Comprehensive Report: Contemporary Business Economics Principles

This report delves into the core principles of contemporary business economics, examining the laws of demand and supply and the factors that influence them. It begins by defining the law of demand, detailing how price changes affect the quantity demanded, and illustrating this with examples and graphical representations. Similarly, the report explains the law of supply, illustrating the relationship between price and quantity supplied, along with factors affecting supply curves. The analysis includes movements along and shifts in both demand and supply curves. The report further contrasts traditional and modern economic theories, exploring the role of government intervention and resource allocation. This comprehensive analysis provides a solid understanding of market dynamics and economic principles. This assignment is contributed by a student to be published on the website Desklib. Desklib is a platform which provides all the necessary AI based study tools for students.

CONTEMPORARY
BUSINESS ECONOMICS.

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Task 1...............................................................................................................................................3
Law of demand with factors that change the demand and demand curve...................................3
Law of supply with factors that change the supply and supply curve.........................................6
Task 2...............................................................................................................................................9
Traditional and modern theories of economics with relation......................................................9
CONCLUSION..............................................................................................................................11
REFERENCES................................................................................................................................1

INTRODUCTION
Demand and supply are one of the important elements of business economics. In-fact the whole
economy runs on the concept of demand and supply which is again directly related to each other
which means increase in the demand of goods due to low prices will directly leads to an increase
in supply of goods in the market. With the passage of time the economic theories also get
evolved or changed but still the concept of price, consumer, demand, supply or cost or many
others has yet not changed. In this project we will study about the demand, supply and the
economics theories.
MAIN BODY
Task 1
Law of demand with factors that change the demand and demand curve
Law of Demand
Law of Demand states that all other factor remains constant, price of good changes leads
to change in the quantity brought by the customer. It means change in price and change in
quantity are related to each other and changes with each other. Buying behaviour of the customer
changes in the form when: increase in the price leads to decrease in demand of quantity of good
in the market whereas decrease in the price leads to increases the demand of quantity in the
market(Marwala, and Hurwitz, 2017). The customer willingness is depended on the price of the
good where the price of the good increases in the market he/she will demand less of that good,
same as if the price of the good is less in the market he/she demand more and more to consume
that good. For example: If the prices of petrol increases the demand of petrol decreases and if the
prices of the petrol decrease then the demand of that good increases.
There are two tools of law of demand.
1. Demand schedule: It the tabular form which show the quantity demand by the customer
in each change in price.

2. Demand curves :It is the graphical representation of demand schedule which show the
change in the price of the good reflect the change in the quantity of that good.
Movement along Demand curve:
(Source Shift in Demand and Movement along Demand Curve)
Change in of demand occur when there is a change in price of good. The curve may shift upward
(contraction) or downward (expansion) (Sepulveda, 2020).
1.when the demand movement shows upwards along with the demand curve then it shows the
decrease in demand of good due to increase in the price of goods is called contraction in demand.
I
illustration 1: Movement of demand curve

Example of Sainsbury product of Tea (assumption): When the price of Sainsbury product like tea
are increases from $12 to $16 then demand of that Tea falls from 80 to 60 units.
2. When the demand movement shows downward along with the demand curve then it shows
increase in demand of goods due to decrease in the price of goods is called Expansion in
demand.
For example : Decrease in the price of Sainsbury products like Tea from $16 to $12 causes rise
in demand of Tea from 60 to 80 units.
(Source: Shift in Demand and Movement along Demand Curve)
Shift in the demand curve:
The shift of demand curve change due to other factor, other than price. It occurs when demand of
good or services are change even if prices are constant. The other factor includes:
• Rise in the Income of the buyers: Increase in the demands of good due to rise in Income of
consumer which increases purchasing power of the buyer (Rao, 2016).
Example- Rise in the salary of the consumer which increase their purchasing power for goods.
• Environment changes: Change in consumer taste and trend lead to increase in the demand of
goods ignoring the price factor. Example — change in technology, change in fashion etc.
Illustration 2: Change in demand due to change in prices

• Future prices of the goods: If the consumer feels that near future price of a particular product
will increases, consumer purchases more and more of that product at that time that increase the
demand of good. Example- Prices of gold shall be expected to increase in near future.
• Prices of substitute goods Increase: Prices of substitute product increase leads to increase in
the demand of that good. Example- Increase in the prices of Coffee leads to Increase the demand
of Tea. Most of the consumer will shift from coffee to tea.
• Price of complementary goods decrease: Demand of one good can be effect from there
complementary goods. If the prices of complementary goods rises demand of that goods can be
decrease same as where the prices of complementary goods fall cause the rise in demand of
good.
For example- If the prices of petrol decrease, demand of petrol car increase instead of diesel cars
in the market. Same as if the prices of petrols increase in the market that lead to decrease the
demand of petrol car.
• Seasonal factor: Demand of goods increase due to there seasonal nature like agriculture
products which are to use within the time limit. That increases the demand of that goods.
Example- Fruits like orange are demanded high at their seasonal time in the market.
Law of supply with factors that change the supply and supply curve
Law of Supply.
Law of supply states that all other factor remain constant, quantity of supply of good and service
are increased at the time of rise in the price of the product and same when the price of the
product are low, quantity of supply of that product are low in the market. Here supply increases
his quantity supply in the market at the time of increased price of product to earn good profit
whereas if the prices of the product are low in the market suppliers decreases their quantity
supply in the market to avoid the losses. It shows the producer behaviour at the different price
level of product at a time of inflation and deflation(Zainal. and et.al, 2019).
For Example: Producer is willing to sell this furniture at a high price only and avoid the supply at
the time of recession where the prices of the product are low in the market.
There are Two tools of Law of Supply:
1. Supply Schedule : It shows the Quantity supplied by the suppliers in each price.

2. Supply curve: It is a graphical representation of the supply schedule I.e. show the quantity
supplied by the supplier at each price level in the market.
Movement of Supply curve:
Change in of supply occur when there is a change in price of good. The curve may shift upward
(contraction) or downward (expansion).
1. When the supply movement shows upward along with the supply curve, other factor remain
constant, quantity supply are increased by the supplier due to rise in price of the product to earn
more profits.
2. Whereas if the supply movement shows downward along with the supply curve, other factor
remain constant, quantity supply of goods decreases as the prices of the product falls.
For example: Producer will produce more and more when the prices are high and supply of
goods are very high in the market. As the given in a digram when the market price is at 10 then
the quantity supplied by the producers is low as compared to the market price at 50, quantity
supplied is very high.
(Source:Movement along a Supply Curve and Shifts in Supply Curve).
Shift in supply curve:
Illustration 3: Change in quantity due to
change in price

Shift of supply curve changes due to other factors of supply, other than price. It occurs forward
and backward without affecting the price line of the product. when the there is change in other
factor like cost of production technology, tax rate, natural factor etc.
Factor affecting the supply curve are:
 Cost of production factor: When the cost of production changes in the organization I.e.
is change in cost of raw martial, labour, plant and machine and equipment etc. affect the
prices of the final product due change in variable cost of the production
 Technological factor: This factor is very dynamic and change day by day and which
help the companies to cut there cost of production. This can shift the supply chain
rightward if company like Sainsbury adopted by the changes in the organization and
towards leftward if companies uses the old technology for the production.
 Tax rate: The tax rate can cause the cost of production increases which moves leftward
as the profits of the producers reduces due to increase in the tax and same if the tax rate
reduces by the government then the supplier supplies more and more to earn good profit,
and curve moves rightward(Takemura, 2020).
 Natural factors: Natural factors like Earthquake, flood, cyclone etc. can also cause the
supply of goods in the market that can effect the quantity supply curve and move towards
leftward as the producer can suffer from losses due the various natural factor.
 Legislation: Rules and regulation by the government for the producer can affect the
quantity supply in the market as if the laws are not in the favour of producer like
industrial charges and taxes then supplier reduces there supply in the market whereas if
laws are in the favour like subsidy given of the producer then the quantity supplier curve
move towards rightward.
 Future Prices: If the seller are expected to see rise in the price of the goods in near
future then supplier holds the supply and reduce the supply of that good for future selling
to earn more of the profit whereas if the prices are expected to be fallen in near future
then he supplier increase his supply to avoid the loses in the future.

(Source:Movement along a Supply Curve and Shifts in Supply Curve)
For Example- In the given diagram, change in quantity supplied of Sainsbury product like
Coffee in market occurs due to change in the other factor other than price. Rightward and
leftward of the supply curve shows the quantity of supply of Sainsbury Coffee in the market
where price remains the same. When the curve move towards rightward that show the increase in
quantity supply of the Coffee by Sainsbury in the market to earn more of the profit, whereas
when the quantity supply curve move Leftward movement that shows the decrease in the supply
of Coffee by the Sainsbury in the market.
Task 2
Traditional and modern theories of economics with relation
Land, labour, capital and entrepreneur are the four main and important factors of production
which leads to the production of any goods and without them the production of goods would
never be possible. And as natural resources are scarce in environment and it is very essential for
every business entity to have an efficient utilization of resources so that, the situation of shortage
of resources will never be arise in the economy (Ehnts, 2016). Traditional and classical theories
of economy runs on the concept of laissez faire policy which shows that the interference of the
government should be minimum which means that the government should not have to enter into
the market and the concept that the demand and supply will independently run the market. The
Illustration 4: Change in quantity due to
change in other factors

traditional theories also follows the principle that, there should always be balanced budget which
means the debt and equity should always be same (Welch, and Welch, 2016).
On the other hand, the Keynesian theory which is one of the modern theory of economics
emphasis the more role of government and says that the government have to create the demand
in the market in terms of doing market investment so that the demand will create and the whole
production cycle will run (Heartspring, 2019). This theory works on circular movement which
means that as more and more money will be spent into the market, the more earning will be
created which again leads to more spending of money and this circle continuously flows or run in
the economy. In addition to Keynesian theory the Monetarist theory which is also one of the
modern theory also says that the growth of economy and running of the business cycle is totally
depend upon the flow of money into the economy or changes in the supply of money into the
economy. This means that only demand creation will not lead to the success of economy but the
growth of business is also very essential for the development of economy.
The classical theories of economics run on the concept that there is perfect competition in the
market which means that all the buyers have all information about the products or all the firms
produces the similar products with full control over the prices and there is always equilibrium in
the market but in the modern times the applicability of this concept is not seen on the modern
theories because now the market is very fluctuating or continuously changing and no one can
control the prices. Also, the consumers don't have the complete information regarding the
prevailing products. Thus, the concepts of traditional economy and modern economy is fully
different and now the condition and definition of market equilibrium is also very changed.
The modern monetary theory which is one of the modern theory works on the principle that the
country has full control over the money which means as the government expenses are rising due
to its continuous investments in the market and in order to meet that expenses the government
not only collect taxes from the public but also print money at their own level so that, its
increasing expenses will be meet (Sebastiani, 2016). Because of the stage of full employment
level in the economy and by adopting this kind of theory or policies by the government the rate
of inflation will continuously start hitting the economy which results in very bad impact upon the
economy in terms of its growth and development (Torr, 2019). While in the concept of
traditional theories such situation never occurs because the market will always remain in

equilibrium stage where demand and supply will automatically adjust without government
intervention.
As the value theory of money which is one of the traditional theory of economics says that the
price of goods is determined on the basis of expense which means it should be the sum total of
all expenses which is spend on the production of that good like the amount which is paid to
labours for its production or the technological cost and many other factors who determines the
price is somewhat also applicable in modern concept which is also a merger of traditional
concept with some more additional factors including the trends of the current market or
competition factors.
While there are lots of differences between the traditional and modern concepts and theories but
still the basic concept of law of demand and supply still runs in the economy which shows the
main relation between the price and the demand of commodity by the consumer that as the price
of commodities increases there will always decrease in the demand of commodity by the
consumers and vice versa. However, there are still some other factor including the consumer
taste and preferences, social or economic factors affects this demand and price relationship
concept.
CONCLUSION
From the above study it is concluded that demand and supply plays an important role in running
the economy and performing its functions which ultimately leads to the growth and development
of economy. It is also understood from the above study that although with the changing time and
situations the theories of economy or concepts of economy and their application also changed
but still there are some similarity which always prevails in the market or economy which are
consumer, price, demand, supply of products and the relatedness of price and demand and the
relationship between demand and supply.

REFERENCES
Books and journals
Ehnts, D.H., 2016. Modern monetary theory and European macroeconomics. Taylor & Francis.
Heartspring, W., 2019. Modern Monetary Theory from a Monetarist Angle. Available at SSRN
3396763.
Sebastiani, M. ed., 2016. The Notion of Equilibrium in the Keynesian Theory. Springer.
Torr, C., 2019. Equilibrium, Expectations, and Information: a study of the General Theory and
modern classical economics. Routledge.
Welch, P.J. and Welch, G.F., 2016. Economics: Theory and practice. John Wiley & Sons.
Books and journals
Marwala, T. and Hurwitz, E., 2017. Supply and Demand. In Artificial Intelligence and Economic
Theory: Skynet in the Market. (pp. 15-25). Springer, Cham.
Sepulveda, C.F., 2020. Explaining the demand and supply model with the cost-benefit
rule. International Review of Economics Education. 35. p. 100194.
Rao, B. B. ed., 2016. Aggregate demand and supply: A critique of orthodox macroeconomic
modelling. Springer.
Zainal, R. and et.al., 2019. Price prediction model of demand and supply in the housing market.
In MATEC Web of Conferences. (Vol. 266, p. 06015). EDP Sciences.
Takemura, R., 2020. Economic reasoning with demand and supply graphs. Mathematical Social
Sciences. 103. pp. 25-35.
Online
Movement along a Supply Curve and Shifts in Supply Curve. 2018.
[Online]. Available through: <https://www.businesstopia.net/economics/micro/supply-curve-
movement-shift>
Shift in Demand and Movement along Demand Curve. 2019. [online]. Available through:
<https://www.economicshelp.org/blog/581/economics/changes-in-demand/>
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