the manufacturing, packaging and distribution of high quality, nutritious and cost effective products. Being the oldest and largest distributor of consumer products, Grace Products are always in high demand. Effective demand is the quantity at which a consumer is able and willing to purchase at each conceivable price to satisfy their needs or wants. There are numerous factors which affect the demand of GRACE products; these are price of the good, price of related goods, income and expectations. The price of GRACE Tropical Rhythms makes it affordable and cost effective for the general public. The factors which affect demand include price of a good, consumer income, availability of close substitute and compliments, change in preference and taste, positive or negative advertisement, innovation, income distribution, government intervention and tradition. Taste and preference are shaped and formed in different cultures and also influenced by advertisement as well. For example, a mother gives her children and their friends GRACE Tropical Rhythms every Tropical Rhythms drink tastes. So, as a results from this her sons friends will go home and tell their parents that GRACE Tropical Rhythm is very tasty. The parents will research on the Tropical Rhythms made by GRACE and realize how nutritious this

product is and spread the word among their friends and family. This will lead to more people demanding GRACE Tropical Rhythms 200ml in all its flavours. Demand for GRACE Tropical Rhythms

A demand curve shows the quantity that consumers are willing and able to purchase at each and every price, all other factors unchanged. If other factors do change, for example, the consumers income rises, then consumers are likely to want more or less at each and every price and the demand curve shifts. Demand for GRACE Tropical Rhythms

Figure.1 (Demand Shift outward) An increase in demand causes the demand curve to shift outward. Factors that will affect the demand curve to shift outwards are if the price of the good has decreased, the population has grown, the product has been more effectively advertised and if competitors have raised the price of their goods. For example, if Grace Kennedy raised the price of their juice product this would cause some consumers to purchase more of Graces Tropical Rhythms due to the increase in the competitors price.

Factors which will cause a demand curve to shift inwards can be that the product was poorly advertised, there was an increase in the product, and the competitors have decreased the price in their product. For example, if Grace decides to increase the price of their product while their competitors remains at a constant price then consumers are more likely to decrease their consumption of Graces Tropical Rhythms . Income effect of a price change arises from the increase in purchasing power of the consumers disposable income as the price of one good has fallen. This increase in income motivates the consumer to increase consumption of both goods. However, substitution effect of a price change refers to the change in consumption patterns where the consumer purchases more of the good which experiences a price cut and less of the other goods. Grace Tropical Rhythms 200ml however is positioned at the lower end of the spectrum which allows the company to benefit from a shift in consumers spending habits. The companys margins are moderately positioned as Grace tries to keep product costs lower for its consumers. A shift in consumers spending habits should the economy recover could see consumers shifting away from Graces Tropical Rhythms. To prevent this Grace ensures that their products are not only branded as a low cost alternative but also as a high quality product that is consistent with GraceKennedys rich reputation. There are three different types of goods, firstly the normal good; which states that any good demanded in quantity increases when the consumer income increases. When both consumers income along with quantity demanded decreases, however, price remains constant. Secondly is the inferior good, this is where a good decreases in demand when consumer income rises, unlike a normal good, for which the opposite is observed. The last good is the giffen good; this is when an increase in price of a good will cause an increase in the demand of the good. This

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good is one which people paradoxically consume more of as the price rises, violating the law of demand. The law of demand states that a higher price the consumer will demand less than at a lower price; there is an inverse relationship between price and quantity. Grace Tropical Rhythms 200ml is said to be an inferior good. Reason being, is that it is easily affordable for consumers to purchase on low or high income. However, if there is an increase in a consumers income then the consumer may prefer to purchase another item. For example, Mary earns minimum wage and so purchases Tropical Rhythms 200ml for her family. However, in the Christmas holiday her manager gives her a bonus. So at the supermarket, instead of purchasing Tropical Rhythms 200ml she decides to purchase Grace more expensive Tropical Rhythms Legend 350ml

Figure 2 Elasticity is the measure of the responsiveness of demand and supply of a good or service to an increase or decrease in its price. Elasticity is also the measurement of how changing one economic variable affects others. On the other hand, elasticity of demand is the degree to which demand for a good or service varies with its price. Normally, sales increase with drop in prices
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and decrease with rise in prices. As a general rule, appliances, cars, confection and other nonessentials show elasticity of demand whereas most necessities such as food and medicine show inelasticity of demand. Price elasticity of demand (PED) is a measure used by GraceKennedy to show the responsiveness, or elasticity of the quantity demanded of the goods provided by Grace. The price elasticity of demand, gives the company the percentage change in quantity demanded in response to a one percentage change in price; with all the other determinant of demand being constant for example, income. Price elasticity of demand is mainly used for price strategies and setting taxes. Income elasticity of demand (YED) is defined as a numerical measure of the responsiveness of demand following a change in income alone. Once again if demand is responsive, then it is classified as elastic; if unresponsive, it is inelastic. Hypothetical calculation Year Demand for Grace Tropical Rhythms 200ml 2009 2010 Units 350,000 275,000

The demand for the product fell in 2010 due to a raise in consumers income Hence, from calculations G Tropical Rhythms is classified as an inferior food due to that the answer from the calculations is negative. When the elasticity coefficient (-3.155) is less than 1, the demand for the good is said to be inelastic. That is the quantity demanded for the good is not very responsive to a change in price.

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Certeris Paribus Constraint introduced into an argument or assertion to allow one variable to change while keeping other variables constant, such as, "If we reduce our prices by X percent, ceteris paribus, our sales revenue should go up by Y percent." For example, if Grace reduces the price on Tropical Rhythms by 5 percentage, according to certeris paribus, sales revenue should go up by 5 percentages also. Cross elasticity of demand measures the responsiveness of the demand for a good to a change in the price of another good. It is measured as the percentage change in demand for the first good that occurs in response to percentage change in price of the second good. Cross elasticity of demand is of particular use to the fact that GraceKennedy provides complementary and substituted goods to Tropical Rhythms. Grace products act a substitute in the soft drink market, in addition to their 35% of the market share for this product.

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MODULE 2 Since its beginnings in 1922, GraceKennedy has provided authentic Caribbean food products to generations of Caribbean people earning and still deserving the name Grace, the Good Food People. Today, they are still largely a Caribbean food company, they have expanded into Canada, the United States and the UK, so Jamaicans aboard never have to miss the taste of the Caribbean. GraceKennedys name is synonymous with nutrition, great taste, good value and affordability, national pride and is summed up by its new motto We choose to care. GraceKennedy has built a brand on providing quality products and making life easier while building deep customer relationships. Grace makes several decisions which affect the outcome of their profits as it seeks to gain the highest possible profit in return for undertaking the production of quality products. GraceKennedy's effective integration of its operational efficiencies through the strategies employed in its various divisions, with operational efficiencies as an integral part of their processes, has simultaneously reduce costs and enhance product or service offerings. Additionally, through consumer centricity, GraceKennedy has now started to tap into another source of growth used by companies like General Electric and Caterpillar. These giants of commerce are providing considerable resources to tackle macroeconomic issues, and are being rewarded for it. GraceKennedy's new 10,000 square foot plant in St Elizabeth enables it to, not only produce enough pepper mash locally for its own needs, but to sell to other local manufacturers and even export. Now customers, such as the local manufacturers buy from GraceKennedy as this helps them to be more profitable. This eliminates the need to import bulk pepper mash and helps Jamaica's balance of payments situation. A win-win scenario for all stakeholders involved, and a new dimension of customer centricity and solution provision.

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GraceKennedy is acutely aware of the importance of being able to compete, innovate and employ best practices as it seeks to not only maintain its market share but to expand it.Market structure describes the way in which goods and service are supplied by firms in a particular market. There are four types of markets structures; perfect competition, monopoly, monopolistic competition and oligopoly. The assumptions of a perfectly competitive market are that there are many buyers and sellers, there is perfect information, the products are homogeneous and there are no barriers to entry. However, no firm can be classified as perfectly competitive. Monopoly being another type of market structure exists where there is a single seller in a market industry. Monopolistic competition is somewhat similar to a perfect competition, there are many firms and freedom of entry into the industry, but where each firm produces a differentiated product and thus has some control over its price. An oligopoly is where there are few enough firms to enable barriers to be erected against the entry of the new firms. A monopolist could increase its profits in certain circumstances by a practice known as price discrimination. Price discrimination occurs where the monopolist chooses to split the output up and sell it at different prices to different customers. It is only true price discrimination if the quantity of the product is identical in all market segments. The monopolist is making use of the fact that some consumers would have been prepared to pay more than the single price. At this price they would be enjoying some consumer surplus. The monopolists aim is to charge what the consumers will pay and turn the consumer surplus into producer surplus in the form of abnormal profit. In an oligopoly the market is dominated from two and up to about ten firms. For example, GraceKennedy dominates the market over Lasco, Musson Jamaica Limited, and Seprod Limited. An oligopoly is an independent firm, they decide on the market strategy to compete with close

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rivals, but they must also try and anticipate their rivals reactions and think what the next step should be in the light of this response. There are significant barriers to entry. The products are defined as homogenous. They are also price makers. GraceKennedy is classified as an oligopoly as they are the more dominant producer in the juice market than their competitors. As the leader in the market the other companies are more likely to follow Graces lead and actions. For example, if GRACE was to decrease the price of their Tropical Rhythms 200ml the other suppliers would follow suite. Two common measures of industry competitiveness are the Herfindahl-Hirschman Index (HHI) and the Four Firm Concentration Ratio. Based on data gathered, the HHI exceeds 5,329 which is extremely high and indicates an industry which is not very competitive. Similarly, the four firm concentration ratio which measures the market share of the top four firms exceeds 70%. This reading confirms an oligopolistic industry, which is dominated by GraceKennedy.

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CONCLUSION AND JUDGMENT

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BIBLIOGRAPHY

Bamford, Brunskill, Cain, Grant, Munday, Walton (2003) AS Level and A Level Economics, Cambridge University Press Gillespie, A. (2002) Oxford Revision Guides AS & A Level Economics Through Diagrams, Oxford University Press Maunder, Myers, Wall, Miller (2000) Economics Explained, HarperCollins Publishers Limited Mario Ahjahorie, Financial Analyst (September 2011) LASM Analysis, Scotia Investments http://www.businessdictionary.com http://www.Gracejamaica.com/

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