Law of Demand and Supply in Business Economics

CONTEMPORARY
BUSINESS ECONOMICS

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY ..................................................................................................................................3
Task 1...............................................................................................................................................3
Law of demand and its movement and shifts...............................................................................3
Law of supply, movement along the same curve and its shifts...................................................6
Task 2...............................................................................................................................................9
Comparison and contrast between economic theories.................................................................9
REFERENCES................................................................................................................................1
.........................................................................................................................................................1

INTRODUCTION
Business economics is all about application of various economic concepts in the business
activity. It helps in establishing links between various economic factors like profits, losses,
demand, supply and production and application of the same in running business by helping
managers in carrying out their decision making activity in a better way. In this report we will be
discussing law of demand and changing of demand curve with respect to change in factors
affecting it. The concept of law of supply and changing of supply with reference to change in
factors affecting it has also been included in this report. Thereafter, some theories of economics
has been discussed along with its criticisms (Bernal, H., 2020).
Morrisons, a supermarket based in UK has been taken to discuss how law of demand and supply
holds true for this company in the real sense.
MAIN BODY
Task 1
Law of demand and its movement and shifts
Law of demand states that other things and factors remains the same, demand of the
particular goods and its prices has inverse relationship. This means that when the price of certain
goods increases or decreases then its quantity demanded also decreases and increases
respectively. The concept of ceteris paribus has been applied in understanding the concept of law
of demand. Ceteris paribus is a phrase used for indicating something where all other factors
remains unchanged and the occurrence of some event is only due to an occurrence of particular
single event. Law of demand proves to be true only in the case of price of the commodity,
because if the other factors which can influence the demand of the goods also changes then the
law of demand looses its applicability. Other factors which can affect the demand of the
commodity are prices of closely related goods like substitute and complimentary goods, change
in income of the consumers, effect of tastes and preferences of the consumers on demand of the
particular good and government policies. Let us understand the law of demand with the help of
diagrammatic representation of different prices and demand corresponding to it (Buechner,
M.N., 2018).

We can see in the above diagram that at higher price, that is 5 quantity demanded is very
low which is just 10 and as the price start going down to 1 the quantity demanded raised to 60
units. In this report we will be taking an example if the company which is Morrisons operating in
the supermarket industry in united kingdom. Morrisons can see how the law of demand applied
in the real sense when the prices of various goods in which they are dealing changes and its
corresponding effect on the quantity demanded by the consumers. If the price of coffee changes,
say it will rise then the demand of the coffee must be declined from the previously demanded
quantity.
Movement along the same demand curve
When we say that there is a movement along the same demand curve it means that the
demand is increasing known as expansion and demand is decreasing known as contraction of
demand. When the change in the quantity demanded is caused due to the change in the price of
the commodity only then the movement of demand curve in terms of contracting and expanding
can be seen.
Illustration 1: law of demand