BM533 Contemporary Business Economics: Micro and Macro Analysis Report

This report delves into the core principles of microeconomics, specifically focusing on the laws of demand and supply within the context of a retail business, using Amazon as an example. It examines the factors influencing demand and supply curves, including income, tastes, preferences, and expectations, and illustrates these concepts with diagrams. Furthermore, the report extends its analysis to macroeconomics by comparing and contrasting economic theories and models of the 20th and 21st centuries, such as employment, inflation, trade cycles, economic growth, and behavioral economics. The report provides a comprehensive overview of how these economic principles relate to contemporary business practices. The document provides a thorough analysis of economic theories and models, making it a valuable resource for students studying economics.

Contemporary Business
Economics

TABLE OF CONTENTS
TASK 1...............................................................................................................................3
1.1 Understanding law of demand and related factors.................................................3
1.2 Fundamentals of law of supply and its relevant factors..........................................7
TASK 2.............................................................................................................................13
Comparing and contrasting the 21st and 20th century economics theories and model
.....................................................................................................................................13
CONCLUSION.................................................................................................................15
REFERENCES.................................................................................................................16

INTRODUCTION
Micro economics is one of the part of economics which studies the individuals,
households and the business firms in respect to the decision making process along with
the allocation and distribution of resources. It mainly applicable to the products and
services and involves in dealing with individuals and other economic issues. It
determines what choices are being made by the people along with the factors that
influences it and its impact over the price of the product and services in the market. In
this report, AMAZON is taken as the organization. This report will discuss the impact of
demand and supply on the demand and supply of the quantity of the goods and
services of the organization along with the price and various other factors influencing it.
Also, it covers the comparison between the economic theories of 21st and 20th century
and its association with the current business practices.
TASK 1
1.1 Understanding law of demand and related factors
Law of demand
There are various factors but the price is the most prominent factor and the
relationship between price and quantity is called law of demand. It states that for selling
greater amount of quantity it is essential to smaller the price of the product at which it is
being offered (Karl and et.al, 2019). In other words, the quantity demanded increases
with the fall in price and decreases with rise in price. This relationship is inverse in
nature. It is based on the assumption that income, tastes and preferences of the
customers will remain same.
The below graphical representation, indicates that the when the price of orange
was 10, the quantity demanded were 2. As the price of orange changes to 5, the people
are willing to buy more quantity which then increased to 10 oranges.

Reason for movement on the demand curve
The only cause for the movement is the variation in the price of the product and
services. When there is change in the price and in accordance to it there is change in
the quantity demanded of it, causes movement in the demand curve.

The above demand curve, depicts the movement along the demand curve. When
the price increases from P to P”, the quantity demanded of the product falls to L, which
makes the demand curve move upward. On the other hand, when price falls to P', the
demand of the commodity rises to N, making a downward movement.
Factors behind shift in the demand curve
In case of change in the quantity demanded of the product which is caused
because of change in the factors other than price, leads to shift in the demand curve
(Mazurek, García and Rico, 2019). The major factors that contributes to shift are
described below.
Income of the consumers
It is the major factor that affects the quantity demanded. When the income
increases, there is an increase in demand of the good and when it decreases, the
demand decreases. An illustration of the same is given below.

The above figure shows that an increase income leads to rightward shift in the
demand curve and the fall income cause leftward shift. The below given first graph
shows shift from left to right and the second graph shows right to left.
Tastes and preferences
The variation in the taste and preferences of the consumers of the product
results in lower demand for the commodity. Therefore, AMAZON, provides wide range
of product of various brands for influencing the preferences of the consumers.
Expectations regarding future
In case, it is expected that there will be change in the price of the product in
future in a short span, then the demand for the product changes currently, even though
the price remains the same, leading to leftward shift (Bhandari, 2018). Similarly, when it

is expected to see an increase in price in the future, then the current demand of the
product increases, causing rightward shift.
Change in the price of substitute goods
Substitute goods are those which can be used as an alternative. For example,
tea and coffee. When the price of one good rises then the demand for another similar
good rises.
The figure states about the impact of decrease in the price of substitute goods
leads to fall in the demand, making a right to inward shift. As in the case, as the price
reduces from P to P1, the demand reduces from D to D1.
1.2 Fundamentals of law of supply and its relevant factors
Law of Supply
Similar to law of demand, the law of supply is also an important aspect to be
considered in economics. It is the tendency to the sellers for providing commodities for
sales purpose at the different prices. It reflects the supplier's behaviour in context to the

given market conditions (Buechner, 2018). Under this law, other things are considered
to be constant and the change in quantity supplied is evaluated with respect to the
change in the price. It shows the direct relation between the price and the quantity
supplied. In simple words, the larger quantity is supplied at the higher price in order to
gain maximum profits while low quantity is supplied as the price drops. It is assumed
that there will be no change in the income, production techniques, cost of production,
price of other goods etc.
This figure indicates the change in supply with price. As price moves increases to
P1 from P2, the quantity supplied in the market increases whereas as the price reduces
to P3 from P2, the supply reduces. This shows direct relation between the two.
Reason for movement on the supply curve
The movement occurs only when there is variation in the amount of quantity
supplied in the market because of change in price of the product (Orrell, 2020). The
below graph demonstrates that as the price increases to P1 from P, the quantity
supplied also increases to Q1 from point Q. thus, clearly, showing the impact of price
over supply.

Factors behind shift in the supply curve
The shift in the supply curve occurs because of change in the one or more
factors that are having huge influence over the supply in the market (Greenlaw and
Shapiro, 2017). These factors cause the shift which can be inward or outward shift.
Some factors influencing the supply of the products of AMAZON are stated below.
Number of sellers
The number of sellers in the market has a huge impact over the supply of the
commodity. When the sellers in the market are large in number, the supply increases
which makes the curve move to right and in case when the firms exit the market, it will
lead to fall in the supply, moving the curve to the left.
Technological change
The introduction of the latest technology in the production process of the
organization helps in increasing the productivity leading to the profitable production of
goods and services. Consequently, the curve shifts to the right meaning increase in

supply of the goods. The below graph shows the influence of the latest technology over
production leading to rightward shift in the supply curve from S to S1.
Price of inputs
There are various inputs which are being used by the businesses for the
production of required goods. When the price of the input increases, it leads to increase
in production cost and low profitability associated with it which consequently leads to
reduction in supply, making the curve to shift inward and on the other hand, a fall in
input prices will decrease the production cost and thus, curve shifts outward towards
right. The chart below depicts the shift in the supply curve because of fall of shortage of
inputs. The supply curve has shifted to S1 from S because of shortage of input
materials.

Government taxes and subsidies
The government policies also have a crucial impact over the supply. The
increase in indirect taxes will lead to rise in the cost of production which results into
inward shift in the supply. Subsidy results into fall in the cost of supply leading to left to
right shift of supply curve while government regulatory changes will cause a rise in the
production costs making a right to left shift in the curve.
Expectations
The future expectation of the seller's also has a significant impact over the supply
of good in the market (Roy, 2019). In case, it is expected that the price of the product in
the future will rise then they will hold the product and minimize the supply in the market
with the objective of increasing the supply in the future to gain more profits.
Variation in cost of production
When the cost of production increases, the businesses might not be able to
supply goods at the same price resulting into left shift of the curve.

In contrast to it, when cost of production falls, the more is supplied in the market
at the same price which leads to saving cost, making left shift in the curve as shown
below.