Contemporary Business Economics: Law of Demand and Supply
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Added on  2023/01/13
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This article discusses the law of demand and supply in contemporary business economics. It explains the concepts of demand curve and supply curve and the factors that impact them. The article also explores the relationship between price and quantity in demand and supply.
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Contemporary Business Economics
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INTRODUCTION Contemporary business economics include the various issues which affect the business operations and further affect the demand of goods & services which organizations offer. Due to economic issues, businesses struggle the most that also affect the productivity as well as profitability(Amankwah-Amoah and Wang, 2019). For the better understanding of demand or supply concept, this project report select the Tesco Plc which is UK based retail company. This report based on the economic theories such as law of demand or supply of demand. Relation between the price or quantity represent with the help of demand curve and which factors affect the most to shift the entire curve. On the other hand, this report discussed about the law of supply, supply curve and identify factors which affect the supply curve. With the help of demand and supply theory, individuals as well as researchers able to understand that how market response and what are the factors rather price which influence the demand of consumers and well as supply of organizations. MAIN BODY TASK 1 1.1 Explain the law of demand along with demand curve and the factors which impact the demand curve to change Law of Demand: It is one of the fundamental factor of economy which help the organizations to understand the demand of their products. This law shows the relations between price of product and the demanded quantity. Price and quantity of goods has inverse relationship because when price increases than demand of goods reduces.Therefore, fall in the price will maximise the demand(Coad, 2014). It is the natural human behaviour which consumers follow at the time of taking buying decisions. In context of organizations, when price of Tesco's products raise than demand will fall and similarly when price reduces than demand will increase. Research & development team of Tesco need to understand this economic theory and take further actions or strategies accordingly. Demand Curve: It is an visual representation which help the individual to understand the how many units of commodities will be purchased at possible price. Demand curve represent the relation among demanded quantity and price of goods & services(Demand Curve, 2019). It is the table which indicate that how many products or service individual can acquire at different
price level. In context of Tesco,bydemand curve consumers arecapable to realizethekinshipof commoditiesvalueand demandmeasurein the market. Further discussion based on the below presentdemandline: Illustration1: Demand Curve,2019. (Source: Demand Curve. 2019) On the basis of above remark picture it shows the relationship between quantity andcost where Q is used for quantity and placed in x-axis. On the other hand, y-axis shows the price of products which is denoted with P. When price of Tesco's products raise than demanded quantity will reduces automatically. Identifycomponentthat affect onmovement of demand curve: Different types of factor that related with thedemand of consumersinstead ofprice but also force the demand curve to shift. Some of the factors are mentioned below: Disposable income:The particular factor mainly impact on the requirement of goods& services that is offer by the companies.(Hicks, 2018).High disposable income leads to generate high demand andlikewise, reduced financial gaingenerate lowconditionof commodities. Change in the price of related goods: When related productcost flexureafter that demand of the existingcommodity also enhances. Similarly, when price of substitute goods fall than demand of existing goods also decreases.
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Taste & Preference:This factor essential for company inwhich affect the demand of commodities. Increase in the taste or preference of goods will help in maximising demand of the products & services. Similarly, fall in the taste & preferences also minimise the demand of individuals. It further impact the demandlineto shift right or left side. Illustration2: Shift in Demand Curve,2020. (Source:Shift in Demand Curve. 2020) Above mention graph help the readers to understand that mention factors affect the demand which clearly shows in the demand curve. Increase or decrease in these factors will affect the demand curve or force it to shift upward or downward directions. Raise in the disposable income shift the demand curve to the right side. On the other hand, fall in the price of related goods reduces the demanded quantity of existing goods while curve move to the downward side. 1.2 Explain the law of supplybysupply curve and also define the factor which change the supply curve Law of Supply:The particular theory theory inwhich belong to the economic analysis where raise in the price of products & services leads to increases theactivity of trade goodat the marketplace(Khan and Khalique, 2014). In this law of supply,termsof commodityas well as supplied quantity has positive relation. Foe example: when price of products & services raise in the market than companies increases the supplyanddemand of consumers or earn maximise
profit. Similarly, Tesco increase the production when price of commodities raise due to high demand of goods.While, supply decreasesifproduct pricereduction. Supply Curve: It is a visual representation of product price or supplied quantities which aid the organizations or researchers to understand the market trend(Supply Curve,2020).Price and supplied quantity has positive relation and it will be possible when other than these two factors all are constant. Tesco's managers evaluate the marketfor supply management and also goodsas perthe price of commodities. Further discussion based on the below mention supply curve: Illustration3: Supply Curve,2020. (Source:Supply Curve. 2020) As per themention thecurve of supply depend on the quantity and price whereQ denotes to the quantity which supplied by the Tesco, fulfil therequirement of users.P indicate the price of products which change as per the market circumstances.Due to enhance the pricefrom P3 to P2 than business need to increase supply from Q3 to Q2. On the other hand, when price reduces from P1 to P2 than supply also reduces from Q1 to Q2. Factors that affect the supply curve: Supply curve mainly based on the price and goods that are shifting according to marketing activities. It also relates with thesupply of organizations and its impact clearly shows in the supply curve and it may move from upward or downward sides(Prowle and Lucas, 2016). Some of the factors are discussed below:
Cost of production: Increases in the cost of production will decrease the overall supply of the company. Production increases due to high wage, expensive raw materials etc. On the other hand, decreases in cost of production encourage the organizations to supply more due to low raw material cost and low wages. This relationship of price and supplied quantitative mentioned in the curve and it move accordantly. More firm: Increases in the number of businesses in the maker will increases the supply that impact on thethe supply curve (Factors affecting supply curve,2020). This factor need to be analysed by the organizations because it impact the supply which can further affect the profit margin as well. Technology: It is one of the important factor which affect the supply curve because with the help of new technology company improve their performance and supply more quantity which shift the supply curve upwards side. On the other hand, use of old technology reduce the supply and it leads to shift supply curve downward side. Technology is the factor which maximise the supply, so organizations need to update their technology or modify strategies accordingly. Illustration4: Shift in Supply Curve,2020.
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(Source: Shift in Supply Curve, 2020) Above mention graph shows that S is the supply curve, Q is the supplied quantity which is situated at X- axis and P indicate the price of products and based on Y- axis. When Tesco supply more products then supply curve shift from S1 to S2. On the other hand, when company reduces their supply due to low price of products and another factors than curve move from S2 to S1 side(Schaltegger and Burritt, 2017). Other than pricedifferent types of aspects impact on the supply of items& services and shift the curve right or left side.Technology and cost of production is one of the essential factor which affect the production of business which further impact the productivity as well as profitability of the firm. CONCLUSION On the basis of above discussion, it has been observed that market analysis is very essential for the organizationswhich are mainly based on the demand and supply theory that apply by the business.It is the important elements which help the individuals or organizations to understand the market trends. Before making any strategy companies need to identify that business able to meet the consumers expectation or not. In the law of demand, price and demanded quantity has negative relationship anddifferent aspects impact on thedemand but only in longtermduration.Therefore, all the short term aspects are remain constant instead of price. Similarly, in law of supplydifferent types offactor which influence the supply of goods & services such as cost of production, technology, other firms etc. These factors also affect in the long term duration, on the other side short term aspects are remaining constant instead of price of commodity.