Contemporary Business Economics: Law of Demand and Supply, Emerging Economic Theories

This report discusses the microeconomic concepts of the law of demand and supply in the context of Innocent Drinks, a company that produces smoothies and juices. It also explores emerging economic theories in the 20th and 21st centuries, including traditional theories such as Adam Smith's classical theory and capitalism theory, and modern theories such as behavior theory and nudge theory. The report compares and contrasts these theories and their applicability to Innocent Drinks.

Contemporary
Business Economics

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Law of demand and changes along demand curve.................................................................1
Law of Supply addition to changes in supply curve...............................................................3
TASK 2............................................................................................................................................5
Emerging economic theories in 20th as well as 21st century...................................................5
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................9

INTRODUCTION
Contemporary business economics is undertaken as the field that collectively work with
economic theory considering the business strategies and also helps in assessing organisational,
financial and market concerning environment of company. It leads to put emphasis on the
economic issues and problems in regard of the management factors of company. It is also helpful
for the ventures in terms of understanding several concepts regarding their business like income,
profit and concerning market structure (Zafar, Hafeez and Mohd Shariff, 2016). For this report,
Innocent Drinks in considered that deals in the production of smoothies and juices sold in
supermarkets, coffee shops and other outlets. Company is owned by Coca-Cola by 90% and sells
more than 2 million smoothies per week. It was founded in 1998 in London, UK by Richard
Reed, Adam Balon and Jon Wright. The report covers effective analysis of micro economic
concepts in regarding business considering the law of demand and supply. It also includes the
comparison among emerging theories in 20th and 21st century in relevance to the modern business
practices.
TASK 1
Law of demand and changes along demand curve
In regard of understanding the law of demand, it is required to know that what leads to
develop demand. It is the desire of customers to purchase particular products and services at the
mentioned price range. Apart from this, the law of demand represents the inverse relationship
among the prices of commodities and quantity demanded to keep the other factors constant. It
means that the demand decreases with the enhancement in prices as in regard of Innocent drinks,
when the prices of drinks increased then the demand of people automatically got decreased for it
and the reason being the affordability on other similar products (Bell and Sherlock, 2020). The
law of demand helps in understanding the reasons for suitable things which are priced at
effective level as they are identified as the significant opportunity for the purchase of products
which are being perceived for being under-priced. For instance, Innocent Drinks leads to boost
its production responding to enhance prices that have been urged by the flow of demand.
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In order to understand more with the help of above diagram, where the demand curve
slopes down when the prices of commodity offered by Innocent drinks shifts from P3 to P2 then
the demand also move from Q3 to Q2. In same manner, when the prices decrease from P2 to P3
then the demand also increases from Q2 to Q3.
Apart from this, the change in demand curve, depicts the enhancement in demand for the
particular commodity regarding the entire demand curve that will take a shift to right and also
same with the decrement in demand to left. In the above diagram, the initial demand curve, D0
leads to make proper shift to D1 or D2 that depends on the cause occurred by the change in
income, taste, prices of commodities, preferences and so on. also, there are certain factors that
impact the demand of commodity include:
Prices of products: Most of the people wish to purchase the needed products considering
their spending capacity so when the prices of products enhance the demand for the same then it
leads to decrease and simultaneously when the prices decreases then the demand increases
(O’Cass and Wetzels, 2018).
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Prices of substitute products: The impact of prices of substitute goods are directly
proportional to the demand of needed goods. It happens when the prices of substitute products
enhance then the demand of own goods will also increase whereas if the prices of other goods
increases then the demand of own goods will gets decrease (Nwaolisa and Cyril, 2019). For
instance, if the prices of Tropicana increases then the demand of Innocent drinks will increase as
the people being attracted more towards the affordable products.
Price of complimentary goods: When the price of complimentary goods enhances then the
demand of own products also decreases and vice versa.
Income of customers: While keeping the other factors constant when income of customers
enhances then this demand for normal products also increases at the time of decreasing the
overall demand of inferior products in regard of decrement in income.
Taste and preferences of customers: If the preferences of customers are in the favour of
beverages then the demand for offered products increases and if not in the favour then the it went
down. For instance, the demand curve for products of Innocent drinks shifts right or left
according to the changes in the preferences of customers for Innocent Drinks.
Law of Supply addition to changes in supply curve
This law is concerned with the micro economic approach that represent that if all the
factors in the market area are constant then the increment in prices will leads to enhance the
overall quantity (Neumeyer and et. al., 2019). This law represents that there is a direct
relationship among the quantity and prices. When the law of demand is applied by the businesses
then it is useful to increase the production and also act as the effective method for increasing the
profit. It is essential for Innocent Drinks to undertake the law of supply for developing major
economic limits and profitability factor of business.
This helps in making upward slope curve in the market that represent that firm is in profit.
Innocent Drink effectively put emphasis on the law of demand and supply to formulate different
economic practices. The supply curve is changed when there is an effective change in the overall
quantity of production and it leads to develop the imbalance in the market area. It is being
corrected by the changing prices and demand in the competitive market area.
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Figure 1: Movement along supply curve, 2021
According to the above graph, it has been analysed that the movement with the supply
curve arises which is in the form of extension and contraction. In terms of Innocent Drinks,
higher prices lead to move towards the extension within the supply curve as its concerning
products are supplied. At the same time, low prices lead to cause contraction within the supply
curve as there is a fall in overall quantity supplied due to the decline in product price by keeping
other factors same. Further, shift in supply curve occurs in left side or right side (Malagueño,
Lopez-Valeiras and Gomez-Conde, 2018). In regard of Innocent drinks, the supply curve shits to
right with the enhancement in supply of the specific product. When the decrement in overall
quantity of product then the supply curve shifts to the left.
Hence, this approach is helpful for the business entity to develop a systematic operation
which is useful for the development of whole business. Innocent drinks also consider each and
every changes in supply curve and also determine suitable strategy to deal with other factors that
impact the supply. It is also the key role and responsibility of the higher level and strategic
management of business to put emphasis on changing supply curve (Welter, Baker and
Wirsching, 2019). The change in non-price factors leads to cause shift in demand curve and
hence, the Innocent drinks focus on the effective development of approaches for better
understanding of non-price factors.
The supply curve of Innocent drinks is being affected by different factors which are
present in the macro and micro economic environment of country. It is also important for
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company to identify all the concerning factors through top level management in regard of
developing the perfect strategy for business. For this, the major factors that influences the supply
curve of Innocent drinks are discussed as:
 Number of sellers: Within the market, it is important for Innocent drinks to identify all
the sellers which are present in market. If the number of sellers present for the business
will be low, then it will negatively impact the supply curve (Anambane and Adom, 2018).
Besides from this, if the number of sellers at the market for Innocent drinks will be high
then it will bring positive changes in the supply curve. Respective company need to
develop and approach large number of sellers in market area for selling the product.
 Technology: In the present times, IT is spreading within the corporate world in rapid
manner. For this, most of the successful global and national organisation in market area
put emphasis on deploying the effective technology for easing the business operations
(Kubariev and et. al., 2021). It can also bring positive changes within the supply curve of
business. In regard of Innocent Drinks, it will not use the effective application of
information and technology in right and precise way, the it can impact the position of
company and supply curve.
 Resources prices: The resource prices are concerned with the cost of purchasing raw
materials for the business. In terms of Innocent drinks, they will purchase resources at the
high prices, then it leads to make commodities costly that will cause shift in the supply
curve (Asongu and Odhiambo, 2019). For this, company need to develop a precise
strategy through marketing management to purchase raw materials and labour on cheap
rates.
 Expectation of product: The overall demand and expectation which are concerned with
the product at market area is also useful in determining in the shift of supply curve. If the
overall expectation of product is high in market, then Innocent drinks can easily face
positive change in supply curve.
TASK 2
Emerging economic theories in 20th as well as 21st century
Economic theories are defined to set the suitable ideas in collective manner with the
principles that represent the ways which are different from the economies function. For this, they
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aim to represent the particular economic factor comprising supply and demand, inflation
considering the particular reason of occurrence. For instance, Innocent Drinks, the economic
theories are useful to keep track of suitable benefits to costs. There are different types of
contemporary and modern economic theories which are useful for Innocent Drinks are discussed
as:
Traditional economic theories:
Adam Smith classical theory: This theory represents the systematic work and balanced
presentation rather than generating the new idea as the author properly investigated data and also
criticise them in suitable manner that coordinate the overall judgement arrived with others. This
theory depicts that there should be proper freedom given to workforce regarding the independent
actions to enhance the output of workers (Miceva, Angelkova and Kitanov, 2019). There should
not be any sort of restrictions over the liberty of people. Adam Smith also focuses that there are
three main factors for the production considering labour, land and capital. Further, the economic
growth of country can be determined with the proper size of suitable labour. In terms of innocent
drinks, the effective application of this theory is useful for company with the objective enhancing
overall productivity of workers and their contribution with overall ability. This theory can be
applied in the condition of 20th century with the objective of achievement of cost benefit.
Capitalism theory: This theory is used by organisations for the private ownership to open
new ideas, new owners and firms. This theory recognises dynamism by innovation as it can be
represented as the tendency to generate instability which is linked with existent of financial
crises, job insecurities and so forth. It permits businesses to opt innovation and effective control
as per their interest and also develop prices of products within the market in an effective manner
that suits to the interest of society (Krpalek, Krpalkova Krelova and Berkova, 2018). In terms of
Innocent Drinks, they lead to opt innovation within the organisation that permit them to set
prices of products in free manner as per the demand and supply. This theory also applied in
company in terms of 20th century for getting proper benefits of differentiation.
Modern Economic Theories
Behaviour theory: This theory is described as the modern practice which shows the overall
development to understand the psychological and perception of workforce. It is undertaken as
one of major responsibility of company to understand the needs of employees to achieve success.
This can be done with proper application of behaviour theory within Innocent Drinks as it is
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helpful for them to reduce the discrimination among workforce and offer competitive advantage
to company. In regard of this, managers of company need to take feedback on time from the
workforce.
Nudge theory: It represent the choice factors that results as the changes in overall behaviour
of people in predictable way that cannot make changes in the economic factor. It is not
compulsory and described as suitable that offer proper viewpoint to see and understand things.
This theory is applied by having effective subtle and alteration in environment (Nieri and
Giuliani, 2018). It is does not bring changes in the economic incentives which are present for the
people who are being targeted. Application of this theory in Innocent Drinks depicts that the
overall behaviour of consumers can be influenced with small recommendation and positive
support.
Comparison among traditional and modern economic theories
Traditional economic theory relies on the assumption in which the economic agents leads
to put emphasis on the human choices in regard of choosing the products in rational manner to
enhance their economic wellbeing. Further, the modern economic theory is different undertaking
the traditional theory that leads to make economic agents to put more focus on the factors like
supply of money, demand and its impact on the growth and free trade (Činjarević and et. al.,
2021). In terms of Innocent drinks, their management leads to use Adam Smith classical theory
which is useful for them to focus on the division of labour and accumulation of capital to analyse
the overall economic growth of country that depends on the savings which is deducted from the
profit of sector.
Contrast within traditional and modern economic theories
In Innocent drinks, both modern and traditional theories are applicable for making effective
prediction regarding the market demand and product supply within 21st and 20th century. Both of
these theories are attributed to the cause and benefits of global trade to develop commodities and
also devise balanced decision.
CONCLUSION
From the preceding discussion, it has been concluded that business economics develop
effective relationship among different factors comprising the market structure, income and so on.
It also integrates the different contemporary business theories with organisational practices in
terms of facilitating the business decisions together with proper planning by supervisors. Further,
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the law of demand represents that more number of people prefer to purchase products in limited
supply as the price of particular product will be higher. Prices of products are high due to low
quantity demanded that would be purchased by customers. Factors that cause shift in supply
curve happen due to the number of technology, cost, expectations of products, subsidies, sellers
and so forth. Factors that impact the demand curve are prices of commodity, complimentary
goods and substitute products. In both 20th and 21st century, the emerging theories are linked with
the modern practices like capitalism theory, Adam Smith classical theory and so on.
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REFERENCES
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Nigerian Economy: 1990-2016. Journal of Contemporary Research in Business,
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Online
Movement along supply curve. 2021. [Online] Available through:
<https://www.economicshelp.org/blog/1811/markets/diagrams-for-supply-and-
demand/>
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