Contemporary Business Economics

This document provides an overview of contemporary business economics, including the law of demand and supply. It also compares and contrasts 20th and 21st century contemporary economics. The document includes explanations, graphs, and factors affecting demand and supply. The subject is Contemporary Business Economics, and the course code is 1.

Contemporary Business Economics
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INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
TASK 1............................................................................................................................................3
1. Explain law of demand along with demand curve and the factors which affect the demand
of Products...................................................................................................................................3
2. Explain law of supply along with supply curve and the factors which affect the supply of
goods & services..........................................................................................................................6
TASK 2............................................................................................................................................9
1. Compare and contrast the 20th and 21st century contemporary economics..............................9
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13
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INTRODUCTION
Contemporary Business Economics is a working environment with a huge competitive
marketplace that continues to evolve at a very rapid rate and the owner of such a company must
be able to consider the criteria and changes that will need to be made in company in order to
respond quickly (Ito and Sallee, 2018). It is also referred to as managerial economics where
application of economic theory and business methodology will be done for better decision. For
the better understanding of this concept, Sainsbury’s company selected which is UK’s chain of
supermarket. It is founded by John James Sainsbury in 1869, around 151 years ago. This
assessment covers several topics such as law of demand and supply and the factors which affect
the curves and force them to shift to left or right side. In addition, compare and contrast the 20th
or 21st contemporary economic theory and related with the modern business practices.
MAIN BODY
TASK 1
1. Explain law of demand along with demand curve and the factors which affect the demand of
Products
The law of demand claims that when certain variables are constant, the quantity required
for a good demonstrates opposite relation to the price of a commodity. This means that, as prices
rise, demand is declining (MUNRO, 2019). It is a graphical representation which shows negative
relationship among price and quantity demanded. In relation of Sainsbury’s, when price of its
goods will decline as the law of demand suggests, the demand of its products rises. Product
development department of company will set the prices where optimum competition and
increased income can be achieved.
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Figure 1.Law of Demand, 2020.
The above mention graph shows the relationship between the quantity and price of the
commodity. The X axis represents the total quantity while Y axis indicates the price at which the
product is requested. The diagram above showcases when the price to be fixed at p1 than total
demand for a commodity is q1 and when the price of a product is reduced to p2 the quantity to be
claimed is increased to q2. It means when company reduces the price the goods, it will increase
the demanded quantity and vice versa. If Sainsbury’s reduces the price of its brands, the demand
for its product lines will boost immediately.
Factors which affect the demand and force to shift demand curve:
There are several factors which affect the demand as well as demand curve. In short run
all the factors are constant rather than price but in long run every factor affect the demand of
consumers. These are discussed below:
Taste & preference: When a product or service enters into fashion, the curve of demand
moves to the right. In comparison as a new pattern arises, the market curve moves to the left and
the product or service goes out of style once again. This factor affects the demand curve and
forces them to shift right or left side.
Disposable income: The spending power of a person who asks for a commodity is one of
the most significant variables that directly affects demand and may allow more directly having
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an effect on the demand curve by increasing the revenue of the person. Increase and decrease in
the demand of goods depend upon the individual income, if it is increases than demand also
increase and curve shift to right side and if it is decreases than it will shift demand curve left
side.
Changing prices of the related products: Raising the price of goods involved may
affect the product's demand, as if the price of a substitute product is reduced as the item's
demand is also lowered as the buyer switches from one commodity to another leading to less
demand. If Sainsbury's lowers its competitors' price of the similar product, it will lose demand
for its product.
Above mention factor affect the demand of Sainsbury’s goods, so management need to
formulate strategy accordingly to maximise their products demand. When disposable income of
an individual is high then it will increase the purchasing power or generate the demand of goods
which further beneficial for the company to produce goods accordingly. On the other side, if
disposable income is low, so it will reduces the demand of commodity which affect the overall
profitability of the company.
Shift in Demand curve:
The shift in the curve occurs when a determinant of demand other than price movements.
It happens whenever the demand for goods and services adjustments, although the price does not
change. Basically, there are several factors which affect the demand curve rather than price. All
the factors which discussed above, cause the demand curve shift left or right and it will be going
to understand by using graph which mentioned below:
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Figure 2. Shift in Demand Curve, 2020.
From the above graph it is clerarly represent that, change in other factors rather than price
force the demand curve to shoft right or left side. Incraee in taste of consumer, population,
disoposable income, price of substitute goods etc. all are force to shift demand curve to nright
side. On the other side, decsreses in demand for those factors shift the demand curve from left
side.
2. Explain law of supply along with supply curve and the factors which affect the supply of
goods & services
Law of supply:
It is a basic economic theory which says that the volume of products or services that
suppliers offer will increase as the prices of a commodity increases when all other variables
are being constant and vice versa (Gowdy and O'Hara, 2019). Supply law says manufacturers
will try to maximize their income by increasing the volume available for sale, as an item's price
increases. As with Sainsbury's, developing a plan that allows them retain and expand the supply
of their product as the demand increases so that their company may not go out of stock is very
necessary for their top level management. Below mention graph provide better understanding of
law of supply:
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Figure 3.Law of Supply, 2020.
Above mention supply curve shows positive relationship between price and quantity
where P denote price and Q denote the supplied quantity. Supply curve is in upward direction,
when price of commodity increases than supplied quantity also increases and move supply curve
in upward direction. In the graph clearly mentioned that, when P1 rise to P2 than Quantity also
raise from Q1 to Q2. Top management of Sainsbury’s keep this thing in mind and made strategic
decisions accordingly.
Factors affecting supply curve:
There are numerous factors which affect the supply curve rather than price because in
short term only price affect the supply of goods but in long run other factors also impact the
supply curve (Fattahi, Govindan and Keyvanshokooh, 2018). Managers of Sainsbury’s need to
evaluate such factors before making any strategies and these are discussed below:
Manufacturing cost: It is one of the essential factors which affect the supply of goods &
services. In case, production cost increases than supplied quantity automatic reduces and vice
versa. In order to maximise their production, management of Sainsbury’s should ensure that
manufacturing cost will be low.
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Technology: It is one of important factor which leads to improve overall business
performance. Advanced technology helps in maximising productinivity as well as minimise
production cost. Managers of Sainsbury’s have to evaluate this factor or formulate strategy
because it affects the supplied quantity of goods & services.
Government policy: It has greater effect on the production of a commodity from specific
government policies such as fiscal policy or economic policy. Rising excise tax will lower the
supply of a product. Furthermore, if the rate of tax is low a commodity's production will
improve. Before implementing any plans, Sainsbury's management has to review those policies.
Price of substitute goods: This factor also affect the supply of commodity because,
when price of related goods increases than demand of other goods also increases which
encourage the company to manufacture more goods (Parker, 2018). Before making any strategy,
management of Sainsbury’s should identify the price of related goods or take necessary actions
accordingly.
Above discussed factors affect the supply of Sainsbury’s company which affect their
profitability as well as overall performance. So before taking any strategy, managers need to
evaluate these factors to improve operational performance as well as supply of goods & services.
Shift in supply curve:
Supply curve is a graphical representation which may move to right or left side due to
affect of other factors rather than price. Below mention diagram provide better understanding of
supply curve shift:
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Figure 4 Shift in Supply Curve, 2020.
As on above graph, supply denote with S which shift from S0 to S1 when natural
conditions are in favour, taxes are low, company adopt advanced technology and government
policies are in favour to the organization. It will lead to move supply curve from right side that is
beneficial for Sainsbury’s company (Haddadsisakht and Ryan, 2018). On the other side,
unfavourable condition of weather, high taxes, poor technology and strict government
regulations minimise the supply of goods and force to shift curve from S0 to S1 to the left side.
For the organizational point of view, it is essential for management to evaluate these factors
because it influences the production which automatically impacts the productivity of the
organization.
TASK 2
1. Compare and contrast the 20th and 21st century contemporary economics
Behavioral economics includes social observations such as factors that lead to a consumer
choosing one product rather than another, in the analysis of decision-making under an economic
outcome. The concept is particularly useful for enterprises and marketers who seek to boost
revenue by encouraging changes in consumer behaviour. There are a variety of macroeconomic
theories in a market context that countries are using to address those microeconomic issues that
impact the economy as a whole. The concept of the Nudge is traditional 20th century principle
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used in economic research and for 21st century, classical theory used. These are discussed
below:
Neo-classical philosophy draws on the subjective aspect. Elton Mayo pioneered
interpersonal partnerships to boost productivity and happiness rates among the employees. This
method was first underlined by the modifications undertaken at the Illionois plant of Western
Electric Company during 1927 and 1932, known as 'Hawthrone Experiments.' The primary
contributors of this approach to public relations include Elton Mayo and Mary Parker Follett.
Neo-classical methodology also triggers the 'Behavioural Science Administration' methodology
which is a more refinement in approach to public relations (Towse and Hernández, 2020). Neo-
classical theory has also been influential for several years in economic thought and decision
making. It sets out right economic regulations on demand by calculating costs and advantages at
the margins. Clients and businesses have to act fairly and buyers optimize their purchasing
power by measuring marginal capital with money expended. Neo-classical cultures believe in the
principle of equilibrium and the power of market forces to achieve efficiency.
Nudge theory as an emotionally and more realistic understanding of decision-making
established in 1979 by Daniel Kahneman and Amos Tversky in contrast to the 'planned utility
principle.' In its initial sense, the term 'prospect' refers to a lottery. It's mainly focused on
developing choices that affect the decisions they take. It's built to describe how people really
think, instead of how influential figures usually behave or do things.
Differences of both theories:
There are several distinct features that distinguish all hypotheses from each other and require
the companies to thought of it before deciding either of them to boost their organizational
efficiency. Part of the distinction between the two macroeconomic concepts is addressed below:
Nudge Theory Neo-classical Theory
 Social networks and the prevailing social
norms have a major impact on them.
 They often bilaterally conduct with
respectful and friendly gestures.
 They are deficient in self control and quite
limited.
 They are victims to addictions and terror
 It is based on some assumptions
such as agent should be
independent.
 Individual should have certain
taste and preferences.
 Agents gather maximum optional
information (McLennan, 2018).
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well beyond equitable earnings.
 Their behavior is closely related to default
settings.
 They are influenced to a degree by
persistent perceptual differences. Structural
deviation from selective choice is a desire
 Agent always selects the best
accounting of their interests.
Classical economics assumes that parties are objectively in their own interests.
Behavioral economics also underlines individual freedom. It is when people are more
compassionate and thoughtful than when they are thinking rationally. The concept of opposition
to injustice also has to do with selflessness, i.e. people don't want unequal outcomes (Vuong,
2019). The dominated ecosystem of digital technology and intelligence infrastructure, where
networks are important, is ideally suited to concepts extracted from nudge theory. Benefits are
important but behavioral economics means that those learned in mainstream economics are not
the motivations for our actions. Compartmental plans tend to be quite real when it comes to
solving current economic and social problems such as corruption, rising obesity, non-social
activity and the triggers of uncertainty on the stock market. Nevertheless, while nudge theory
may make a substantial contribution to the resolution of neo classical social restrictions, this is
not inherently a cure. There was a critique of the methodology of the nudge hypothesis itself.
Implementing the Nudge concept for corporate communication and revenue has immense
potential. Whether or not something is nice depends on how they describe it. Additionally,
Sainsbury's Company can set a mark as "Most Common" by using this theory Nudge theory
company is unable to classify the goods that consumers often use that are most famous within
store. It is used to boost the overall corporate efficiency in revenue, marketing, accounting, and
other operating functions.
Nudge theory helps the contemporary organisations like Sainsbury's consider human
thought, taking choices and responding. It also allows people improve their opinions and
decisions to manage changes of all sorts, and to consider and adapt their helpless effects on
individuals.
Neo-classical theory retains how an individual is motivated by a number of ways and wishes
to fulfil those needs (Teece, 2019). Communication is an important qualification for determining
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the consistency of information transmitted from and to the various stages of the enterprise.
Cooperation is necessary for the stable functioning of the system, which can only be
accomplished by a behavioural approach, i.e. how individuals interact and react.
These macroeconomic theories were used in management for collaboration, coordination,
inspiration and so on. For example: In business operations, Sainsbury's should follow this
principle to boost their efficiency and effectiveness and profitability that further allows achieving
business requirements & goals. These theories provide effective business practices which help
the corporation to grow in the market or satisfy their co0nsumers through offering goods &
services which they actually needed or want.
CONCLUSION
It was concluded from the above assessment that the main focus of this document is on the
law of demand and supply, which has an impact on administrative performance. There are many
factors affecting demand as well as the consumption of goods and services individually. In
addition, in the corporate environment, there are a few theories that are used in modern corporate
practices to strengthen their overall administrative efficiency or attain success in business.
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REFERENCES
Books & Journals
Ito, K. and Sallee, J. M., 2018. The economics of attribute-based regulation: Theory and
evidence from fuel economy standards. Review of Economics and Statistics. 100(2).
pp.319-336.
MUNRO, C. W. C. G. R., 2019. The Economics of Fishing and Modern Capital Theory: A
Simplified Approach1. Fisheries Economics, Volume I: Collected Essays, p.46.
Gowdy, J. and O'Hara, S. U., 2019. Economic theory for environmentalists. CRC Press.
Fattahi, M., Govindan, K. and Keyvanshokooh, E., 2018. A multi-stage stochastic program for
supply chain network redesign problem with price-dependent uncertain
demands. Computers & Operations Research. 100. pp.314-332.
Parker, S. C., 2018. The economics of entrepreneurship. Cambridge University Press.
Haddadsisakht, A. and Ryan, S. M., 2018. Closed-loop supply chain network design with
multiple transportation modes under stochastic demand and uncertain carbon
tax. International Journal of Production Economics. 195. pp.118-131.
Towse, R. and Hernández, T. N. eds., 2020. Handbook of cultural economics. Edward Elgar
Publishing.
McLennan, A., 2018. Advanced fixed point theory for economics (Vol. 25). Singapore: Springer.
Vuong, Q. H., 2019. Breaking barriers in publishing demands a proactive attitude. Nature
Human Behaviour. 3(10). pp.1034-1034.
Teece, D. J., 2019. A capability theory of the firm: an economics and (strategic) management
perspective. New Zealand Economic Papers. 53(1). pp.1-43.
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