Demand and Supply Analysis in Contemporary Business Economics

Contemporary Business
Economics
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Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................3
1.1 Demand Analysis..................................................................................................................3
1.2 Supply Analysis....................................................................................................................5
Task 2...............................................................................................................................................8
Emerging theories and models in 21st century contemporary economics..................................8
Conclusion.....................................................................................................................................10
References......................................................................................................................................11
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Introduction
Demand and supply analysis are two fundamental forces of the economics and helps
determine dynamics of market behaviour. Further, these determinants are derived from consumer
behaviour and leads to changes in modern business practices (Amankwah-Amoah and Wang,
2019). This report aims to analyse concepts of economics to evaluate their impact on the market
behaviour and the decision-making of the consumers and businesses. In the first part of the
report, micro-economical determinants of demand and supply are discussed on a business. In the
second part of the report, contemporary economic theory of behavioural economics is discussed.
Task 1
1.1 Demand Analysis
Economic studies in micro-economical perspective studies two forces of market that are
allowed free flow of interaction to achieve an equilibrium in the market. One such force of
market is demand. In micro-economics, quantity demanded refers to the demand of any
economic commodity by consumers at a specific price in a specific nature of market. This
demand by customers must be backed by willingness and purchasing abilities. Quantity
demanded and price are the two most important determinants of demand analysis.
Law of demand
Under the conditions of other factors being constant (ceterus peribus), it is stated that
price of the product and quantity demanded behave in an opposite manner. In other words, law of
demand states that when price of the product increases, quantity demanded of that product or
service decreases and when price of the product decreases, quantity demanded of that product or
services increases. This inverse relationship of price and quantity demanded is depicted by the
demand curve. Owing to the inverse relationship of the two factors, demand curve shows a
negative slope. Most of the commodities exhibit the same relationship but there are some
exceptions to the law of demand. These exceptions include Veblen goods, expectations of future
changes in prices, necessary goods, luxury goods and income change. In these situations,
demand of the products do exhibit positive relationship with the prices (Anđelković, 2016).
Responsiveness of demand to its determinants is known as elasticity of demand.
Determinants impacting elasticity of product can be its price which is known as price elasticity
of demand or any other factor such as income elasticity of the demand or cross elasticity of the
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demand. Cross elasticity of a product refers to the change in prices of demand of a product due to
its substitute or complementary products. Substitute products are those products which can be
used as an alternative of the mentioned product such as tea is substitute product for coffee.
Complementary products are those products whose demand complement each other such as pen
and ink.
Movement along the same demand curve
Illustration 1: Movement along demand curve,
2021
Demand curve is the graphical representation of the relationship between prices and
corresponding quantity demanded of the product or service (Barr and et. al., 2018). As prices
increase, quantity demanded decreases which is known as contraction of demand and when
prices decrease, quantity demanded increases which is known as expansion of demand. Since,
price of a commodity is the basic factor deriving its demand curve, expansion and contraction in
demand cause movement along demand curve. For example, there is an increase in the price of
coffee. Coffee being an elastic product, saw a slump in demand. As a result of contracted
demand, demand moved leftwards on the same curve. In case of decrease in price of the coffee,
demand will show an opposite result and as a result of the expanded demand, demand moved
towards rightwards on the same curve.
Change in demand curve
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