Contemporary Business Economics: Demand, Supply, and Behavioural Theories

This document explores the concepts of demand, supply, and behavioural theories in contemporary business economics. It discusses the law of demand and supply, movement along the demand and supply curves, changes in demand and supply, and the development of behavioural economics theories from the 20th century to the 21st century. The document focuses on Tesco plc as a case study in the retail sector.

Contemporary
Business economics

Contents
Introduction .....................................................................................................................................3
Task 1...............................................................................................................................................3
1.1 Law of demand, movement along demand curve and changes in such demand curve.........3
1.2 Law of supply, movement along supply curve and changes in such supply curve...............7
Task 2.............................................................................................................................................12
Development of various behavioural economics theory from 20th century to 21st century....12
Conclusion.....................................................................................................................................15

Introduction
Contemporary business economics is a wide concept which includes various elements of
micro economics that affects organisational profitability and sustainability in the marketplace.
Various theories in microeconomics include theory of demand and supply which has huge
impact over economy of a particular place. For a successful organisation, key factor to become
successful is to manage market demand and supply in adequate manner which will navigate
optimistic path for an organisation in order to earn adequate amount of profits in long lasting
period. With the use of various theories of demand and supply prevailing demand and supply of
a product or service in a market place will be analysed in reference to Tesco plc being a retail
sector organisation.
Task 1
1.1 Law of demand, movement along demand curve and changes in such demand curve
Demand is a principle of economics refers to desires of consumer to buy goods and
services and pay a price for particular goods or services (Chakraborty and et. al., 2020). In
simple terms it is basically quantity of goods that consumer is willing to purchase at various
prices during a particular period of time.
Law of Demand
In microeconomics or price theory, there is an interest in developing a theory as what is the
procedure for determining commodity of price. Relation between price and demand takes the
middle place of this theory (Greenbaum and et. al., 2019). It reflects the functional relationship
between price and quantity demand of commodity. It is one of best known and most significant
laws in economics theory.
The law of demand assumes that ‘other things remain unchanged’ other than price.
Demand depends not only on its price but on many other factors, for example Income of
consumer, price of goods which are related a taste and preference of consumer (Boettke, 2018).
Other factors of demand are assumed to be remaining constant or unchanged. Thus, law of

demand is based on certain assumption such as no change in income of consumer, Taste and
preference of consumer should remain unchanged, Prices of commodity which are related should
be unchanged, Population size remain unchanged, Distribution of income should not change, etc.
Sometime it is observed that more quantity of commodity is demanded at higher price
and less of it is purchased at lower price. In these situations inverse relationship between price
and amount of purchase does not hold up, these are known as exception of law of demand
(Martins and et. al., 2021). Exception to demand means that demand curve has upward slope.
Reasons for an upward sloping demand curve are giffen goods, articles of snob appeal,
expectation regarding future prices, Emergencies, Quality price relationship and Change in
fashion.
In reference to Tesco plc, being one of leading retail sector industry, it requires frequent
analysis of market in order to identify needs and demand of target audience of the organisation in
such industry. Law of demand suggests unchanged others factors and inverse relationship
between price and demand of a product or service in the market. It examine various market
elements such as customer’s taste and preferences, market trend, competition level and others
related factors which may influence organisational market share. Therefore, Tesco plc needs to
closely analyse these factors in order to identify respective demand of its products in order to use
advanced strategies in this regard so that optimum profits can be achieved by the company.
Movement along the demand curve
Famous economist refers something different when they speak about something ‘change
in demand curve’. In economics there is always a distinction between two terms and keep this
distinction clearly should be kept in mind in order to avoid any possibility of misconceptions or
confusion (Mulet-Forteza and et. al., 2018).

From above diagram, it is being analysed that movement along demand curve is state in which
demand is being changed due to price factor which is given preference in law of demand.
As there is movement of quantity demanded with change in price of a product being other
factors remain constant Tesco plc has to identify which market forces are causing change in price
of respective products which is resulting in changed demand. It is important for respective
organisation to consider relevant competitiveness in retail industry or other factors which are
causing increase or decrease in price of product in order to manage smooth flow of operations by
appropriate management of demand and price of products and services.
Change in demand curve
When purchase of amount of commodity rises or falls because of change in factors other
than own price of commodity it is known as change in demand. Changes in demand consists of
two types-:
1. Increase in demand: It refers to a situation when larger amount of commodity is being
purchased by consumer at same price because of change in factors other than the own price of
commodity (Babii, 2018).

2. Decrease in demand: It refers to a situation where smaller amount of product is being
purchased by consumers at same price from marketplace. Therefore, it takes place as result of
change in factors other than own price of product.
In above visual figure, it has been analysed that demand is being shifted from D0 to D1
and D2 which suggests that demand is being affected due to change in price where other factors
are being considered as constant.
In context to Tesco, the demand of its products or services are influenced by market forces
and pricing policies which is adopted by organisation in order to survive in intense competitive
environment. Retail industry is a huge platform which includes intense competitive environment
which becomes hard for retail organisations to cope with such environment.
1.2 Law of supply, movement along supply curve and changes in such supply curve
Supply is a concept in economics where given total amount of specific product and
services that consumer can avail for (Backhouse, 2017). It can be related to amount which is
available at a specific price or availability of amount a range of prices.
Law of supply

For understanding the simple theory of price, the relationship between the price and
supply of commodity, i.e. what various quantities will be supplied at various prices? Law of
supply state that other things remaining same, quantities of any commodity that firms will
produce and offer for sale rises with a rise in its price and falls with a fall in its price (Coviello,
Kano and Liesch, 2017).
It expresses change in supply with relation to change in price. In simple terms the
assumption of law of supply means the effect of price on supply of product, while taking other
determinants of supply at constant. The assumption of law of supply is as no change in income,
No change in technique of production, no change in transport cost, cost of production be
unchanged, fixed scale of production, should not be any speculation, prices of other goods
should remain constant, no change in the government policies, etc.
As we all know supply of a commodity directly varies from its price. But there are some
exceptional cases where supply fall with the rise in price or tend to rise with the fall in price.
Exceptional cases are exception on future prices, supply of labor, rate of interest and saving
position.
Retail industry needs to determine various market factors in order to examine supply in
respect to the products being provided for sale by organization. Customer’s preferences and
needs to be given appropriate weight age in order to increase or advance sales volume of
products in retail sector. Respective competition needs to be analyzed at such platform so that
optimum profits can be attained. Also formulation of effective techniques needs to be
implemented in order to avoid any wastage in production of units so that more productivity and
efficiency can be promoted.

Movement along supply curve
As a result of change in price the quantity supplied changes and other factor remaining
the same it is known as change in quantity supplied. When there is rise in price due to this
quantity supplied rises and other factors affecting supply remaining the same it is called
extension of supply (Wikhamn and et. al., 2018). On the other hand when there is a fall in price
and due to this quantity supplied falls and other factors remaining the same it is known as
contraction of supply.
Change in quantity supplied is indicated by movement along a supply curve. Upward movement
along supply curve is known as ‘Extension of supply’ and downward movement along supply
curve is known as Contraction of supply.

In above figure, it is predicted that supply is contrasted when A1 moved to A3 whereas extension
in supply is initiated when A1 is moved to A2. Therefore, movement along supply curve is
important factor which is being considered in order to identify respective increase or decrease in
supply of products being produced in retail industry by keep price as changing factor while
others are considered as unchanged factors.

Change in supply curve
Supply of commodity can be changed not because change in price but due to change in
other factors, like input prices changes, related commodity price changes, change in technology
etc.
When supply of commodity increases or decreases because of change in factors other than own
price of commodity, it is known as change in supply (Kim and Shim, 2018). If there is increase
in supply it leads to a situation where producer are willing to supply a larger quantity of
commodity at same price or same quantity at lower price whereas if there is decrease in supply it
leads to a situation where producer are willing to supply a smaller quantity of commodity at
same price or same quantity at higher price
Change in supply means shift in whole supply curve. Increase in supply means that whole curve
shift to right means offering larger amount at every price whereas decrease in supply means that
the entire supply curve shift to left. It means offering for sale at particular price (Gawthorpe,
2019).
In this figure, shift in supply curve is noticed due to change in price and other factors are
kept unchanged. Price plays vital role in identification of adequate amount of products or service

in marketplace by satisfying customer needs and preferences. Tesco being a retail organisation
has to apply adequate pricing strategies in order to attract customer base in optimum amount.
Task 2
Development of various behavioural economics theory from 20th century to 21st century
Behavioural theory of economics is referred to examination of psychology in regard to
economical decision making for respective organisation. It is considered as problem solving
technique which helps management in making adequate decision making in regard to economic
terms for organisation (Feng and et. al., 2017). It has evolved from 20th century to 21st century.
Behavioural theory of economics involves various types of theories in relation in analyse
economical behavioural of economics. Development of such theories are being discussed as
follows:
Rational theory: This theory suggests that humans rely over rational processes in order
to make rational choices which might result in suitable alignment of outcomes in reference of
own interests. It is more concerned about rational choices, concepts and self interests. Various
economists have studies this theory and believed that such factors related to rational theory are
said to be beneficial for whole economy. It has been developing since 19th century and later in
order to analyse consumer behaviour towards economic factors. From 20th century its use has
been increased in various other factors such as domains like crime to marriage and others. Also
certain criticism has been faced by this theory in regard to individual response to economical
factors. Therefore, it has been used widely in 21st century in order to study various fields of
economics.
 Prospect theory: This theory is vital in assuming respective losses and gains have been
valued in a different way. Therefore, people produce decisions through determination of
gains and losses are being ignored (Rao, 2018). It is also called as loss aversion
behavioural theory. This theory works by making different choice between probabilistic
based items in which potential risk is being involved and also possibility of varying
outcomes is considered as unknown. This theory was founded in 1979 and it gain further
emphasis in later years. This is one the effective subtype of behavioural economics which
examines decision to be made in respect of unknown outcomes.
This theory gained very much attention by various economists in respect to
economics. It attracted authors and economists from 20th century and become developed
theory in 21st century. It is assumed by such analysts that their eagerness to pursue risk if

being influenced by way of requirement is being framed. It is dependent upon individual
as which type of factors are being determined in order to assume certain situation in
respect of taking potential risks being involved in it in the long term period.
 Bounded Rationality: It refers to idea where rationality is considered as restricted when
decision is being made by individuals. Such restriction involves difficulty in decision
making and sense of mind when decisions are made. Various scholars have proposed that
this theory is alternative theory of mathematical modelling which is considered as
significant for decision making. It suggests that decision making is complete rational
method for searching an optimal decision making. This theory influences other field of
study in respect of human behaviour (Qi and et. al., 2017). Various economists developed
this theory from 19th century which continues to 20th century and is been used in 21st
century as developed version. Importance in regard to psychology in economics reflected
later in concept of bounded rationality which is used at a wide platform. In simple way,
nudge theory is considers as particular choice of an individual where environment is
being altered so that optimum outcomes can be drawn through triggering automatic
cognitive processes.
 Nudge Theory: It was developed in around 1995 by Sir James Wilk which was named as
art of the nudge during that time. It is concept of economical behavioural which suggests
positive reinforcement as well as indirect suggestions in a way to manipulate behaviour
of group of people and decision making in this regard. Also this theory faced various
disputes in regard to its title being just a word or more than that in behavioural
economics. This theory has been implemented in various areas such as government,
business, fundraising, and healthcare. It has been used century by century in order to
study certain economical behaviour of individuals. Therefore, it is considered as
significant concept in terms of economics to examine psychology of individuals from 20th
century to 21st century.
Conclusion
Demand and supply plays vital role in an overall development of an organisation. In this
report, it is concluded that these market factors plays significant role in order to increase profit-
margin of its products and services. Also movement of demand and supply curve with other
factors unchanged are also being analysed with reference to Tesco plc. Also theories and models
of 21st century are being compared with 20th century models in context to modern business

practices. It is important to advance market analysis practices with use of current and most
effective models in order to produce appropriate outcomes in long term. Therefore, evaluation of
such theories is being done and supply and demand are examined with the help of figure of their
respective impact over organisational growth and survival in retail industry. Also behavioural
economics has been analysed in reference to human decision making and its development
through century to century. Determination of different forms of behavioural economics such as
rational choice, bounded rationality, nudge theory and prospect theory in reference to economical
development.

References
Books and journals
Chakraborty, T. and et. al., 2020. Contemporary Issues in Sustainable Development: The Case of
India. Taylor & Francis.
Greenbaum, S.I and et. al., 2019. Contemporary financial intermediation. Academic Press.
Boettke, P.J., 2018. FA Hayek: Economics, political economy and social philosophy. Springer.
Martins, N. and et. al., 2021. Bridging tourism, architecture, and sustainability: Design and
development of an app for contemporary architecture built in Portugal. Journal of
Global Scholars of Marketing Science. pp.1-18.
Mulet-Forteza, C. and et. al., 2018. Twenty five years of the Journal of Travel & Tourism
Marketing: a bibliometric ranking. Journal of Travel & Tourism Marketing. 35(9).
pp.1201-1221.
Babii, L., 2018. The Aspect Of Knowledge Management. Contemporary Economy Journal, 3(3),
pp.223-229.
Backhouse, R.E., 2017. Founder of Modern Economics: Paul A. Samuelson: Volume 1:
Becoming Samuelson. 1915-1948. Oxford University Press.
Coviello, N., Kano, L. and Liesch, P.W., 2017. Adapting the Uppsala model to a modern world:
Macro-context and microfoundations. Journal of International Business Studies. 48(9).
pp.1151-1164.
Wikhamn, W. and et. al., 2018. Innovation in Swedish hotels. International Journal of
Contemporary Hospitality Management.
Kim, N. and Shim, C., 2018. Social capital, knowledge sharing and innovation of small-and
medium-sized enterprises in a tourism cluster. International journal of contemporary
hospitality management.
Gawthorpe, K., 2019. Analysis of the demand for the alternative currency WIR. International
Journal of Monetary Economics and Finance. 12(5). pp.343-360.
Feng, L. and et. al., 2017. Pricing and lot-sizing polices for perishable goods when the demand
depends on selling price, displayed stocks, and expiration date. International Journal of
Production Economics. 185. pp.11-20.
Rao, P., 2018. Insurmountable business problems and optimal managerial decisions: Significance
of elasticity of demand. International Journal of Advances in Agriculture Sciences.
Qi, Y. and et. al., 2017. The impact of operations and supply chain strategies on integration and
performance. International Journal of Production Economics. 185. pp.162-174.