Competitive Economic Analysis: Theories and Models for Businesses

This report provides a comprehensive analysis of economic principles, focusing on the laws of demand and supply, and the factors that influence them. It examines the movement along and changes in demand and supply curves, illustrating these concepts with diagrams. The report then delves into a comparison and contrast of economic theories and models from the 20th and 21st centuries, including the Fisherian theory and the demand and supply theory, and their applications in contemporary business practices. The analysis highlights how these theories are used to understand market conditions and formulate effective business strategies. The report concludes by summarizing the key findings and emphasizing the importance of economic analysis in making strategic decisions for the future. The content is contributed by a student and published on Desklib, a platform that provides AI-based study tools for students.

Competitive Economic
Analysis

Table of Contents
Table of Contents.............................................................................................................................2
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Explanation of law of demand and movement along the same demand curve and changes
in demand curve with its factors..................................................................................................1
1.2 Explanation of the law of supply and movement along with the same supply curve and
changes in supply curve with its factors......................................................................................4
TASK 2............................................................................................................................................7
Comparison and contrasting of theories and models in 21st century with 20th century and
application of them in modern business practices.......................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Economic analysis can be defined as the assessment of different elements that may leave
negative as well as positive impact upon growth of a country. It is very important for all the
companies to conduct contemporary economic analysis with the help of changing demand and
supply. It will be beneficial for carrying out all the operations in systematic manner according to
the demand of their products in the market (Coe, Kelly and Yeung, 2019). While planning to
accomplish all the business goals it is essential for enterprises to conduct economic analysis as it
will guide to form strategic decisions for future. This report covers various topics such as
explanation of law of demand and supply and movement along the same demand curve, changes
in the curve with the factors. Additionally, comparison and contrasting of different theories and
models in 21st century and 20th century are also covered in this project.
TASK 1
1.1 Explanation of law of demand and movement along the same demand curve and changes in
demand curve with its factors
Law of demand: It is the main fundamental concept in economics. This law states that if
price for an item get increased then it will result in decrement of demand of all the items in the
market. On the other hand, if the price will be decreased then it will result in increment in the
demand of goods in the market. It takes place due to natural consumer choice behaviour as all the
individuals want that they should get all the products at lower prices. An individual hesitates to
pay higher amount for a good because of having a fear of becoming out of cash. This law also
states that a demand curve always slops downward. It demonstrated that purchased quantity of
goods have an inverse relation with the price of them. All these changes in the buying capacity of
buyers take place due to diminishing marginal utility. It states that, an individual use the first
bought item to fulfil their most urgent needs and with the satisfaction of them the value of the
goods gets decreased (De Witte, 2015).
1

From the above diagram it has been analysed that when the price decreases quantity
demanded increases. With the increment of the price the demand for the goods in the market get
decreased. When the price was at P1 then the quantity demanded was Q1 which is very low but
when price was declined to P2 then the demand in the market was inclines at Q2. At the end
when the price was lowest at P3 then quantity demanded was higher at Q3.
Movement in the demand curve: It takes place due to changes in price which results in
decreased interest of customers in buying the items that are available in the market. With the
movement of price towards downwards it results in higher demand of goods in the market. All
the changes in prices could be reflected in the movement with the demand curve. Due to
magnitude and shape of demand shifts results in changes in the consumer buying behaviour
(Dzhumashev, 2014). The chart below may reflect all the movements in the demand curve:
2

Changes in the demand curve: All the movements in price of a product result in changes
in demand curve which also affects the quantity demanded in the market. In order to be good for
the economy it will shift in parallel with the changes in demand for a complement (Gong and
Hassink, 2019). It could be changed by following non price variables that includes complements,
income price of substitute goods etc. Changes in demand curve could be analysed with the help
of following graph:
3

Factors resulting in changes in demand curve: There are various factors that are
resulting in changes in demand curve all of them could be analysed with the help of following
discussion:
 Income: It is the main factor which results in changes in demand curve because when
consumers are not able to pay for the good then they do not buy it and it make the lower
demand for the particular item (Factors resulting in changes in demand curve, 2020.).
 Trends and tastes: These are two main factors that are resulting in changes in demand
curve. When an item is in trend and suits to the taste of the consumers then it results in
higher demand of it in the market. With the passing time the popularity of the good gets
declines that results in lower demand (Hall and Lawson, 2014).
 Prices of related goods: There are two different types of goods that may eave impact
upon demand curve. These substitutes and complementary items. When price of a
substitute good gets decreased then the consumers will shift towards that and it will result
in decreased demand of the actual good in the market. On the other hand, when price of a
complementary good gets decreased then it affects the demand of actual item which is
increased because now it could be afforded by the customers.
 Expectations: Individual’s expectations for the upcoming period may leave impact upon
demand. For example, if consumers think that price of a particular good will be decreased
in future then current demand of it will be decreased.
 Composition and size of population: This factor also affect the demand curve. When
the population is large then it will result in higher composition of them that will raise the
demand of goods in the market and change the whole curve (Hausman, McPherson and
Satz, 2016).
1.2 Explanation of the law of supply and movement along with the same supply curve and
changes in supply curve with its factors
Law of supply: It states that when the price for a product or service will be increased then
supply for the same will also be increased. On the other hand, a decrement in price will result in
lower supply of a good in the market. The law of supply demonstrates that when the price of an
item will be high then the supplier will try to maximise the profits by raising the quantity of
goods which is offered for sale. According to it, if the price of a good is very high then the
4

produces will supply higher quantity of the goods in the market in order to generate maximum
profits. The curve of it always slops upwards.
The above diagram shows that when the price of a good will be increased then the
quantity supplied in the market will also be increased. When the P1 decreased to P2 then it
also affects the Q1 which decreased to Q2.
Movement in supply curve: With the increment or decrement of price, quantity supplied by
the supplier in the market increases or decreases. There is direct relation in both the elements
which are results in downward slopping curve of supply. A supply curve is generally a graphical
presentation of the schedule which is planned by the producer who is willing sell a higher
amount of goods in the market when the price is high so that good profits can be acquired
(Negishi, 2014). Movement in supply curve could be assessed with the help of following graph:
5

Changes in the supply curve: Changes in the supply curve can be defined as shift in
supply which could either on right or left side. It could be defined with the help of price
quantity relationship of supply curve. All the changes that takes place in it are related to the
increment or decrement of the quantity supplied in the market. It may occur because of new
technology like less expensive of higher efficient production process. Change in the number
of competitors is also a reason for the changes in supply curve. All of the could be
understood with the help of following chart:
From the above chart it has been determined that supply ay get affected when the price is
same. The graph shows that S is the actual supply and the factors that results in changes in
supply have created the situation of S1 and S2. In order to decrease the negative impact of
them upon business it is essential for the companies to be aware of all the factors that may
result in changes in supply (Posner, 2014).
Factors making changes in supply curve: There are various types of factors that are
making changes in supply curve. All of them could be understood with the help of following
discussion:
6

 Expectations: The expectation of sellers leaves impact upon supply curve. If they are
expecting that the price of a good will decrease in future then the increase their supply in
the market so that they can reduce the possibility of acquiring losses.
 Input prices: These are the prices which are resulting in higher production costs and
directly leave impact upon supply curve by making changes in it. It results in lower
production due to which supply in the market get decreased.
 Number of sellers: It is one of the major factors which are changing the supply curve.
When the number of sellers in the market is very high then the supply in the market will
be very high.
 Technology: With the introduction of a new technology in the market supply increases
because it results in higher productivity of suppliers to supply goods in the market
(Ruseski and Maresova, 2014).
TASK 2
Comparison and contrasting of theories and models in 21st century with 20th century and
application of them in modern business practices
There are various types of theories which were used in 20th century by the businesses to
carry out all the operations in systematic manner. Main purpose of them was to determine market
conditions and guide the economists to formulate effective future strategies. The main theory
which was introduced in 20the century was Fisherian. It was introduced by Irving Fisher.
This theory states that real rate of interest is equals to the interest rate less the inflation
rate which is expected. This theory was used in business practices for the purpose of analysing
that the business will be able to attain higher profits in future or not. In order to formulate the
equation Fisher always try to analyse the market situations so that their impact upon the business
could be determined. All the equations of Fisher were mainly used in the such situations where
the lenders or investors ask for additional reward so that all their losses could be compensated in
purchasing power because of the high inflation rate.
The theory which is used in 21st century in the business practices is demand and supply
theory. With the help of it, relationship between buyer and seller could be determined. There are
four main laws of this theory which are as follows:
7

 When the demand gets declined and the supply is unchanged and then it will lead to the
lower quantity and equilibrium price.
 If the demand is increased but the supply is not changed then it will result in higher
equilibrium price and quantity.
 When supply decreases but demand remain the same then it will lead towards lower
quantity and higher price.
 If the supply gets increased with unchanged demand it will result in high quantity and
lower equilibrium price.
While implementing this theory it is very important for all the organisations to make sure
that they are having detailed information about the factors that may affect demand and supply of
goods in the market. It is one of the most common theory which is used in 21st century by
organisations in their business practices.
Comparison between the theories: There are various types of economic theories which
are used by entities in 20th and 21st century. Fisherian theory is mainly based upon analysis of the
interest rate which could be acquired by an organisation by performing all the operations
systematic manner. On the other hand, demand and supply economic theory is mainly focused
with analysis of market situations so that effective decisions for acquiring higher profits could be
determined. Fisherian theory is highly focused with the changes in inflation rate which resulting
in changes in purchasing power of clients. It guides companies to set their prices accordingly so
that planned activities could be performed systematically. Demand and supply theory is focused
with analysis of the elements that may affect demand or supply or a good in the market. It guides
the organisations to make sure that they are able to meet their targeted goals or not. There are
various differences in both the theories and the individuals who are required to implement them
are also different (Vlachou, 2016).
Contrasting in both the theories: The main similarity in these theories is the aim of
them. Both of them are concerned with growth of economy so that all the targeted goals could be
accomplished. Another, similarity between them is that these theories are analysing market so
that potential changes in the profits could be determined.
Application of theories in modern business practices: Fisherian theory could be
implemented in modern business practices by organisations to analyse the impact which could be
left by inflation or deflection rate upon their business. One of the modern business practices is
8

attaining higher profits which is possible when the entity is highly aware of all the elements that
may affect purchasing power of its clients. For this purpose, Fisherian theory could be
implemented in business. Another modern business practice is acquiring sustainability for the
business for which the companies are required to make sure that they are fulfilling the market
demand properly. In order to perform this business practice organisations can implement demand
and supply theory which will help to assess the market situations and meet business goals
properly (Wahl, 2016).
CONCLUSION
From the above project report it has been concluded that contemporary economic analysis is
the process of analysing the current economic position so that the factors that are resulting in
changes in the economy could be determined. There are two main factors which are focused
while conducting economic analysis. These are demand and supply of goods and products in the
market. For this purpose, different elements are required to be focused which are law of demand
and supply, movement in curves of both of them, factors that are resulting in changes in the
curves etc. By analysing all these aspects all the business practices could be performed in
systematic manner. There are different types of theories which were used in 20th and 21st century.
These are Fisherian and demand and supply theory. With the help of both of them organisations
can perform all the operations systematically.
9

REFERENCES
Books and Journals:
Coe, N. M., Kelly, P. F. and Yeung, H. W., 2019. Economic geography: a contemporary
introduction. John Wiley & Sons.
De Witte, K. ed., 2015. Contemporary economic perspectives in education. Leuven University
Press.
Dzhumashev, R., 2014. The Two‐Way Relationship between Government Spending and
Corruption and Its Effects on Economic Growth. Contemporary Economic Policy.
32(2). pp.403-419.
Gong, H. and Hassink, R., 2019. Co-evolution in contemporary economic geography: Towards a
theoretical framework. Regional Studies. 53(9). pp.1344-1355.
Hall, J. C. and Lawson, R. A., 2014. Economic freedom of the world: An accounting of the
literature. Contemporary Economic Policy. 32(1). pp.1-19.
Hausman, D., McPherson, M. and Satz, D., 2016. Economic analysis, moral philosophy, and
public policy. Cambridge University Press.
Negishi, T., 2014. History of economic theory. Elsevier.
Posner, R. A., 2014. Economic analysis of law. Wolters kluwer law & business.
Ruseski, J. E. and Maresova, K., 2014. Economic freedom, sport policy, and individual
participation in physical activity: An international comparison. Contemporary
Economic Policy. 32(1). pp.42-55.
Vlachou, A. ed., 2016. Contemporary economic theory: radical critiques of neoliberalism.
Springer.
Wahl, F., 2016. Does medieval trade still matter? Historical trade centers, agglomeration and
contemporary economic development. Regional Science and Urban Economics. 60.
pp.50-60.
Online
Factors resulting in changes in demand curve. 2020. [Online]. Available through:
<https://quickonomics.com/factors-that-cause-shift-in-demand-curve/>
10