Contemporary Business Economics: Demand and Supply

This report explains the concept of demand and supply in contemporary business economics. It covers the law of demand, law of supply, factors affecting them, and changes in curve with suitable diagrams. It also compares and contrasts emerging theories and models of 21st and 20th century in contemporary economics and relates them to modern business practices.

BM533:
Contemporary
Business Economics

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
1.1 Explain the law of demand, movement with the demand curve and changes in curve (with
the suitable diagram)...................................................................................................................3
1.2 Explain the law of supply, movement with the same supply curve and changes in curve
(with the suitable diagram)..........................................................................................................6
TASK 2............................................................................................................................................8
Compare & contrast emerging theories & models of 21st century and 20th century in
contemporary economics and relate both of these to modern business practices. .....................8
CONCLUSION .............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Economics is the study of limited resources that is concerned with the manufacturing and
distribution and use of products. It also identifies how producers are allocating their resources
and using them effectively. The field of business economics explains the strategies, practices, and
the profit making and also studies external factors and influence on decisions of change in rules
and regulations (Ciacci and et. al., 2021). The cooperate situation is highly changing and has
observed giant deals. For this respective report Adidas is the chosen organisation, it is German
international company which was found in 1949 and the main office is in Herzogenaurach, it
deals with manufacturing of shoes,clothing and accessories and it is biggest sportswear in
Europe. In this report the concept of demand and supply will be explained and further the
changes and shift in demand & supply curve due to some factors along with law of demand and
law of supply
TASK 1
1.1 Explain the law of demand, movement with the demand curve and changes in curve (with the
suitable diagram)
Demand is the economical law defining customers tendency to buy the products and
eagerness to pay the amount for the particular goods and services. With keeping all factors
changeless, rise in price of products will decrease the quantity needed and same goes on further.
Law of demand remains an important concept in economics and this explains how market or
companies allocate their uses and define the price accordingly. The demand concept tells that
rising price of commodity will lead to an equal fall in demand(Daouia and et. al., 2021).
In given figure, firstly demand curve D0 shifts to become either D1 Or D2. With increase in
price the demand will go to D0 to D1 and with decrease in price D0 will go to D2 because when
prices are high demand is always less and when prices are lowered then demand will rise. It can
be a causes by the change in the financial gain, preferences, price of utility or complement
goods or change in the future prospect..

Factors affecting law of demand
 The income of people : the demand for Adidas products depend son income of
customer . An rise in income of consumer will be an advantage for buying Adidas latest
collections . High demand causes the curve to shift to right. Accordingly, diminution in
income lessens consumer buying power, and then consumers purchases in little amount
and thus the curve shifts to left.
 Taste and preference of consumer : for certain products , it determines how customer
bear the purchasing of product. Change in trend , environment and fashion also leads to
shift in curve if consumer have good taste and choices their demand will be rising and the
curve will shift to right (Duxbury, 2021). In contrast, some products go out of trends and
customer no longer remain in their favour and in that situation the curve will shift to left.
 Changes in prices of related goods : the demand for some goods is stricken by the price
of other products in market specially the substitutes and complimentary goods(Gaspars-
Wieloch, 2021). Rise in prices of interconnected goods powers the customers to shift
from one product to other . When price of shoes and income of customer stays same , but
the slippers process fails, consumer will demand less in shoes since shoes are closely
substitute of slippers, then customer will shift from shoes to slippers . The demand for
slippers shift to right but demand for shoes will shift to left.

 Seasonal changes: There are times when demand is according to the environment and
the surrounding and with change in season just like trend or preference demand varies ,
for example is there are winters people will demand more products like shoes ranges and
demand for slippers will decrease. So if there are summers people will tend to buy
slippers in spite of shoes.
 Advertising : Products will be more attractive if they have good advertising and
interesting ads which makes customers keen to buy and shop that particular product and
the product is found gainful then those goods will get sold with speed and there will be
more demand in the market because the consumers will use them and will also suggest to
their friends and family members so more people will get attracted to the product. With
more people getting involved in marketing the products automatically the products will
reach out to the people easily and will be an effective factor change the demand
accordingly.
 Price of compliment goods : Compliment goods are the goods which are are jointly sold
and the demand for them is for both items like in Adidas with shoes socks is a
complement item(Grimaldi and et. al., 2021). Almost everyone buys them both together
and with jointly demanding both products the demand in market for the compliment pair
will rise and hence the curve will shift rightwards .
 Price of substitute goods : These are the goods which are kind of same goods that a
consumer might use for the same motive. Companies customers may select the goods
they prefer if its in stock and will consider substitute if the price, accessibility or choice
of their desirable commodity changes. These alterations also often manipulates the
demand for a particular product .
Change in demand occurs when craving for products shifts, even though prices be same . When
the economy is growing and income is increasing , customers could easily buy everything in
bulk. Prices will be same, at most in short-run, while the amount of sale increases. This
difference could be provoked by a shift in income level, preferences or high prices being
charged on linked products. A rise and fall in market demand is represented diagrammatically in
curve.

As per the diagram, when the price of goods increases form the prices p3 to p2 then its quantity
demand also falls from Q3 to Q2 and then move to Q3. On other hand, when the price of of the
good moves from P2 to P3 then the demand for such commodities increases from Q2 to Q3.
1.2 Explain the law of supply, movement with the same supply curve and changes in curve (with
the suitable diagram)
Supply is the amount of the company, manufacturers, workers of fiscal plus other
representatives are eager and capable to render the market. Supply can be in already made
products , raw substantial' s or valuable good.
Law of supply explains the figure of goods & services selling at appropriate amount. The
relation between the amount supplied and prices positively charged display rising slope.
Manufacturers will supply more goods at high prices as this increases their receipts (Khan and et.
al., 2021). Time being stiff as important factor of supply as suppliers must react fast to the
changes made .

As per curve there is a direct relation between price and quantity supplied so when price is at p3
quantity is on q3 and after rise in price which is (p3-p2) there will be a rightward shift of (q3-q2)
and this repeats when (p2-p3) there will be (q2-q1)
Factors affecting law of supply
 Price of the given Commodity: Price and supply of commodity is directly related to
each other, so when prices increases the supply for particular commodity will also
increase and vice-versa. It is because at higher prices, there are high chances of making
benefits . It generates the company to offer high sale in industry.
 Prices of Other Goods: As products have alternate uses, the amount supplied not only
depends on price but also on others brand prices (Kuethe and Oppedahl, 2021). With
increase in other brand prices it makes them more effective to buy Adidas brand shoes
and other collection.
 Prices of Factors of Production (inputs): money payable to factors of production and
the quantity supplied count on input rise, the cost of manufacturing in Adidas also
increases. This falls the benefits . In consequence, the salesman decrease the supply of
products.
 State of technology: Adidas manipulates the supply of goods . Huge and advanced
technology falls the cost of production, which improves the net profit margin or expired
application will increase cost of manufacturing and it will tend to lessen the supply.

 Government policy( taxation policy) : With high tax , there is is a rise in cost of
manufacturing, which increases the margin of profit of Adidas (Markowski, 2021). Tax
allowance and other rates increase the supply as they make it more profitable for Adidas
to supply the goods.
Change in supply
It refers to shift to leftwards or rightwards , mainly a difference in supply is a rise or fall
in the amount of goods provided
In this diagram, there is a shift to left side which shows higher cost of production ,
higher taxes and fall in productivity and the supply curve will shift to right side when supply is
more but prices has been the same.
TASK 2
Compare & contrast emerging theories & models of 21st century and 20th century in contemporary
economics and relate both of these to modern business practices.
There are many theories and models given by many renowned economists in the 20th and
the 21th century. Some of the theories are described briefly below in relation to the company and
what effect it gives to the modern business practices.

Neoclassical Theory: The father of neoclassical theory was Alfred Marshall who was an
English economist who defined it as the study in economics which includes the consumption and
evaluation of the goods and services including their production which are all impelled by the two
major models of economics that is supply and demand. This however also depends on one's
reference point which is that a consumer will only consume the amount of the commodities
according to his current income (Nadeem Khan and et. al., 2021). The collection of loss aversion
and reference dependence has many implications considering the phenomena called endowment
effect. This effect collects the measurement that people attend to become highly attracted to the
physical object in their ownership , and harmful to giving them up even if they have not
particularly wanted the object they don't own. In relation to Adidas, this factor on which the
theory regulates that is the equilibrium in the market place with consumer having the bargaining
power(Pérez-Montiel and Pariboni 2021). They fix the prices keeping in mind that they are
targetting a specific community of consumers that is with high income distribution as this theory
also include the individual's reference point as discussed above. The equilibrium for Adidas
would be the quantity demanded by the high income people and the supply for them.
Keynesian theory: John Maynard Keynes was an English economists who primarily
changed the whole economics at macro level by introducing his book named The General
Theory Of Employment, Interest and Money which in lame language can be defined as the
idea of free markets and full employment that is every person can get a job as long as there is
flexibility in their wages. In other words it states that when the employment increases the
aggregate real income will also increase and the consumption also but not as compared to the
income. Therefore the worker would make a loss, if entire of the increased employment there
must be a measure of current investment that are to be dedicated to fulfil the increased demand
for the intermediate consumption. In context with the Adidas company, this can be related as on
their employment basis as this theory is more relatable with the context of individual's income
and his consumption which is based on his income directly. Adidas if want, can employ more
and more of workers and regulate their salaries accordingly which will result in an increase in the
consumers income and their ability to consume more which again result in a rapid increase in the
sales of the company (Staniewski and Awruk, 2021). But Adidas on the other hand is a well
known international brand which deals in luxury shoes, clothing ans accessories and the demand

for their products is always high in the market so the effect of the employment rate doesn't effect
the company sales as it only focuses on the high income consumers community.
Marx's Economic Theory: Karl Heinrich Marx was a German philosopher who gave
many theories related to political economy, sociology, economic theory. The economic theory
however is represented by him through the book named The Labour Theory of Value in which
relative differences in market prices has been explained and why goods are being exchange for
definite price rates in the market. It states that the price at which the product has been sold in the
market price can be measured by the number of working hours has been given by the labours in
the time of production. Karl used labour in his theory to determine the price values of the
commodities as he thought that labour was the only mutual characteristic divided in the exchange
of all goods and services in the market place. But in real world, it is not true that two
commodities had same amount of labour hours division at the time of production. In context with
Adidas, this theory will not work as it as a luxury brand and if it starts to fix the prices of its
products on the basis of the working labour hours then the prices will definitely fall resulting in
the fall in the sales of the company.
Relation between both theories to modern business practices:
Neo- classical theory focuses on one's reference point which is that a consumer will only
consume the amount of the commodities according to his current income and if the income of the
consumer increases then the consumption will automatically increase which also defines the
equilibrium point in the market (Suresh and Ravichandran, 2021). In modern businesses,
companies can apply this theory by fixing the prices of their products at that rate where both
consumer and seller are ready to do business and that will also help to increase the revenues.
Keynesian theory focuses on the labour employment and states that when the employment
increases the real income and the consumption will also increase. In modern businesses however,
companies can apply this theory by employing more labours that will increase the employment
and at the same time the purchasing power of the consumers which directly increases the sales of
the company.

Mark's economic theory states that the pricing of the commodities should only depend on the
working hours labours have invested at the time of production. In relation to modern times,
companies should employee more employees and should fix the prices of the products according
the working hours of labours which results an increase in the revenues.
CONCLUSION
From the above context it has been concluded that law of demand can be defined as the high
the price of the commodity the lower is the quantity demanded for that commodity. Factors that
affect the demand has also been covered in the report which are taste and preference of the
consumers, income of the consumers, change in the prices of relative goods, price of substitute
and complimentary goods and advertising. Law of supply has also been discussed which states
that increase in the price of product will lead to a high supply in the market. And also the factors
affecting supply which are price of the given Commodity, prices of Other Good, Prices of factors
of Production, state of technology, government policy. It has also been discussed that how these
factors affect the demand and the supply curve. After that the neo classical, the Keynesian theory
and the Marx's economic theory has also been discussed and their relation with the modern
business practices.

REFERENCES
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