This report explains the law of demand and supply with respect to Unilever products, factors affecting the demand and supply curve, and emerging economic theories of the 21st century compared to the 20th century.
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BM533 Contemporary Business Economics
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Contents INTRODUCTION..........................................................................................................................3 TASK 1............................................................................................................................................3 1. Explain the law of demand and the demand curve while explaining the factors that influence changes in the demand curve......................................................................................3 2. Explain the law of supply and also the supply curve with an explanation of factors that lead to changes in the supply curve....................................................................................................7 TASK 2..........................................................................................................................................10 1. Compare the emerging theories and models of 21st century from the models of 20th century and related both of these to the modern business practices.........................................10 CONCLUSION.............................................................................................................................14 REFERENCES..............................................................................................................................15
INTRODUCTION Microeconomicsasasubjectcontainsthestudyandexaminationofindividuals, households and firms' behaviour within the economy which assists in decision making and apportionment of resources. It takes into account the concepts such as marginal utility, demand and supply for decision making. Demand is the quantity of a particular goods or services that consumers in an economy are willing to purchase and have the ability to purchase in a given time period. Supply refers to the total amount of a particular product or services that a supplier provides to the customers in a market economy in a given time period. In this report, the law of demand and supply have been explained with respect to Unilever and its products (Atanassova, 2021). It also mentions the factors that affect the demand curve and supply curve. Further, the contemporary economic theories with respect to the 20thand 21stcentury is explained. TASK 1 1. Explain the law of demand and the demand curve while explaining the factors that influence changes in the demand curve. Law of demand:Itis one of the basic primal concepts of economics. It states that the for the quantity purchased of a product and the price of that product are inversely related. This means higher the price, lower is the demand and lower the price, higher is the demand. It results due to the existence of the diminishing marginal utility. It works in accordance with the market factors concerned with the various resources to determine how the market economies apportion the resources to regulate the goods and services prices that are existing in the daily transactions in the market. The law of demand shows that at a higher amount of price the demand regarding that good will be lower as compared to the previous demand. The demand for a certain product is ascertained from the law of diminishing marginal utility. It states that the most essential needs of the consumers are satisfied first by utilising the economic goods. Then, additional units of the goods and services are purchased to satisfy their lower valued needs.The demand for Unilever products can be termed as an elastic demand. In such scenario, even a marginal alteration in the prices of their products leads to a higher proportionate change in its demand. This explains that changing the price of a Unilever product will influence consumers to purchase less or to search for some other similar products at a lower price (Bieszk-Stolorz, 2019).
Demand Curve for the Unilever Products: When the demand for a product changes, the consumers react to that change by decreasing the purchasing power of that products(Biswas and Giri, 2019).This takes place in situations where all other factors except price and quantity are constant. Explanation of the movement: When the price increases from P2 to P1, the quantity demanded decreases from quantity Q2 to Q1. This reduction in the demand results in an upward movement (A) in the demand curve (Ghosh, 2021).When the price reduces from P1 to P2, the quantity demanded accelerates from quantity Q1 to Q2. This increase in the demand leads to a downward movement (B) in the demand curve . Figure1: Movement in Demand Curve of Marks & Spencer
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Explanation of the shift: An increase in the level of consumer income results in a rightward shift in the demand curve D1 as the consumers are in a position to buy more and hence the quantity demand in the market place increases (Kumar and Panda, 2019). A decrease in the level of consumer income results in a decrease in the quantity demanded in the market as with less income, the quantity demanded in the market decreases resulting in a leftward shift I the demand curve as D2. Changes in the factors of Demand Curve: The demand for any product only changes in the situation when there is any price alteration keeping all other factors constant. Nonetheless, any modification in any of such factors determines the market demand for the goods and also impacts the placement of the demand curve. The modifications in various other demand factors other than the price results in a shift in the demand curve (Bunting, A. and Quirk, J., 2018). Some elements lead to a deduction in the demand from Q1 to Q2, that resulted in the demand curve at P1 shifts left from D1 to D2. Figure2: Shift along the demand curve of Marks & Spencer
Factors affecting the demand curve are: Income:A change in income influences the demand curve in different ways, on the basis ofthe goods or services concerned as normal goods or inferior goods. In case of a normal good, the demand decreases as the income decreases and demand increases as the income increases. So there is a direct relation between demand of the product and income of an individual. Reason being, higher salary will enable consumers to afford more of the products in the market. But in case of inferior goods, the demand decreases as the income of an individual increases. The demand increases as the income reduces. This occurs for those goods who are replaced with better goods as the income increases and gives improved purchasing power. Theincrease in income displaces the demand curve to the right(De Man, Koene and Ars, 2019). Price of related goods:There are two different types of goods as substitutes and complementary. In case of substitutes, as the price of one product decreases, the demand for its substitute product also decreases. As the price of a substitute product increases, the demand for other good increases. In case of complementary goods, a reduction in the price of a product, increases the demand foranothercomplementary product and an increase in price results in decrease in the demand for another complementary product. Trends and tastes:Any goods or services that are trending shift the demand curve in the right side as the demand for them increase in that time. Whereas, any new trend that replace the previous one results in deduction in the demand of the previous goods or services which becomes out of fashion or trend. This shifts the demand curve to the left side of the chart. The changes in trends or tastes of he customers shift the demand curve to respective sides(Eğriand, Orhan, 2020). Expectations: The expectations that the customers have regarding various goods and services can influence the demand curve. If the consumers expect a price rise related to any good or services, they aim to purchase it more in then present scenario, which increases its demand. Hence an expectation of price increase shifts the demand curve to the right. An expectation of price decrease in the future will affect the current demand to reduce. This results in a left side shift in the demand curve.
2. Explain the law of supply and also the supply curve with an explanation of factors that lead to changes in the supply curve. Law of supply:Itstates that keeping all other factors at a constant, any increase in the prices of goods and services leads to increased quantity of supplies offered from the suppliers and vice versa. This generates the supply curve to move upward from left to right. It defines that as the prices related to any individual goods or services increases, the suppliers aim to maximise their profits by selling more quantity of that product or services. It says a higher price will generate more profits for suppliers inducing hem to sell more. Because with their main of revenue and profit maximisation, businesses aim to produce more of such a product that results in higher profits(Foroudi, P. and Palazzo, 2019). The supply curve is an upward sloping curve which determines the relationship between price of goods andthe quantity supplied for a respective amount of time. For the curve, the suppliers decide upon the quantity of the respective goods they will produce. Theyalso make a decision for the quantity that they will sell and the amount that they may hold from being sold in the market. The consumer demands determines the price of products in the market. If the consumer demand for a product rises, the supplier may devote additional resources in the production of respective products. This ultimately leads to increase in the supply of the product. Movement in the Supply Curve: Figure 3: Movement in the supply curve of Unilever Ltd.
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Explanation of the movement: When the price of a commodity increases from P1 to P3, the supplier arranges upon producing and supplying more of that product in the market from Q1 to Q3. An increase in price generates the curve to displace towards upper side. Similarly, if the prices reduce from P1 to P2, the suppliers tend to reduce the production and supply of that product decrases in the marketplace from Q1 to Q2. A deduction in the prices lead the supply curve to have a supply movement downwards(Grima and Boztepe, 2021). All these lead to strategic supply movement along the supply curve., whilstUnilever will search for a market where the technological improvements and production costs can be controlled in a way that consumers are able topurchase more commodities resulting in increase in supply of the products in the market. Shift in the Supply Curve: Explanation of the shift: Figure 4: Shift in the supply curve of Unilever Ltd.
A change in factors other than price results in a shift in the supply curve. With an increase in the price of the factors of production, it leads to an increase in the cost of the goods. This results in shift in the supply curve to the left side as S2 showing decrease in the quantity supplied.A decrease in the price of cost of factors of production leads to a rightward shift as S1 in the supply curve as the gross cost of production decreases and hence the quantity supplied in the market increases. Factors affecting the Supply curve are: Decrease in production cost:A deduction in the cost of production of the goods and services leads to reduced prices of the commodities. This states that the business can now produce on more number of products on that same price point. This proves to be a per unit cost saver for the suppliers. As increase in production cost influence the suppliers to shrink upon the production of goods and services. Presence of more firms:With more number of firms coming into the market, the production of various products in the market increases. This leads to increased amount of supply of the good and services in the market. This shifts the supply curve to the right. Improved technology:Improvements in the technological front enable the suppliers in the market to generate increased production of goods and services with effectiveness and efficiency. This effective production leads to higher amount of goods and services produced which shifts the supply curve to the right(Jajuga and et.al., 2021). Governments’ policies:With the aim of regularizing and protecting the industry, the Government plays a crucial role to influence the supply of various products in the market. As the tax amounts are low, it induces the suppliers to produce more of that product in the market with increased market supply. Whereas, complicated tax laws and obligation of strict regulations and the excise duties result in reduction in the amount of products supply.
TASK 2 1. Compare the emerging theories and models of 21stcentury from the models of 20thcentury and related both of these to the modern business practices. Macroeconomics is a branch of economics which deals with the performance, structure, behavior, and decision-making of an economy as an entire integral system. The main focus of micro economics lies in the aggregate changes in the economy such as unemployment, growth rate, gross domestic product and inflation (Bresser-Pereira, 2020). Economic theory consists of a set of ideas, principles ad theories that assist and outline how the various different economies function in various markets. There are several types of theories which come under economic theory such as authorities’ intervention that gives to their rules and regulation or different elements for creating a good financial system(Jelonekand et.al., 2019). The major economic theories that have been there from 20thcentury continuing and modernizing in the 21st century are: Traditional Economics Theories: 1.The Classical Economic Theory:This economic theory is based on the fundamental principle that economy in itself is self-regulating. The founder of classical economic theory is Adam Smith. The classical economists hold that the whatever may be the condition, economy is able to attain that natural level of real GDP or the output. This is that level which the economy is able to achieve when its resources are fully and properly utilised. Although there comes conditions which may bring the economy away from the natural level of GDP or may throw it far ahead of that natural GDP level but there are many self‐adjustment methods that are present in the market which assists and work in concern to bring the economy to the natural level of GDP(Kher, Terjesen and Liu, 2021). Unilever uses this economic theory to consistently assess the real level of GDP that the business has to attain in cases when the businesses are not able to perform to that certain level. It also tries to find upon those methods which can help the business to understand the necessary self adjustment methods which Unilever can utilize in cases when the conditions in the economy are not suitable and the economy goes away from the level of real GDP. 2.Keynesian Economic Theory:Keyne's theory of the equilibrium determination of real GDP, employment and prices in the economy attains its crucial concentration on the
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relationbetweenaggregateincomeandexpenditure.Keynesutilisedthisincome- expenditure model to provide the argument that the equilibrium level of real GDP may not match with the natural level of real GDP. Because in this model, the equilibrium level of GDP is the exact real GDP level which is constant with the current level of aggregated expenditure.The fundamental idea of Keynesian theory lies in the thought which says aggregate demand doesn't inherently corresponds to the productive capacity of an economy, instead it is determined by various other factors that are both public and private.If the current level of aggregate expenditure is not adequate to purchase entire real GDP which is being supplied, output will be reduced till the time real GDP level equals the level of aggregate expenditure(Lampa and Abeles 2020). Hence, if present level of aggregate expenditure is insufficient to purchase real GDP at natural level, then the equilibrium level of real GDP will remain at a lower place than the natural level. UnileverutilisesKeynesianeconomictheoryforestablishingrelationbetweenits aggregate income and expenditure. This theory helps Unilever to assess whether the real level of GDP is in equilibrium to the level of aggregate expenditure that Unilever makes in a prescribed time period. limited ModernEconomicsTheories: Modern economic theories of economic growth enhance their focus on two primary channels that generate development with the assistance of the expenditure done on the research and development on the central constituents of studies an research. First channel consists of the effect that occurs on the available goods and services and the second one is the impact on the stock of knowledge phenomena. Modern Keynesian's discovered that both monetary and fiscal policies are effective in controlling the level of aggregate demand. Allies of New Classical Economics have been created on the objective assumptions idea to foster genuine business movement models. The financial matters of the modern time frame has get on as less applicable to the 21st-century service markets. In the current world of financial aspects, human and normal capital are logically valued, and estimations of wealth, public item, and human happiness and delight are routinely inspected(Layne 2022). The financial ideas of the twentieth century have truly harmed the world economy and the climate, especially one-dimensional and admired unrestricted market economy that prompted the fatal monetary downturn of ongoing years.
1.Modern Monetary Theory:This theory is a macroeconomic idea that shows monetarily supreme countries like US, UK, Japan that spend their taxes and purchase non physical government issued currencies. These currencies are totally controlled by them and don't have any revenue related constraints when it comes to federal government spendings. The reason behind that these governments have total control over the amount of money to be printed and issued and hence don't require any support with respect to the taxes or borrowings of their citizens(Vampo, 2021). Modern Monetary Theory (MMT) questions the traditional set of beliefs related to the way government behaves to the situations of the economy, the nature of money, the utilization of taxes, and the importance of budget inadequacy. 2.Behaviour economic theory:This theory aims to utilize the economical and psychological elements and combines them for understanding the reasons behind individuals behaving and reacting in a certain way in the real worlds. it adds psychology into economics in an attempt to understand the decision making opted by investors, institutions and other economic participants in a better manner. 3.Nudgeprinciples:Thenudgeprincipleisaconceptinbehaviouraleconomicsand behavioural sciences which suggests positive reinforcements and indirect propositions to a group or to individuals with the aim of influencing their behaviour or decision making. It demands that the choices should be entirely based upon how individuals really think and decide rather than how the leaders conventionally believe that people think and decide. BasisTraditional economic theoriesBehavioural economic theories MeaningAccording to this economic theory, the consumers always choose upon the best option available to them based on a viable cost and benefit analysis of each and every option. It says that rational customers are unaffected by the external factors and take their decisions solely for In accordance to this theory, it is seen thatthistheory,measurewhythe customersmakesomeirrational decisions which do not benefit them in some situations while combining the psychologicalandeconomictheories available.
their benefits. Decision-makingEachandeverycustomerin traditional economic theory acts to the best of their knowledge ability tomakerationaldecisionsfor themselves. The decisions made by cistomrs are sometimes not beneficial to them and henceareaffectedbyexternal psychological and economic factors. Availabilityof information The agents in traditional economic have the set of perfect information andtimeavailabletothemfor decision making. In behavioural economics, there is not enoughinformationavailabletothe agentsandthereislimitedtime constraintwhichstopsthemfrom makinginformedandbeneficial decisions.
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CONCLUSION From this report, it can be concluded that law of demand and law of supply are an essential part of economics as a subject that help to establish relationship between a buyer and a seller for a particular resource. When referenced together, these two laws act as an economic model to determine the price point of products in the market. This report contains discussion about the laws of demand and supply and it also explains the way the graphs of these respective economic theories behave with respect to various changes that occur in the market environment. The demand for Unilever products is very elastic and is hugely affected by the tastes and trends thattakeplaceinthemarket.Thesupplyalthoughgetsimpactedbythetechnological improvements and the cost reduction in the production inputs. There also is a discussion on the economic theories of 20thand 21stcentury and how they are evolving to support the current needs of the market.
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