Explaining Law of Demand and Supply in Business Economics

Business Economics

INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
TASK 1............................................................................................................................................1
1. Explain law of demand and the factors which affect demand curve.......................................1
2. Explain law of supply and the factors which affect supply curve...........................................4
TASK 2............................................................................................................................................6
1. Compare and contrast emerging theories................................................................................6
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
The market economy comprises the different issues that influence the business activities and
further impact the demand for products and services provided by companies (Andreassen and
et.al., 2018). Because of the economic challenges, companies are most affected by both
competitiveness and profitability. The report selects Tesco Plc, which is a United kingdom-based
supermarket business and it helps in providing better understanding regarding the demand or
supply principle. This study is focused on theories of economics such as demand law or demand
supply. Along with this it includes the factors which affect the overall demand and supply of
individuals. In addition, it includes the emerging economic theory in support to modern business
practices.
MAIN BODY
TASK 1
1. Explain law of demand and the factors which affect demand curve
Law of demand:
This is one of the main economic factors that help enterprises to identify the demand of
the goods. The law specifies the relationship between the quality demanded and the price. Price
and quantity of products are opposite since pricing rises than demand for goods decreases on the
other side, price cuts will increase demand (Castillo-Vergara, Alvarez-Marin and Placencio-
Hidalgo, 2018). Consumers are adopting normal human actions as they make buying decisions.
As the prices of goods rise than demand of Tesco's goods decreases and likewise as price
declines as production increase, it will fall within the organizations. This economic theory must
be clear to the product development team of Tesco and more steps or approaches must therefore
be taken.
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Above mention graph is demand curve which shows the relationship between demanded
quality as well as price of products. This law of demand shows negative relation among these
two factors. Based on the above observation figure, the connection of quantity with price is
shown where Q for quantities is used and positioned on the x-axis. Y-axis displays, at the other
hand, the price of goods labelled P. As Tesco prices increase then demand automatically
decreases.
Factors affecting demand curve:
There are various factors which affect the demand of Tesco’s products in the market.
Some of them are as follow:
Disposable income: The basic factor has a key impact on the demands of products and
services provided by businesses (Factors affecting Demand, 2020). Disposable income of an
individual is high than demand of goods also high because consumers have more power to
purchase as well as willingness.
Shift in the price of the relevant goods: When price of substitute goods increases than
demand of products also raise. Price of relative goods decreases than demand of existing goods
also decreases. This factor affects the demand curve and forces them to shift from their original
place.
Taste & Preference: It is a crucial factor for a business that affects product demand.
Growing the preference or desire of products would help maximize product and service demand.
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