The Economic Environment

The Economic Environment

Table of Contents
INTRODUCTION.................................................................................................................................4
MAIN BODY........................................................................................................................................4
1. Analsying changes in determinants of demand..............................................................................4
2. Analyse changes in the determinants of supply.............................................................................5
3. Analysing the influence of price elasticity in determining price....................................................6
4.Describe different types of elasticity..............................................................................................7
5. Evaluation of the impact of 2 different types of elasticity.............................................................8
6. Analyse 2 government macro-economic objectives.......................................................................8
7. Role of monetary and fiscal policies in regulating the gross domestic growth...............................9
CONCLUSION.....................................................................................................................................9
REFERENCES....................................................................................................................................11

INTRODUCTION
Economics is that field of knowledge which emphasises on production, consumption
and transfer of wealth (Panayotou, 2016). The present project report is about the concept of
demand and supply, their determinants, elasticity of the products and services, role of
monetary and fiscal policies in regulating growth of domestic product.
MAIN BODY
1. Analsying changes in determinants of demand
Law of demand states that when the price of a commodity increases, its demand
decreases and vice-versa. Following are the determinants of demand :
 Price of commodity or service
 Buyer’s income
 Related good’s price- complementary and substitutes
 Change in consumer preferences (Becker, 2017)
 Expectation of price in near future.
Changes in demand level : if consumer thinks that prices of goods or services are
going rise in near future, then demand for the same will increase and vice- versa. Similarly, if
the prices of complementary goods rise, the demand for the concerned commodity decreases.
There is an opposite relationship between price of substitute and demand of a commodity.
When price of substitutes increases, demand of commodity or services increases.

From the above graphs, changes in the level of determinants directly affect the
demand of the goods and services.
2. Analyse changes in the determinants of supply
According to the law of supply, other things remaining constant, if price of
commodity rises supply of a commodity also increases and vice versa (Zeuthen, 2018). This
shows that quantity supplied and price have direct relation and moves in the same direction.
Following are the determinants of supply that affects the supply of a commodity:
 Technology advancement
 Changes in tax and subsidies
 Variation in price of goods/services
 Variation in price of related goods
 Variation in expectation regarding prices of goods/services in near future.
 Number of producers/sellers in market
Changes in supply level:
When latest technology is used in the production process, it results into higher
productivity which ultimately results into greater supply of goods and services. If there are
many sellers, quantity supply will be more and vice versa. In case of expectation of price rise