Wednesday, September 28, 2011

Why Honey Crisp Apples Cost More

Last night Benjamin asked me why Honey Crisp apples cost more than other apples. It's not everyday I get to use my degree in economics...so here it goes.

A comparison of Red Delicious (red) and Honey Crisp (green) apples
First, the Honey Crisp is a fairly new apple so there is a fairly limited supply. Growers simply can't plant new trees and get huge harvests in the few years. It will take years for supply of Honey Crisps to catch up to other varieties of apples.

Second, the Honey Crisp is probably the best tasting apple. Their sweet and mild flavor and firm texture make them a joy to eat. Honey Crisp apples have the highest demand of any apple. 

Intuition at this point tells us the Honey Crisp is going to cost more than other apples. The law of supply and demand graph confirms this intuition.

Two apples are compared on this chart. The Red Delicious are the red lines and the Honey Crisp are the green lines.

Supply

Note the supply of both varieties at $0. A grower will not harvest apples he or she has to give away. Note also the inelasticity of both supply curves: the price the buyer is willing to pay for the apples doesn't have a major effect on the quantity sold. The number of apple trees (and therefore apples) in a growing season is fixed. Just as it doesn't make sense to give the apples away, it doesn't make sense to let the apples rot. So regardless of price offered for the apples (assuming the price is above the cost of getting the apples to market), the quantity of apples supplied is not terribly dependent on price. Note as well the supply of Red Delicious apples is greater than the supply of Honey Crisp apples. A greater number of existing orchards and trees allow the growers to sell more units of Red Delicious apples at a lower price.

Demand

The demand of Honey Crisp apples is much greater than the demand for Red Delicious Apples. If given the choice, most apple eaters greatly prefer the taste of Honey Crisp apples to Red Delicious Apples. Look at two price points for each apple. At $2 the consumer is willing to purchase only 18 units of Red Delicious apples. The consumer is willing to purchase 60 units of Honey Crisp apples for $2. At $4 the consumer is willing to purchase only 10 units of Red Delicious apples. The consumer is willing to purchase 30 units of Honey Crisp apples for $4. So, the consumer wants Honey Crisp apples more than Red Delicious apples and is willing to pay the price. The demand for apples, especially Red Delicious, is pretty elastic. A change in price significantly effects the quantity demanded.

Equilibrium

The price is determined by the intersection of supply and demand. A high supply and lower demand for Red Delicious apples means 2.4 units of apples will be sold at a price of $1.30. A low supply and higher demand for Honey Crisp apples means 4.8 units of Honey Crisp apples will be sold at a price of $2.80.

Conclusion

Price is determined by supply and demand. Honey Crisp apples will continue to cost more than other varieties of apples until more Honey Crisp apple trees can be planted and other varieties of apples are developed that rival the taste of Honey Crisp Apples.

7 comments:

Karen said...

Veeeery interesting! I bet you had fun making the chart didn't you? Once a numbers nerd-always a numbers nerd! Haha, I'm right there with ya:)

Jeff C said...

Ha I love supply demand graphs....lets talk guns and butter next time

Joe Nicholson said...

Craig there seems to be an error in your post. You stated "Second, the Honey Crisp is probably the best tasting apple." From conducting a survey with myself, it clearly shows that red delicious apples taste better.

Joe Nicholson said...

Craig there seems to be an error in your post. You stated "Second, the Honey Crisp is probably the best tasting apple." From conducting a survey with myself, it clearly shows that red delicious apples taste better.

Craig Finnestad said...

Do you really like Red Delicious apples the best? I like them, but I don't know if they would crack my top five.

Jodi said...

I'm taking an economics class and have an assignment regarding supply and demand using an example off the internet. I immediately thought of Honey Crisp apples b/c I hate paying the price but its all my kids will eat. Your blog is great and helps with my assignment. Thanks!!!!

Angie P said...

You have a degree in economics? Way cool! And I'll have to try Honey Crisp. My fave has always been Fuji.