Contemporary Economic Analysis: Law of Demand, Supply, and Emerging Theories in Modern Business Practices

This document provides an analysis of the law of demand and supply, including the factors that affect changes in demand and supply curves. It also discusses the emerging theories in 21st-century economics and their relation to modern business practices. The document focuses on the case of House of Fraser, a British department store group, to illustrate the concepts.

Contemporary Economic
Analysis

Table of Contents
INTRODUCTION...........................................................................................................................1
1.1 Law of Demand, movement along the same demand curve and changes in
demand curve with its factors.................................................................................................1
1.2 Law of supply, movement along the same supply curve and changes in supply
curve with its factors................................................................................................................5
TASK 2............................................................................................................................................9
Emerging theories and models in 21st century contemporary economics with those of
the 20th century, and relate both of these to modern business practices.......................9
CONCLUSION.............................................................................................................................11
REFERENCES............................................................................................................................13

INTRODUCTION
Economic analysis refers to study the economic systems that determine
effectiveness of economy or current marketplace, in which a company is operating
(Teller, Brusset and Kotzab, 2019). Through this process, economist can analyse the
profitability that a firm can earn in a given situation of marketplace. Under the present
report, concept of law of demand and supply with changes in demand and supply due to
its factors are described. For this purpose, House of Fraser is taken, which is a British
Departmental store group and operate stores on 51 different locations.
1.1 Law of Demand, movement along the same demand curve and changes in demand
curve with its factors
Law of demand states that keeping the factors constant which may affect the
demand, the price and quantity of demanded goods and services are inversely related
with each other, i.e. if price of product is increased then demand of same will be
reduced (Crucini and Landry, 2019). Therefore, as per this law of demand, it has been
analysed that purchasing choice of consumers mainly depends on price of a particular
commodity (Zietsman, Mostert and Svensson, 2019). In context with retail industry like
House of Fraser, it offers products like fashion clothing, Cosmetics, Homeware, Toys,
Furniture, Cosmetics and more, in UK marketplace (Propheter, 2019). So, there are
number of economic factors present that affect the demand of its products range, like
wages, price / inflation, consumer confidence, employment, wages and consumer
confidence. These factors either creates movement or shift in the demanded curve of
retail products at marketplace, therefore, can be broadly classified into two main
categories as – Change in demand and Change in quantity demanded (Bilińska-
Reformat and et. al., 2019).
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Price of product – Applying the law of demand, on chosen retail firm i.e. House
of Fraser, as it offers products like clothing, cosmetics and more, then increase in price
of such items, highly fluctuate demand of same (Coe, Kelly and Yeung, 2019). For
example – with increase in taxations, labour price and more, price of clothes might get
increased in retail market. But as it is not considered as basic necessities of people
especially, who are belonged from middle or lower class background. So, such people
used to avoid buying clothes when price of trousers, t-shirts and other wearables are
high. This would lead to creates movement in demand curve as shown in below figure –
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Income distribution – This factor also impacts highly on profitability and sales of
retail market, as changes in income level of people, leads to either shift the demand
curve to the right (when it is increased) or towards left (when demand decreased). For
example – when income level of consumer increases increases by keeping price of
products remains same, then under such case, it increases capability of public as well.
In context with House of Fraser, it provides advantage to this firm to increase their feet
in its stores, by offering them trendy clothes that meets their desire. This would help in
shifting demand curve towards right. Similarly, with fluctuation in economy i.e. income of
people decreased even if price of product same, then it reduces the demand of clothes
also. Resultantly, curve of demand will shift towards right (Teller, Brusset and Kotzab,
2019).
.
Price of complementary goods - As per this demand analysis, other factors
that shift demand curve to right, includes price of complement falls, that shift towards
greater popularity and more (Crucini and Landry, 2019). Similarly, with price of
complement rises, decreases of complement goods and more, shift the demand curve
towards left. With regards to House of Fraser, apart from clothes, it also deals in
electronic, shoes and accessories, so when price of shoes decreases, then it increases
price of such items in its stores as well.
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Furthermore, when a change is seen in quantity demanded for a particular
commodity due to change in price then movement in demand is seen along the same
curve (Zietsman, Mostert and Svensson, 2019). In such case, taste and income of
customers along with price of complement and substitute goods remain same, with
changes in price of commodity only. When price of retail products like clothing,
cosmetics and more, increases then demanded quantity reduced and vice versa, which
will move demand curve accordingly (Propheter, 2019). In context with House of Fraser,
as it offers a range of products like clothing, shoes and all, therefore, movement along
demand curve can be determined by below figure. For example – If House of Fraser
increases price of shoes per pair from £80 to £100 then it decreases demanded quantity
from 4000 to 2000, which is just half of previous demand.
Thus, it has been identified from all over analysis that any changes in population
size, income distribution, price of related goods and alternative products etc., has
created a direct impact on demanded quantity of a particular commodity. In context with
House of Fraser, which deals in grocery or retail market, any changes in demand curve
results either in surplus (with decrease in demand) or shortage (with increase in
demand) of its inventories. Both conditions directly impact on its profitability, therefore,
its management need to make prior policies, to cope up with such situations and run
business successfully.
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Future expectations on increasing price of homeware products, results in raising
its demand in current market and shifts demand curve from left to right side. Therefore,
considering such condition, management of House of Fraser used to increase its stocks
related to homeware products in its stores and offers them on attractive prices.
Similarly, as per changes in lifestyle, people especially belong from younger group of
generations, seeks to purchase fashionable clothes, shoes and related accessories as
per changes in trends. This would result in creating movement of demand curve in
upward direction, as shown in below figure. So, taking this as an advantage, House of
Fraser increasing availability of clothes and other demanded products in its stores and
used to change it on weekly basis, to retain attention of the targeted audience
(youngsters) towards the same, for enhancing sales.
1.2 Law of supply, movement along the same supply curve and changes in supply curve
with its factors
Law of supply shows the relationship between price and supply of a particular
product, which states that when price of a good hikes then company would like to
increase its production with aim to earn high profit (Bilińska-Reformat and et. al., 2019).
This would automatically increase the supply in marketplace. Similarly, with decrease in
price production of same will also decreased that reduce its supply. Thus, supply and
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price of a product directly related with each other, where to supply a product, a firm wait
for hike in prices of the same, so that higher revenue can be earned ( Coe, Kelly and
Yeung, 2019). Supply can be defined as quantity of a good which a company is able
and willing to supply at a particular period of time, on a certain price. As compared to
demand curve, the supply curve always slopes in upward direction (Teller, Brusset and
Kotzab, 2019).
In context with present British department store i.e. House of Fraser, it was
established in 1849 in London and till then it has continuously expanded its business,
due to increase in demand and supply of those products, that every people buys on
daily basis. With decrease in price of clothing, people increase their demand to buy the
same, while firms reduce the production of same, to balance the equilibrium. This retail
firm offers a range of commodities like toys, gifts, cosmetics, home-ware, accessories
and more, which consider as basic necessities of people (Crucini and Landry, 2019).
So, with demand of these products, effective supply of same always seen in the market.
The factors that mostly affect the supply of such commodities in retail market includes
cost of production, transport conditions, policies of government and more.
Taxations and Government interventions – In state of decrease in tax rates on
domestic goods like clothes, shoes and other accessories, then it helps retail firms like
House of Fraser to increase supply of the same and offers on amazing discounts, to
gain attention of them. This will create upward movement of supply along with supply
curve as shown in below figure:-
Similarly, if price of cloth reduces then House of Eraser and other retail firms
decreases the supply of same, which referred to contraction in supply. Under this case,
movement of supply moves downward along with same curve. To evaluate how
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changes in price, creates movement in supply curve, an example is given below, where
increase price of shoes from £100 to £800 by House of Fraser, increase supplied
quantity and shifts curve in right direction.
Furthermore, factors other than price changes shift curve towards right or left,
because price under this case remains constant (Bilińska-Reformat and et. al., 2019).
Studying the impact of other factors like changes in cost of production, government
policies, tax rates and more, on supply rates of home-wares, shoes, clothing and other
products offered by House of Fraser in its retail stores, then it has been evaluated that a
shift in rightward direction shows a positive effect on the supply curve. While shift
towards leftward dictates a negative effect on the supply curve. Thus, it shows that
factors other than price can either have an inverse or a direct relationship with supplied
quantity of commodity.
From above figure, it has been determined that reduces in tax, improvement of
technology, fall in raw materials and other input prices, etc. shift supply curve from
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rightward side (Coe, Kelly and Yeung, 2019). While poor natural condition for
production, decline in technology, hike in taxation and other, supply of commodity will
shift towards leftward side. For example, increase in taxation impact highly on supply of
trading activities of products like footwear in both overseas and international market.
Therefore, under such conditions, due to decrease in supply of footwear from overseas
market, it creates shortage of same in marketplace. Under this situation, it increases
price of domestic shoes and other footwear. In context with House of Fraser, as it deals
in UK market only, therefore, taxation on overseas shoes products doesn’t impact much
on its business. Along with this, taking shortage of international brands as advantage, it
offers its shoes on relatively higher price to meet demand of public, by supplying the
same in all its stores.
Through discussion of various factors that create either shift or move in supply
curve, it has been evaluated that there is a severe impact on profitability and
competitive advancement of House of Fraser, in case of ignorance or taken any wrong
step regarding changes in price or any kind of policies. If supply of product is not in
done in proper manner, then it will lead customers to move away from a particular firm
and buy desired goods from another stores. Since in retail sectors, firms almost supply
same type of goods, therefore, management of House of Fraser need to make proper
strategies for managing retail operations effectively. This would help in minimising
negative impact of factors that shifts supply curve towards left or move the same in
downward direction, in order to provide demanded products on time to customers.
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TASK 2
Emerging theories and models in 21st century contemporary economics with those of
the 20th century, and relate both of these to modern business practices.
In the aspect of economics there are vital range of models and theories have
been developed by economists. Each theory and model of economics contributes in a
significant manner in current business environment. It depends on business entities that
how well they implement these theories in their business scenario. Herein below some
key theories of 20th and 21st century are mentioned along with their relation with modern
business practices:
 Rational expectation theory – This theory was evolved in year 1970 which
defines that people behave rationally in accordance of information about
economy (About modern and traditional theories, 2019). As per this theory,
people will act in accordance of their expectations and public policy of
government will be affected due to their actions. This theory based on beliefs that
market condition is too competitive and prices of products manages in according
to variation in the demand. The point on that people have enough range of
information then prices of products and services can be sticky in a downward
direction. It is so because if they go up then prices can be fell down. Another
assumption of this theory is that enlargement policy of government will raise
inflation rate without increasing employment because of economical actors such
as households and businesses.
Relation of this theory with current business practice- In the current business scenario,
this theory is linked in setting prices of products and services (Nikaido, 2016). This is so
because if people will behave in accordance of economical condition then demand will
be affected. As a result, business entities will tend to set price accordingly. In addition,
the rational expectation theory also contributes in order to keep inflation rate in a
commanding position.
 Monetarism theory- This theory is much more similar as above mentioned
rational expectation theory. The monetarism theory presents a modern way of
classical theory which believes in flexibility of wage and price system. Similar as
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classical theorists, they believe that government must remain away from
economical stabilization in their view, markets are competitive along with higher
degree of stabilization of macro economic. These policies as expansionary
monetary policy will become cause of price instability. This theory is of modern
era and has significant impact on company's performance and policies in such
manner:
Relation of this theory with current business practice – As above stated that this theory
is based on then monetary policy of a particular nation. By help of this policy, business
entities can become aware about the economical condition and instability as well as
according to it, they can set prices of products and services effectively. Though, this
policy is not effectively applied by companies because under it intervention of
government is more. As well as it can not be applied in all forms of business entities
because it is suitable for large companies.
 Neoclassical economics theory- This is one of the main theory of 20th century as
it was replacement of previous classical economic theory. It is integrated with the
original classical cost of production theory along with the utility to define
commodity and price of factors. In addition, this theory accented use demand
and supply as determinants of value of exchange. The assumption of this theory
is that everyone has freedom to access the information which they need for
making better judgements. This assumption creates it possible to minimise
judgements to a mechanical application of rules in order to optimise. So in
accordance of neoclassical view, people's efficiency to increase the value of
output will impact to the productivity and assess the allocation of monetary & anti
monetary resources. As well as effectively distribution of income. Basically, this
theory is grounded in the rejection of Marxist economics and as per the belief
which the external environmental system will assure an effective and better
allocation of resources.
Relation of this theory with current business practice – Though, this theory is of 20th
century but still has a significant impact on current business entities. It has become a
dominant economical doctrine, especially in the aspect of United State of America. By
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applying this theory in current business entities, it become easier for companies to
manage their overall resources as well as they can allocate financial and non-financial
resources in accordance of activities (Brim, 2017). Apart from it, this theory is also used
by government of nations in order to check distribution of income. Due to its
effectiveness, this theory is being used in the context of USA as their governance
determine proper allocation of financial resources as well as assure equal distribution of
income.
 Marxist economics theory– Similar as above mentioned theory, this was also
replacement of classical theory. This is theory of modern era which was evolved
in order to find out issues of classical capitalist economics. This theory predicts
cycle of capitalist which will lead to collapse of capitalism. According to Marxist
theory, these cycle will be characterised by reserve army of unemployed,
decreasing rate of revenues, crises of businesses and many more. The neo-
Marxist theory applies on both historical dimensions and in their description of
economical relations, behaviour and outputs. Marx argued that in rationally and
objective pursuing their economical benefits. In addition,
Relation of this theory with current business practice – Same as the above mentioned
theories, this theory also contributes in current business scenario. As above stated that
it is linked with the proper management in the case of decreasing revenue of business
entities (Becker, 2017). This becomes possible because by help of it, manager of
companies can analyse economical factors and on the basis of it they find out key
cause of lower financial performance. So, these are some theories of 20th and 21st
century which are useful in the aspect of recent business scenario. Apart from, this is
important to know that these theories are not limited to companies but also contributes
to government also.
CONCLUSION
From this assignment, it has been concluded that price of a commodity refers to the
main factor other than production cost, consumer preferences, income of people, wages
and more, mainly affects the supply and demand of same. If price of a good or service
reduces then demand of same will increase with decrease in supply and vice versa.
This is because price of a product has inversely relationship with demand and direct
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relationship with supply. Along with this, it has also been summarised from this report
that with applications of economic theories that has emerged from 20th century to 21st,
helps retailers and employers of other fields to analyse positions of their businesses,
including ways through which they can uplift the same. They can determine how certain
changes in price and other factors, impact on present and future demand as well as
supply in marketplace, so that effective decisions and policies can be made for
increasing profitability.
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REFERENCES
Books and Journals
Coe, N. M., Kelly, P. F. and Yeung, H. W., 2019. Economic geography: a contemporary
introduction. John Wiley & Sons.
Bilińska-Reformat, K. and et. al., 2019. Sustainable development concept and creation
of innovative business models by retail chains. International Journal of Retail &
Distribution Management. 47(1). pp.2-18.
Propheter, G., 2019. Professional sports as economic activity magnets: Some evidence
from employment microdata. Journal of Urban Affairs, pp.1-11.
Zietsman, M. L., Mostert, P. and Svensson, G., 2019. Perceived price and service
quality as mediators between price fairness and perceived value in business
banking relationships: A micro-enterprise perspective. International Journal of
Bank Marketing. 37(1). pp.2-19.
Crucini, M. J. and Landry, A., 2019. Accounting for real exchange rates using micro-
data. Journal of International Money and Finance. 91. pp.86-100.
Teller, C., Brusset, X. and Kotzab, H., 2019. Physical and digital market places–where
marketing meets operations. International Journal of Retail & Distribution
Management.
Becker, G .S., 2017. Economic theory. Routledge.
Brim, O., 2017. The economic theory of representative government. Routledge.
Nikaido, H., 2016. Convex structures and economic theory. Elsevier.
Online:
About modern and traditional theories, 2019. [online] available
through:<https://science.jrank.org/pages/9055/Economics-Major-Theories.html>
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