Understanding Law of Demand and Supply in Business Economics

This report discusses the important concepts of economics in relation to the demand and supply. It explains the law of demand and supply, movement along the demand and supply curve, and factors causing a shift in the curve. It also compares and contrasts the economic theories of the 20th and 21st century and relates them to modern business practices.

Business economics

TABLE OF CONTENTS
INTRODUCTION.....................................................................................................................3
TASK 1......................................................................................................................................3
1.1 Understanding law of demand....................................................................................3
1.2 Understanding law of supply.......................................................................................6
TASK 2....................................................................................................................................11
Comparing and contrasting the 21st and 20th century economics theories and
model and relating it to modern practices......................................................................11
CONCLUSION.......................................................................................................................13
REFERENCES......................................................................................................................14

INTRODUCTION
Economics is often related to as the social science which involves aspects pertaining
to the production, distribution and consumption of the products and services. The
economics mainly studies about the individuals, groups, organizations, government
and the nation as a whole undertake the decision in respect o whether to by the
product or service or not. Economics establishes the relationship between the
demand, supply and the price. This report is based on the Morrison’s which is a retail
company headquartered in UK and ranked among the top 4 retail brand in the world.
This report presents about the important concepts of economic in relation to the
demand and supply along with the various factors having an influence over the
movement on the same. It also presents the comparison between the economic
theories of the 20th and 21st century with the modern practices.
TASK 1
1.1 Understanding law of demand
The law of demand is generally mean to the change in the demand of the
particular good pertaining to the change in the price of it and on the assumption that
the other things will remain same (Law of Demand And Elasticity Of Demand. 2020).
For instance, if the price of the good rises then will result into reduction in the
demand and on the other side, if the price reduces, then the demand will rise. The
below illustrated graph shows that the as the price of the good increases from p2 to
to p1, the demand of it falls to Q1 from Q2. While in the other case, as the price falls
to p3, the demand increases to Q3. This is called law of demand.
Movement along the demand curve

The movement along with the same demand curve happens when the demand of the
good changes only because of the variation in the price of it while other factors
remains same.
The above graphical presentation depicts that as there is an increase in price, like to
12 from 10, this results into fall in the demand to 40 units which is called contraction
along the demand curve and on the other hand, when the price reduce to 7, thus, the
demand of the product increases referred to as the expansion in the demand.
Shift in demand curve
The shift in the demand curve accounts to the either rightward or leftward shift
which happens because of the factors apart from the price. The below graph shows
the shift in the demand curve apart from price factor. The curve shifts inwards from D
to D1 which is caused because of decline in the demand of the product while it shifts
rightward from D to D2 resulting into increase in demand.

Factors causing shift in demand curve
Price of the related products: It mainly constitute of the substitute and the
complimentary goods. When there is rise in the normal good, this results into decline
in the demand of that good while it increases the quantity demanded of the inferior
goods. In case of complimentary good like car and petrol, a rise in petrol price would
lead to decrease in the demand of car. The below graph explains the impact of price
rise under the substitute good.

Size of the population: The composition of the population plays an important part in
impacting the demand of the population is mainly of adults there will be less demand
of the children goods (Ramya and Ali, 2016). It is important to understand that the
larger the population more will be the demand of the product. When the population is
more, the curve moves right or else the left side.
Tastes and preferences and expectations: The changing taste and preferences of
the consumers also influence the demand along with the expectation of the people. If
people expect that the price of the product will increase in the future, the demand for
it will increase causing the curve to shift outward while in the opposite situation, the
curve will shift leftward.
Income of the consumers: It is the most crucial factor, as based on it, if the income
of the individual rises, then the demand for the normal good will increase while that
of the inferior good will fall (Hughes and et.al., 2020). This is result into making the
curve to shit to right for the normal good and leftward for the inferior good. The below
graph indicates the impact of the rise in the income over the normal good which
resulted into making the demand curve to shift to right from D to D1 as the quantity
demanded increases.
1.2 Understanding law of supply
The law of supply presents about the relationship between the supply and the
price which direct in nature. This is because as the price rises, the supply for it
increases and as the price falls the quantity supplied also decreases (Introduction to

the Law of Supply. 2020). The below depicted graph shows this relationship very
clearly. As the price declines to p1 the quantity supplied also reduces to Q1 while as
the price rises to p3, the quantity supplied also rises to q3 which shows the direct
relationship between the two.
Movement along the supply curve
It represents the adjustment in the amount provided as to the change in the
cost of the product. The expansion in cost will result into forward move (expansion)
while the decline in it prompted internal move (contraction). The given graphical
introduction portrays that the as the cost increments to £22 from £16, there is an
expansion along the supply curve while a drop in the cost to £12 from £16, caused
decreased in the supply to 40 units from 55 units.

Shift in the supply curve
The shift in the supply curve is mainly because of the change in the factors
excluding the price. The graph shows the shift from S to S- which is leftward shift
because of the fall in the quantity supply while the increase in the goods supplied
results into shifting of the curve from S to S+.
Factors causing shift in the supply curve
Cost of production: This factor accounts for the change in the cost of production of
the product because of rise in price of the inputs. In case the price increases, this
results into making the business unable to supply the required quantity of goods
causing supply curve to shift leftward. On the other hand, if the cost reduces, the
production cost associated with it also declines which means that the company
would be able to supply more at the same price.

Change in technology: In case of any change in the technology like obsolescence,
outdates which results into requiring the company to implement new technology or
upgrade the existing in order to effectively meet with the change in the quantity
demanded and meeting with the requirement of the people (Tarekegn, Haji and
Tegegne, 2018). There, the introduction of the new technology or innovation will
result into rising the supply of the good and offering it at the minimized price to the
end consumers. This is result into shifting the curve outward to the point S1 from
point S and thus, the quantity supplied increased to Q1 from Q.

Number of sellers in the market: It is important to understand that the number of
sellers in the marketplace is also having a huge impact over the supply of the goods
in that market. This makes it very crucial for the organization like Morrison’s to
understand and consider it while making any of the decision. In case if there is an
increase in the number of buyers in the market, then it will result into putting
pressure on the price. Along with that, under the situation when the firm decides to
put more attention on the grabbing market share instead of just focusing on the
attaining higher profits. This will consequently make the total supply at each price
level to be higher or increasing which will lead to rightward shift in the supply curve.
Shortage in the input factors: Based on this factor, there are number of factors
that contributes to the production of the products and in case of rise in the cost of the
labour which will impact the cost in association with the cost of production. Under
this situation, it is cause inward shift in the supply curve which is mainly because of
the reduction in the production. The graph below depicts that the due to shortage of
the input factor like labour has caused the leftward shift because of the slowdown in
the production caused by it a sit shifts from S to S1.
Government taxes and subsidies: There are various regulations which are
required to be followed by the organizations and these factors have an influence
over the supply of the goods. Under the situation of the rise in taxes, it causes
increase in the cost of that product leading to inward shift while on the side of the
subsidies which helps in reducing the cost pertaining to the supply which results into
right side shift of the supply curve. But any rise in the regulatory cost would result
into left side shift of the curve.

TASK 2
Comparing and contrasting the 21st and 20th century economics theories and model
and relating it to modern practices
The political economy is always being criticized based on the dominant
economic viewpoints. In the 21st century the work of the Robert Chernomas and Ian
Hudson’s Economics is very worthy as it provides an admirable job and critiquing
writings of others. 21st century economics is based on the tradition of the behavioural
economics in order to provide businesses with the new theories pertaining to the
contemporary economics. The modern economics could be part into the different
eras where certain thoughts have dominated the approach and governmental issues.
The worldview incorporates economic objectives, hypothetical structures to
comprehend working of the social orders and economies, accounts depicting and
legitimizing scientific systems and social and monetary approaches based over
analytical systems looking to accomplish the desired objectives. Investigation of 20"'
century incorporates of the human culture and society including enquiry into
significance and nature of presence (Skene and Murray, 2017). The contemporary
hypotheses have given that the people aggregately in a general public is
representing personal responsibility overseeing buy and produce merchandise and
services that are needed in the public or to the society. This mechanism is called as
the self-regulation. This is based over the hypothesis of contemporary economic
aspects. The laissez faire attitude of the public authority towards commercial centre
or the market permit theories to control everybody in the economic undertakings,
making most prominent useful for enormous number of individuals and creating
economic growth and development.
The contemporary economic models and the theories in the twentieth century
were also based upon the revolutionary and negative perspective. A few hypotheses
see economic models for making development and concordance in the business
where some observed the monetary speculations struggling with unsteadiness and
decline (Sainsbury, 2020). Also, the century theories accepted that once the
production is set up and the qualities are made by work which is associated with the
creation of products and services. The past contemporary economic aspects rotated
around the target of association as benefit making. Benefits were the main rationale
in setting up the matter of production units.

Business financial aspects manages utilization of the monetary theories and
procedure to business. The models of economics of the 21st century have
coordinated monetary hypotheses with the business practice for encouraging
forward arranging and decision taking. Conventional economic speculations of 21st
century is created around positive and regulating lines. Focal point of the regulating
line is over prescriptive explanation and aides in setting up principles which are
pointed toward accomplishing indicated objectives of the business. On the other
positive lines concentrates over depiction and plans to portray the way in which
monetary frameworks work deprived of the staffing (Kimbrough, Laughren and
Sheremeta, 2017). Contemporary economic matters of the current time centres over
regularizing hypothesis which looks for building up principles where firms achieve the
objective that in fact is essence of regulating word. For settling on sound and
successful choices it is fundamental to comprehend the business climate. The
modern economic hypothesis consolidates fundamentals of positive and regularizing
financial hypothesis which underscores more on formers rather than later. The
modern speculations give about the models of economic matters that help the
business in accomplishing the objectives and goals of association fulfilling the
requirements and needs of society. They are all the more precisely ready to consent
to the norms and theories for the development of society and people alongside the
development of the society.
Thus, based on the above discussion it is become very clear that the
economic theories of the 20th and the 21st century are in combination being utilized in
themodern business scenarios. The concept is being taken from both which has
resulted into offering support to the organizations in terms of undertaking important
business-related decisions along with imposing various practices which assists in
accomplishing the desired goals and objectives. In the previous times, mostly the
business entities were mainly focused towards attaining greater profits but later there
is a change in the business perception that lead to drawing attention of the
businesses towards adding value to their operation activities which will support them
in attaining long term benefits while implement best decision making practices
(Sinha, 2016). The theories of economic offers guidance to the businesses which
supports them in analysing the existing market and expected future changes and its
expected impact over the different sections of the society. These aspects are mainly
considered by the companies for the purpose of ensuring that the decision which are

undertaken will prove to be right and in favour of the organization. Therefore, these
theories and the models are having a direct relation with the current business
practices which stands to handling the planning to the finale decision making.
CONCLUSION
lt can be summed up from the above that the economy is running dependent
on the fundamental idea of economics which is basic for successfully dealing with
the business and the market. The law of demand and supply and the elements
influencing it is critical to comprehend for taking successful business and individual
choices. These factors are very important and cannot be ignored otherwise, it might
result into undertaking wrong and irreversible decisions. On contrasting the
economic theories of twentieth and twenty first century, it was evident that the
current strategic policies have been gotten from these theories itself, which has
totally changed the situation of how the business was earlier being carried out in the
past years. Morrison’s which is a retail brand is needed to think about every one of
these elements and working of demand and supply while leading business which will
help it in viably dealing with the business exercises so that ideal objectives and
results of the association can be accomplished. Hence, it tends to be inferred that
economic aspects assumes a significant part in a business association and should
be understood in order to survive in the market along with meeting the needs and
expectations of the people in the market.

REFERENCES
Books and Journals
Hughes, N. and et.al., 2020. Strength in diversity? Past dynamics and future drivers
affecting demand for sugar, ethanol, biogas and bioelectricity from Brazil's
sugarcane sector. Biomass and Bioenergy. 141. p.105676.
Kimbrough, E. O., Laughren, K. and Sheremeta, R., 2017. War and conflict in
economics: Theories, applications, and recent trends. Journal of Economic
Behavior & Organization.
Ramya, N. and Ali, S. M., 2016. Factors affecting consumer buying
behavior. International journal of applied research. 2(10). pp.76-80.
Sainsbury, D., 2020. Toward a dynamic capability theory of economic
growth. Industrial and Corporate Change. 29(4). pp.1047-1065.
Sinha, A., 2016. A revolution in economic theory: the economics of Piero Sraffa.
Springer.
Skene, K. and Murray, A., 2017. Sustainable economics: Context, challenges and
opportunities for the 21st-century practitioner. Routledge.
Tarekegn, K., Haji, J. and Tegegne, B., 2018. Factors affecting market supply of
honey in Chena district, Kaffa zone, Southern Ethiopia. Journal of
Development and Agricultural Economics. 10(3). pp.99-109.
Online
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https://www.economicsdiscussion.net/law-of-supply/the-law-of-supply-
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Law of Demand And Elasticity Of Demand. 2020. [Online]. Available Through:<
https://www.toppr.com/guides/business-economics/theory-of-demand/law-of-
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