Law of Demand and Supply in Business Economics

BM533: Contemporary
Business Economics

TABLE OF CONTENTS
INTRODUCTION.....................................................................................................................3
TASK 1......................................................................................................................................3
1.1 Law of demand..............................................................................................................3
1.2 Law of supply.................................................................................................................7
CONCLUSION.......................................................................................................................11
REFERENCES......................................................................................................................12

INTRODUCTION
The micro economics is an integral part of a business functioning as the
organizations takes decision pertaining to the propriate distribution of the resources.
It studies about the change in the decision making in regard to any change in the
economic factors. In this report, Tesco is taken as an organization which comes in
the top 4 retail giants all across the world. This report covers the basic knowledge in
relation to law of demand and supply and the various factor resulting into movement
and shift in the curves.
TASK 1
1.1 Law of demand
The law of demand basically refers to the economic function which accounts
for change in the demand of the products and services with respect to variation in
the price of the same. It is the fundamental principle which states that when the price
of the product increases then the demand of it declines and in case if the price
reduces then the demand of it increases (Hovakanyan, 2020). It has an inverse
relationship. In the below illustrated graph, it can be seen that the when the price of
the price of the product was at P1 quantity demanded was Q1 and when the price
declines to P2, and P3, the quantity demanded to the good increased to Q2 and Q3,
thus, showing an inverse relationship.
Movement along the demand curve
This refers to the movement in the quantity demanded of the products and
services on account of changes in the price of that product or services taking other
things to be constant. The movement is downward when there is a decrease in price

and upwards in case of rise in price. The below graph shows that when the price
increased from £10 to £12, it causes the quantity demanded fall from 55 to 40 units
resulting into contraction in demand. In other case, when the price falls from £10 to
£7, quantity demanded increased from 55 to 75 units leading to expansion in
demand.
Shift in demand curve
The shift in demand is generally caused because of the factors other than the price
of the product. There are mainly 5 factors which causes the sift a given below.
Increase in demand
When the demand of the product increases because of the factor other than
price will lead to rightward shift in the curve. The graph highlights the rightward shift
in the demand curve with no change in the price.