Contemporary Business Economics: Law of Demand and Supply, Traditional and Modern Theories

This coursework focuses on the law of demand and supply, traditional and modern theories in contemporary business economics. It includes a case study of TK Maxx and discusses the factors responsible for movement and shifting of demand and supply curves. The comparison between traditional and modern theories is also presented.

Contemporary Business
Economics

Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Law of Demand............................................................................................................................1
Law of Supply .............................................................................................................................5
TASK 2............................................................................................................................................8
Traditional theories (20th century) .............................................................................................8
Contemporary modern theories (21st century)............................................................................8
Comparison between traditional and modern theories.................................................................9
Contrast among traditional and modern contemporary theory .................................................10
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Business economics uses applied quantitative methods for evaluating organized
structures and their relationship of enterprise with labour, capital, land and entrepreneurship
(Aksenov, 2017). Business economics involves analysing demand, profit management along
with capital management. It is a discipline of applied economics which studies environmental,
financial, market based and enterprise challenges faced by professionals of establishment.
Through studying ample number of economic variables comprising cost production, capital,
scarcity of resources, demand and supply, it becomes easy for managers to predict future. For
understanding contemporary business economics, TK Maxx is selected company which is
specialised for home fashions and apparels of significant size in UK, Poland, Australia, the
Netherlands, etc with more than 1200 stores.
The coursework highlights law of demand and law of supply along factors causing
movement as well as shift in curves. It also entails comparisons and contrast of models in 21st
and 20th century.
TASK 1
Law of Demand
Demand refers to the willingness and purchasing power of customers to buy goods or
services at various prices in a particular period of time (Baykal and Dayanır, 2022). Law of
demand is termed as the economic concept that show the opposite relationship among quantity
demanded of goods or services and its price. That is, when the price of commodities are
increased then the demanded quantity of the goods and services decreased as when the price is
high, then the customer cannot buy the product as much they buy before. Further, when the cost
of commodities and services are decreased then the quantity demand of the goods and services
increased as when the price is low, then the customer buy more product as compare to when the
price high. In context to TK Maxx, the company used the law demand for setting the offering
price of product after determining the demand of the product in market at given period of time.
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(Source: Law of Demand. 2021)
In this graph, it is clearly shown that the demand curve of the TK Maxx company goes
down, when the price of product increased from 6 to 10 on x-axis, then the quantity demanded of
the product decreased from 6 to 2 on y-axis. On the other side, the demand curve goes up, when
price of product decreased from 6 to 2 then the quantity demanded of the product increased from
6 to 10. which show their inverse relationship clearly.
Change of movement along with the same demand curve
Change of movement in demand curve is occurred when cost of commodities as well as
services fluctuates with quantity demanded and vice versa (Chechelashvili, 2019). In accordance
with TK Maxx, the demand curve of the company move from one point to other, because there is
inverse change in the price and quantity demanded of the commodity with original demand
relationship and other things remain constant which is income and taste or preferences of
customers.
Changes in demand curve
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Illustration1:Law of Demand.

(Source: Movement along Demand Curve. 2021)
As per above graph, it is clearly shown that the change occurs on the same demand curve,
which represent the change in demand of commodity brought by the change in prices of
commodity of the company TK Maxx, when other factor are constant. There are two movements
which shows the changes in curve, one is extension, when the price fall from 10 to 7, then the
demand of commodity rise by 55 to 75, also the demand curve moves downward. Another is,
contraction, when the price rise by 10 to 12 , then the demand of commodity fall from 55 to 40 ,
also the demand curve moves upward.
Shifts in demand curve
Shift of demand curve is occur when there is changes in the quantity demanded of the
goods and services of the company, due to the change in various other factor and price remain
constant (Durmuş, 2020). In TK Maxx, the demand curve shifts, when there is changes in
income of consumers, taste and preferences, population, prices of complement and substitute
goods and future expectations.
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llustration 2: Movement along Demand Curve, 2021

(Source: Shift in Demand Curve. 2021)
From the given graph, it is decided that, the demand curve of TK Maxx shifts from D to
D2 , which represent the changes in various factors lead the change in quantity demand of the
product and price remain constant from A to B. There are two curves of demand in this graph,
first curve D, shows decrease in demand of product by 115 to 85, due to change in various factor
instead of price. Second curve D2, shows increase in demand of product from 85 to 115, due to
change in various factor instead of price. Factors that causing the shifts in demand curve of TK
Maxx are shown below: Income of consumer: For TK Maxx, income of their buyer has one of the main factor for
the shift in their demand curve. In case of superior goods, as the increase in the income of
customers then they buy more branded products and the demand of these product
increase. It shows direct relation between income of customers and demand of product. Taste and preferences of customers: Change in fashion or trends is another factor which
lead the shift in the demand curve of the TK Maxx. Because the taste and preference of
customers are changing according to current fashion and trends. When the favourable
changes in taste of customers then the commodity demand is increased and it shifts from
left to right. Whereas, when there is unfavourable fluctuations in taste and preferences of
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Illustration 3: Shift in demand curve, 2021

customers then the product demand is decreased and demand curve shift from right to
left.
 Change in price of substitute product: In TK Maxx, when the cost of substitute product
is increased then the commodity demand also get increased due to customer buy their
product at low cost. Wherever, when the price of substitute product is decreased, then the
demand of the product of TK Maxx is decreased because customer buy the substitute
product at low cost then them.
Law of Supply
It is considered as economic theory which states that price and supply of a given
commodity has positive relationship which suggests that higher prices of product led to more
supply and vice versa (Supply curve, 2021). Price and supplied quantity of commodities share a
positive relationship which is based on rationale that states price increase has probable chances
of improving profitability in an organisation. Understanding of this law is beneficial for
managers of TK Maxx as it aids in increasing procurement activities. As it is usual tendency of
businesses to produce more if they are getting higher prices for any commodity. It also help
managers of TK Maxx in predicting market conditions in order to make better plans.
(Source: Supply curve. 2021)
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Illustration 4: Supply curve.

In above mentioned picture, it is clearly demonstrated that supply curve shows the direct
relationship between price as well as quantity supplied and vice versa. At, P1 quantity is also at
Q1 and at with increase in price at P2, quality is also increased to Q2.
Factors responsible for movement along supply curve
Change in supply curve causes when cost and quantity supplied fluctuates in a equal
proportion (Supply curve of firm, 2021). This happens when only price fluctuates with quantity
and other factors remain constant. A change in cost can cause supply curve to either move in
right or left direction. Expansion is shown as upward movement while contraction is considered
as downward movement.
Illustration 5: Movement of Supply curve of firm
(Source: Movement of Supply curve of firm. 2021)
From the above presented graph, movement is made through supply curve regarding
price of quantity. As per the graph, when price is 15, quantity supplied is 10. With increase in
price up to 30, quantity demanded also changes to to 30. This shows positive and direct
relationship between price and quantity supplied.
Factors responsible for shifting of supply curve
Other than price, there are varied factors which causes supply curve to shift in a particular
direction. There are different factors which makes supply curve to shift in downward or upward
direction (Supply curve of firm, 2021).
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(Source: Shift in Supply curve of firm. 2021)
As per the presented graph, there are varied factors which affects shifting of supply curve
towards right or left. In relation to TK Maxx, adaption of advanced technology and fall in input
prices led supply curve shift towards right. Whereas, rise in raw materials prices, poor natural
conditions led supply curve shift towards left. Various factors in relevance to TK Maxx that
cause supply curve to shift are discussed below: Input prices- An organisation uses varied inputs that is raw materials to produce desired
goods and services (Flash and Et. Al., 2020). Production cost increases with high input
prices which impact supply curve shift inwards. In the context to TK Maxx, if
procurement cost of products is high then it decreases company's profits. This affects
shifting of supply curve towards left. Number of sellers- Another factor that is responsible for shifting of supply curve is
number of sellers present in the market selling similar products or services (Harper,
2021). In context to TK Maxx, when more companies enter into market,supply increases.
This led supply curve to shift towards right.
 Expectations- Seller's expectations of getting higher prices in future can significantly
impact on supply curve. In relevance to TK Maxx, if mangers are expecting higher
prices of their product in near future then they reduce supply operations. This led supply
curve shift towards leftwards.
TASK 2
Traditional theories (20th century)
Keynesian theory
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Illustration 6: Shift in Supply curve of firm. 2021

This theory describes the results on output, employment and inflation of an economy in
reference to the total spending (Hechavarría and Et. Al., 2017). It states that aggregate demand
is eruptive as well as unstable and has the power to drive supply. In the event of incompetent
macroeconomics outcomes, market economy often encounters inflation when demand is high. It
also practise low demand when there is a recession in economy. In context to TK Maxx, when
demand rises it results in more profits for the firm which leads to more investments and
employment. Whereas, the fall in gross demand tremendously impacts revenues and the firm
have to cut down its production costs in order to maintain profit levels. This theory provides a
layout for a business to run sustainably in fluctuating environment with minimum loses.
Neoclassical theory
This theory indicates that demand and supply of any economy impacts the production,
consumption and pricing of products (Hermann and Mouatt, 2020). The study of demand curve
provides deep knowledge of consumer goods and the analysis of supply curve helps in
understanding the factors of production. If TK Maxx adopt this theory, it have to determine the
prices of products on the basis of its utility value to consumers and not according to cost of
production. The theory helps the businesses in optimum utilisation of the available resources and
providing maximum satisfaction to its consumers.
Contemporary modern theories (21st century)
Nudge theory
It is a concept of providing small suggestions that influence and supports decision-
making. It is a combination of behavioural economics and sciences which positively strengthens
and indirectly guide the decisions making process of individuals or a segment of the market
(Lenart-Gansiniec, 2018). It is a way of helping people improve their choice of selection by
identifying and eliminating existing unconstructive influences on people. TK Maxx adopted this
theory in order to support behaviours of its existing and target customers. Managers of company
put quality assured labels on some of its products to attract customers to those certain products.
This theory is used by company to pull in more customers in the brand by displaying latest
fashions and styles at the first counter at its stores.
Behavioural economics theory
This theory studies why and how an individual behave the way they do by
comprehending factors of economics and psychology (Radosavljevic, 2022). It majorly focuses
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on human behaviours and the irrational decisions taken by people irrespective of what others
prescribes as rational or optimal decisions. TK Maxx adopts this theory to understand the psyche
of its consumers in order to attract more sales. It closely studies consumer purchasing behaviours
and demographic indicators that can help increase its market share. Organisation adopts
behavioural economic theory to create close relationship between customers and companies as
well as to adapt to customers preferences.
Comparison between traditional and modern theories
Basis of
difference
Traditional theories Contemporary modern theories
Purpose Keynesian theory is developed at the
time of Great depression in order to
reduce the long lasting effects of that
time period in economy (Santos and
Et. Al., 2018). This theory stresses
on savings and investment. Author
argues in this theory that demand is
volatile which is principally based on
inflation and deflation in economy.
Neo-classical theory has basic
purpose of keep balancing all the
factors of production so that
technology as well as other things
can be used in an effective manner.
Managers of TK Maxx can adopt
strategies for balancing capital,
labour and land all together.
Nudge theory is used for establishing
positive reinforcement in consumers
which help them to take buying
decisions better (Rajput, Thakur and
Basha, 2018). This practice is used by
mangers of TK Maxx to build loyal
customer base.
Basic purpose of behavioural theory
is to influence consumer into changing
buying patterns.
Benefits Keynesian theory is benefited as it
compels government to spend more
on infrastructures and unemployment
as well as to lower the tax rates at the
Application of nudge theory is
beneficial for managers of TK Maxx
as it can help them to reduce market
failures and attract more consumers on
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time of recession (Ziora, 2020). This
situation help managers of TK Maxx
as thy have to pay lower tax which
decreases their production cost.
Neo-classical theory is beneficial for
TK Maxx as it aids in maintain
balance between informal and formal
structures to attain organisational
goals or objectives.
the basis of their preferences.
Behavioural theories can help leaders
of TK Maxx in adopting leadership
style which helps them to create better
relationship with their team members.
Contrast among traditional and modern contemporary theory
In relation to TK Maxx, both the theories traditional and modern were used to attract
more customers and build loyalty among them. These theories helped organisation in becoming
more competitive by understanding demand, supply and market predictions.
CONCLUSION
As per presented information, it is concluded that economics in business world assist
establishment of relationship among variant economic factors involving market structure, losses
and profits. Law of demand occurs due to utility of diminishing marginal. With this, businesses
are able to sell different commodities in fixing prices of sold items. Law of supply helps
entrepreneurs, economics along with businesses to understand together with forecast conditions
of market. Traditional economics theory, including Keynesian and Neo Classical theory are
based on assumption that businesses maximise profit by using marginal analysis, managers and
company are rational, etc. At same time, modern economic theories, Nudge and Behavioural
theory emphasises towards channels of inducing growth via expenses that are spent on research
and development on elements of knowledge innovations.
REFERENCES
Books and Journals:
Aksenov, S. L., 2017. Contemporary Business Environment. Journal of Economic &
Management Perspectives. 11(2). pp.593-605.
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Baykal, M. and Dayanır, A., 2022. Contemporary Approaches To Business and Economics.
Chechelashvili, M., 2019. Contemporary business challenges in a globalized world. LAP
LAMBERT Academic Publishing.
Durmuş, S. B., 2020. The crowdsourcing concept as a new media application. In Contemporary
issues in business economics and finance. Emerald Publishing Limited.
Flash, A. and Et. Al., 2020. Contemporary Issues in Business Economics and Finance. Risk.60.
.136.
Harper, P. T., 2021. The symbolic imagination: Plato and contemporary business ethics. Journal
of Business Ethics. 168(1). pp.5-21.
Hechavarría, D.M. and Et. Al., 2017. Taking care of business: the impact of culture and gender
on entrepreneurs’ blended value creation goals. Small Business Economics. 48(1).
pp.225-257.
Hermann, A. and Mouatt, S. eds., 2020. Contemporary Issues in Heterodox Economics:
Implications for Theory and Policy Action (Vol. 42). Routledge.
Lenart-Gansiniec, R. ed., 2018. Crowdsourcing and knowledge management in contemporary
business environments. IGI Global.
Radosavljevic, G., 2022. CONTEMPORARY ISSUES IN ECONOMICS, BUSINESS AND
MANAGEMENT-EBM 2022. Ekonomski Horizonti, 24(1), pp.105-106.
Rajput, D. S., Thakur, R. S. and Basha, S. M. eds., 2018. Sentiment Analysis and Knowledge
Discovery in Contemporary Business. IGI Global.
Ziora, L., 2020. Machine learning solutions in the management of a contemporary business
organisation. Journal of Decision Systems. 29(sup1). pp.344-351.
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