Explaining the Law of Demand and Supply in the Petroleum Industry

This article explains the law of demand and supply in the context of the petroleum industry. It discusses the movement along the demand and supply curves, as well as the factors that can cause changes in these curves. Diagrams are provided to illustrate these concepts. The article also compares and contrasts emerging theories and models in 20th and 21st-century economics and relates them to modern business practices.

INTRODUCTION
TASK 1
BM533 COURSEWORK: Contemporary Economic Analysis
MODULE TUTOR AT GBS:
TABLE OF CONTENTS

1.1 EXPLAIN THE LAW OF DEMAND, MOVEMENT ALONG THE SAME DEMAND
CURVE
1.2 EXPLAIN THE LAW OF SUPPLY, MOVEMENT ALONG THE SAME SUPPLY
CURVE
TASK 2
COMPARE AND CONTRAST EMERGING THEORIES AND MODELS 21ST
CENTURY CONTEMPORARY ECONOMIC WITH THOSE OF THE 20TH
CENTURY AND RELATE BOTH OF THESE TO MODERN BUSINESS
PRACTICE
CONCLUSION
REFERENCES
Page 1 of 21

INTRODUCTION
Economics is a concept which deals with production, distribution and consumption
functions of goods and services. This concept can be broken into two broad categories;
macroeconomics and microeconomics. It studies the behavior of aggregate economy
(Spencer, 1990).
Contemporary business analysis is related to modernization of business techniques in
present world. It involves adoption of latest techniques to increase the productivity of the
firm (Spencer, 1990).
This assessment is about explaining the law of demand and supply within the context of
petroleum industry. Task 2, reflects the comparison between 20th and 21st centuries
emerging theories and models. Additional to this contemporary economics concept has
also been discussed with those of the 20th century.
In this assessment Petroleum business has been taken as reference to understand the
various concept of demand and supply law.
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EXPLAIN THE LAW OF DEMAND, MOVEMENT ALONG THE SAME DEMAND CURVE
(WITH THE AID OF DIAGRAM) AND CHANGE IN DEMAND CURVE WITH FACTORS (WITH
THE AID OF DIAGRAM)
The law of demand states that other factors being constant (cetris peribus), price and
quantity demand of any goods and services are inversely related to each other. When
the price of a product increases, the demand for the same product will fall.(AMADEO,
2019)Movement in the demand curve is when the product experience changes in both
the quantity demanded and price, causing the curve to move in a detailed way such as
rising Movement Indicates contraction of demand, in essence, a fall in demand is
observed due to price rise. And the descending movement it shows expansion in
demand, demand for the product or service goes up because of the fall in prices.
Hence, more quantity of a good is demanded at low prices, while when the prices are
high, the demand inclines to decline.(S, 2018)A change in the price of the good or
service itself is not listed among the factors that can shift a demand curve. A change in
the price of a good or service causes a movement along a specific demand curve, and it
typically leads to some change in the quantity demanded, but it does not shift the
demand curve.(Whelan and Msefer, 1996)
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DEMAND CURVE DIAGRAM
The above table shows that when the price was £5 per liter, 30 liters is demanded. If the
price falls to £4.50, the demand increases to 40 liters. Similarly, when the price declines
to £3.00, the demand increases to 70 liters. On the contrary, as the price increase from
£3.00, the demand continues to declines from 70 liters. In the figure, point E of the
demand curve HH1 shows demand for 30 liters at £5.00. As the price falls to £4.50,
£4.00, £3.50, £3.00 the demand rises to 40, 50, 60, 70 liters as commonly. This is clear
from points D, C, B, and A. Thus, the demand curve H, H1 shows an increase in
demand for petrol when its prices fall. This indicates the inverse relation between price
and demand.
Movement along the same demand curve
A change in price causes a movement along the demand curve.
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5.00
4.50
4.00
3.50
3.00
PRICE PER LITER OF PETROL
0.00
QUANTITY LITER PETROL PURCHASE ( MILLION )
A
B
C
D
E
7060504030
H
H1

The development of the curve can occur in two ways:
 Upward movement: refers to a contraction of demand, in short, a decline in
demand due to price increases.
 Downward movement: It refers to the expansion in demand, that is, the demand
for a product or service increases as prices fall.
Therefore, a greater quantity of the good is demanded at lower prices, while when the
prices are higher, the demand decreases.
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CHANGE IN DEMAND CURVE DIAGRAM
INCREASE IN DEMAND
The above table show when the demand curve change with its factors when there an
increase or decrease in demand so in this table, the demand has increased. The shift
takes place from the old demand curve H1 to the new demand curve H2. For example,
the new curve indicates that, at a price of £4 per liter, the buyer was previously willing to
purchase 50 liters per week. Now after the increase in demand, they are willing to buy
60 liters per week at the same price of £4 per liters.
Change in demand curve shows two types of effects; increase in demand or decrease
in demand, this effect has been discussed below:
Increase in demand: An increase in demand curve can either be due to shifting of
demand curve to the right side or an upward shifting of curve. Shifting of curve to the
right side shows that demand expands and customers will demand a larger amount at
Page 6 of 21
5.00
4.50
4.00
3.50
3.00
PRICE PER LITER OF PETROL
0.00
A
B
C
D
E
7060504030
H
H H2
F

constant price. The upward shift addresses the idea that as demand expands, buyers
are in the position to afford available amount of the item compare to previous situation.
(Note that the horizontal and vertical shifts of a demand curve are generally not of the
same magnitude).
Decrease in demand: In contrast, a decrease in demand is represented by the diagram
above. A decrease in demand can either be a result of shifting of demand curve to the
left or downward shifting of demand curve. The shift to left shows that when demand
decreases, buyers demand a small amount at constant price. The falling moving
average speaks to the idea that when demand falls, shoppers are unwilling and
unwilling to pay for a certain item quantity as soon as possible. (Note that the horizontal
and vertical shifts of a demand curve are generally not of the same magnitude).
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Demand curve shifting: Commonly, it is useful to consider the decreases in demand
as shifts to the left of the demand curve (i.e. a decrease along the 'Q' axis) and the
increases in demand as shifts to the right of the demand curve (i.e. an increase along
the 'Q' axis), because this is the position whether you are looking at an interest curve or
a graceful curve.
Factors affecting shifting in demand curve:
These are the factors which assumes that all other factors are constant and the price
will increase and decrease. Some of the factors like income, expenditure, climate and
tastes are the variables which are not directly link with price but influence the demand
curve.
EXPLAIN THE LAW OF SUPPLY, MOVEMENT ALONG THE SAME SUPPLYCURVE (WITH
THE AID OF DIAGRAM) AND CHANGES IN SUPPLY CURVE WITH ITS FACTORS (WITH
THE AID OF DIAGRAM)
Law of supply
Law of supply states that quantity supply will increase with the increase in price and
decrease with the decrease in price and hence supply and price have positive
relationships between them and supply curve always move upward.
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The regulation of supply is primary microeconomic thinking that states that charge and
extent furnished is without delay related. Looking at it every other way, if the unit fee
decreases, the quantity provided increases, so that the organization increases its
profits. If the unit rate increases, the quantity-supplied decreases, so that the enterprise
corporation will enlarge its profits. The employer has to estimate the proper quantity to
achieve earnings maximization at the point the place the marginal fee per unit equals
the common value per unit. (Spencer, 1971)When the price of a commodity change,
other elements stored constant, the volume supplied of a commodity modification
suitably. Graphically it reasons movement along the furnish curve. An alternate in fee
both reasons furnish curves to expand or contract. If the expenses increase, different
elements are kept constant, there is an amplify in the volume provided which is referred
to as an enlargement in supply. Graphically, this is represented as an upward
movement along the identical grant curve. Conversely, if the expenses decrease,
keeping other elements constant, companies have a tendency to minimize the supply.
(Spencer, 1971)A change in supply is a shift in the entire supply curve as opposed to a
change in the quantity supplied where there is movement along the supply curve. With a
change in supply, there is a change in the quantity businesses are willing to produce at
every price (Definition of Change in Supply | Higher Rock Education, 2018
Page 9 of 21

SUPPLY CURVE DIAGRAM
This table shows the market supply curve for petrol gasoline. As with demand curves,
price is based on the vertical axis and the quantity horizontal axis. Each of the points A
and E match to a figure in the table above. Thus, the price rise from £4.00 per kilogram
to £4.50 per kilogram will cause a movement along the supply curve from point C to
point D: total market supply will rise from 50 kilograms to 60 kilograms.(Sloman, 2003)
Movement along the supply curve
It is also known as change in supply curve; this concept states that supply can be
change due to the factors other than price. This change is known as movement along
the supply curve.
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E
D
C
B
A
5.00
4.50
4.00
3.50
3.00
0 30 40 50 60 70
QUANTITY KILOGRAM 000, PETROL PURCHASE

CHANGE IN SUPPLY CURVE WITH ITS FACTORS
This table showed a decrease in supply it can be represented by a shift of supply curve
to the left. Sellers are now willing to supply less then they were willing to supply before.
For example, they were previously willing to supply a total of 60 liters per week at a
price of £4.50 per liter. Now, after the decrease in supply, they are willing to sell a total
of 50 liters per week at the same price of £4.50 per liters.
Factors affecting movement along the supply curve
These are the factors which affects movement in supply curve through increasing and
decreasing the prices. Some of the factors like cost output affects the variations in price.
Page 11 of 21
E
D
C
B
A
5.00
4.50
4.00
3.50
3.00
0 30 40 50 60 70
QUANTITY KILOGRAM 000, PETROL PURCHASE
F
c

TASK 2
20th century economics theories and 21st century economic theories
Karl Max Theory
Karl Marx in the labor theory of value to explain relative differences in market prices.
This idea suggested that a large amount of money generated can be estimated to be
measured impartially by the average number of hours worked to deliver it. So to speak,
if a table takes twice as long as a chair, then the table should appear twice as important
(Marx, 1972).
Supportive Model
The supportive model approach states that employees are self-motivated and have
value and insight to contribute to the organization, beyond just their day-to-day role. It is
built around the concept of leadership.
In this model, the concept of leadership is presented with a managerial point of view,
where the manager actually leads his/her employees by setting good examples, being
available and by being involved in the various work tasks.
In other words, the manager strives to create a supportive working atmosphere for the
workers (Kadak, 2011).
Neo-classical social science has a prevailing force in economic thinking and political for
several years. It prepares narrow economic laws concerning manufacture and
expenditure through the calculation of value and profit at the margin. Customers and
firms square measure each implicit to act wisely, customers augment their getting
power by leveling the value per pound spent, while creators get to exploit revenues in
each artifact and work market places. Neo-classical social science trusts within the
thought of equilibrium therefore the influence of the economic process to realize
economical sharing of resources.
Yes, square measure occasions of partial and complete market failure, however, neo-
classical social science favors the quality typical interferences like taxation and grant
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alter motivations by neutering virtual costs and alter behavior to assist align social value
and edges.(Spencer, 1990)
The neo-classical model of behavior is developed on these assumptions:
 Agents opt for severally
 An agent has set up tastes and preferences
 Agents gather entire data on preferences decisions
 Agents continuously construct exceptional selection given his/her preferences
This is not simply a micro-model (associated for instance with the quality theory of the
firm), it's conjointly the inspiration of an abundant of political economy e.g. rational
expectations theory. In alternative words, neo-classical social science has been for
many years wed to "Homo Economicus” (a self-seeking and utility-maximizing,
unboundedly-rational agent).(Spencer, 1990)
The rising critique of neo-classical social science came 1st from economists UN agency
questioned whether or not there was complete info. Akerlof and Stiglitz showed that
agents could suffer from datafailure, for instance,square measure several statistics
asymmetries and this could cause sub-optimal choices. however, in their work agents
were still supposed to form the ‘best’ selection given data needed. The work of Stiglitz
and Akerl of prolonged the practicality typical theory and has been wide absorbed into
thought social science, particularly policies designed to alter the data on the market to
customers once the govt. is attempting to alter the consumption of benefit and de-merit
merchandise.(Spencer, 1990)
Simon in a vital paper printed in 1955 the inquisitive of neo-classical social science
together with thought finite rationality. Most customers and businesses square measure
unable to form fully-informed judgments once creating choices and therefore the
increasing complexness of merchandise makes life troublesome. folks have restricted
attention spans and process capability. finite rationality suggests that buyers and
businesses favor acting instead of maximizing. they'll use rules of thumb (known as
heuristics) and estimates once active across completely different markets. activity
economists denote that finite rationality isn't a similar as unreason, as a result of
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decision-makers square measure still making an attempt to form as rational a choice as
doable.(Spencer, 1990)
Behavioral social science started to emerge with the ground-breaking work of
Kahneman and Tversky (again each awarded the chemist for social science though
Tversky died before it had been given). ‘Agents reason poorly and act naturally in
keeping with Kahneman. This read primarily founded upon various researches during
which there's a ‘rational’ answer however folks ofttimes don’t opt for it. Systematic
deviations from rationality discovered difficult several of the traditions of typical
intellectual. Indeed, Thaler - UN agency has popularized the thought of nudges - has
argued that "the real purpose of activity social science is to spotlight behaviors that
square measure in conflict with the quality rational model."(Spencer, 1990)
Inactivity models:
 People have restrained procedure functionality they purpose to act
rather of enlarging powerfully have an impact on social networks and
by using prevailing social norms.
 Usually, act fairly by compassionate and kind motions.
 Lack of self-control, which appears to be present-oriented
 Loss antipathetical - hating losses way greater than proportionate
gains.
 Behavior is powerfully connected to existing default decisions.
 Inclined to some extent by determined psychological feature biases.
maybe a methodicalnonconformity from what's believed to be the
rational selection
Neo-classical social science assumes that everyone agents act rationally in their own
self-interest. In distinction, activity in social science emphasizes unselfishness. this can
be once humans behave with a lot of kindness and fairness than would be the case if
they behaved rationally. unselfishness is commonly coupled to the thought of inequity
aversioni.e.humansdon't like unequal outcomes.(Spencer, 1990)
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There square measure several psychological feature biases which will have an effect on
behavior. One is that the Anchoring result once folks trust heavily on an impertinent
piece of data to assist the North American nation build a choice. Another is that the
accessibility heuristic wherever we tend to over-estimate the chance of one thing
happening as a result of the same event has either happened recently or as a result of,
we tend to feel emotional a few previous similar events. The optimism bias finds that
individuals tend to be too assured concerning the end result of planned actions and
choices and therefore the insufficiency bias is that the tendency to price one thing a lot
of if it's thought of as rare.(Spencer, 1990)
An important side of activity theory is loss aversion. the fundamental plan behind loss
aversion is that individuals feel losses rather more than gains. we tend to see this
usually in money markets for instance once exchange investors hold their investment
positions with paper losses too long (hoping to it share costs can recover) and sell their
investment positions with paper gains too early.(Spencer, 1990)
Loss aversion
A modern economy dominated by data and data services and wherever networks
square measure vitally necessary is healthier suited to ideas drawn from activity social
science. Incentives still matter however activity social science suggests that the
motivations we've once creating decisions aren't those who square measure schooled
in orthodox social science. once it involves addressing persistent economic and social
issues like gambling addiction, rising blubber, anti-social behavior and therefore the
causes of instability in money markets, activity ideas appear to own lots of validity.
(Spencer, 1990)
That same while activity social science will build a serious contribution to overcoming
the constraints of Neo-classical social science it's not essentially an answer. The activity
social science approach itself has been criticized. for instance, the employment of
laboratory experiments has come back underneath sustained attack in recent years.
several experiments have concerned employing an inclined WEIRD cohort - i.e. many of
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us concerned within the tests were drawn from Western, Educated, industrial, wealthy
and Democratic Countries and thus not a sample distribution. Secondly, our discovered
behavior within the laboratory is unreal - tests ordinarily use tiny stakes concerned
within the dilemmas with few real and lasting money consequences for participants.
Thirdly, discoveries concerning the past from activity experiments don't simply
generalize to the long run the social context for one generation is commonly completely
different from another. thought economists from the Neo-classical faculty challenge
activity theorists by spoken communication that buyers, given adequate incentives, can
eventually learn that their behavior deviates from that of the rational model and alter
consequently.(Spencer, 1990)
There are evident, that the educational discipline of social science ought to conjointly
draw on new ideas from alternative subjects for instance, we tend to are getting a lot of
professionals in understanding neuro-economics - however our brain processes choices
and therefore the limitations that our neuro-system imposes on our decisions.
psychological feature overload is common once we square measure sweet-faced with
an enormous array of decisions and other people off times fall back on easy heuristics
in these things.(Spencer, 1990)
Economics {can also will can even may also may} learn abundant concerning behavior
from finding out the Physics of networks and from Linguistics concerning however the
language of communication can amendment behavior. If a lot of students were to
require courses in History aboard typical social science modules, they may be able to
perceive deeper historical patterns for instance in money markets. the topic may also
have the benefit of lessons from social science that studies cultural influences on
behavior. From social science, we tend to learn that humans square measure
complicated psychological beings living in several social contexts during which self-
interest and unselfishness square measure usually inter-twined. the general public has
an innate sense of fairness in however scarce resources square measure allotted
among a community.(Spencer, 1990)
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Comparing 20th and 21st century with modern inequality theory of economics:
Karl Max Theory: Economic inequality refers to the monetary differences between the
gatherings of people, the gatherings of people or nations. Cash imbalances in some
cases refer to pay inequality, wealth inequality or a wealth hole. Financial experts
typically focus on three measurable frameworks for analyzing money disparities: wealth,
pay, and consumption. The issue of financial imbalance is relevant to ideas of dress,
correctness of results and letters of reference. Monetary imbalances vary between
social orders, guaranteed times, financial structures and frameworks. The term can
refer to the movement of wages or wealth over a period of time or to changes in wages
and wealth over a broad period. There are several numerical tables to measure financial
difference. The most commonly used file is the coefficient, but there are a few different
methods (Leshem, 2016).
Supportive Model: In modern business practices; The concept of imbalance is used to
determine the specific monetary states of different countries. Based on this review;
class countries are unconventional, creative and creative nations. The parts taken for
the test are; unemployment rate, per capita salary, ability level, human list and future
opportunities. Prior to the twentieth century, the basis of the study was direct per capita
pay per country; which in current financial matters has prevented the platform from
claiming the irregularity of these dimensions in keeping the country high.
Comparison based on GDP:
From the twentieth to the twenty-first century, the economic development of any nation
is considered to be based on their expansion in the commitment to overall progress or
GDP; supported by its various components, for example, payment, capital spending,
issuance / introduction and campaigns by the government. However, in today's
industrial practice; this idea has disappeared. Currently, several countries are showing
development productivity with sustainable development; for example, measures to
recover ozone coverage are changing, trying to bring more nurseries and plants with
outside air. Newly formed countries have begun to accept the significance of the earth
and the tendency to repair their countries from emerging disasters such as loss of
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resources, environmental changes and piles of interstitial disease. different. So far,
state-of-the-art control of estimates is turning into pre-GDP measures by countries to
differentiate the effectiveness of created countries.
Replacement of old theories based on assumption with practical integration of technical
theories:
Twentieth-century market analysts have made several assumptions based on what / if
assumptions and results are; however, this has nothing to do with the pre-existing
conditions that caused the 2008 crisis. To overcome this; Leading 21st century financial
analysts have made many changes, but at the same time because of old fundamentals
such as old assumptions, they have also not had much of an impact. However, today’s
business practice involves a number of historical reactivation programs to examine the
specific impact of the system on results or output.
Final reasoned comment
Neo-classical social science has designed equilibrium models that have more and more
become unmarried from the lives of real folks and businesses. In our complicated world
wherever uncertainty is that the new tradition we tend to cannot use a 'one size fits all'
model for understanding the economy activity social science isn't an answer, however,
as Paul Ormerod has argued, "An economic expert will now not be the same to own
decent coaching in social science if he or she isn't aware of the most themes of activity
social science."(Spencer, 1971)
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Conclusion
In general, human beings will demand two that is buying more of an excellent or service
at decrease expenditures than at greater prices. A trade-in charge outcomes in motion
along the demand curve from one point to some other and is referred to as an exchange
in the quantity demanded. In general, dealers will provide extra of a correct at greater
fees than at decrease prices. A change in fee outcomes in movement alongside the
supply curve from one factor to another. On a graph, market equilibrium is the factor
where the supply and demand curves intersect. The fee at this intersection is the
equilibrium rate and the extent is the equilibrium quantity. As buyers and marketers
interact, the market will vogue towards equilibrium extent and equilibrium price.
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REFERENCES
AMADEO, K. (2019) The Law of Demand Explained Using Examples in the U.S.
Economy, The Balance. Available at: https://www.thebalance.com/law-of-demand-
definition-explained-examples-3305707 (Accessed: 24 January 2019).
Definition of Change in Supply | Higher Rock Education (2018). Available at:
https://www.higherrockeducation.org/glossary-of-terms/change-in-supply (Accessed: 31
October 2018).
S, S. (2018) Difference Between Movement and Shift in Demand Curve (with Figure
and Comparison Chart) - Key Differences, Key Differences. Available at:
https://keydifferences.com/difference-between-movement-and-shift-in-demand-
curve.html (Accessed: 19 November 2018).
Sloman, j. (2003) Economic. 5th edn. Essex: Pearson Education Limited, p.
37.
Spencer, M. (1971) Contemporary economics. 7th edn. New York: Worth Publishers
Inc, pp. 46-48
Whelan, J. and Msefer, K. (1996) ECONOMIC SUPPLY & DEMAND, Ocw.mit.edu.
Available at: https://ocw.mit.edu/courses/sloan-school-of-management/15-988-system-
dynamics-self-study-fall-1998-spring-1999/readings/economics.pdf (Accessed: 14
January 1996).
Marx, K., 1972. The marx-engels reader (Vol. 4). New York: Norton.
Kadak, T., 2011. Creation of a supportive model for designing and improving the
performance management system of an organization. Case studies (Doctoral thesis on
economics, Tallinn University of Technology, Tallinn).
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