BM533: Report on Microeconomic Analysis of Demand and Supply in Retail

This report provides a comprehensive analysis of microeconomic principles, specifically focusing on the laws of demand and supply within the context of contemporary business economics. The report begins by explaining the law of demand, its graphical representation, and the factors that influence the demand curve, such as changes in related product prices, disposable income, and consumer preferences. It then transitions to the law of supply, illustrating the supply curve and detailing factors impacting supply, including production costs, technology, public regulation, and the price of substitute goods. Using Sainsbury's as a case study, the report examines how these principles apply to a real-world retail business, emphasizing how managers can use these concepts to make informed operational decisions. The report also includes graphical representations to visually illustrate the concepts of demand and supply curves and their shifts, and concludes by summarizing the key takeaways and the importance of understanding these factors for effective business management. The report also compares and contrasts emerging theories and models in 21st-century contemporary economics with those of the 20th century and relates both of these to modern business practices. This analysis provides a framework for understanding how businesses can adapt to changing market conditions.

Contemporary Business Economics

INTRODUCTION
Business Economics is a business sector with a very dynamic competition that tends to
develop at a very fast pace and the leader of such a corporation needs to be able to understand
the requirements and adjustments that may need to be implemented in the organization in ability
to adjust rapidly (Haddadsisakht and Ryan, 2018). This is often referred to as operational
economics whereby economic model and management methods are implemented for improved
decision making. Sainsbury's company has been selected for the better understanding of UK
retail industry. It was founded in 1869, some 151 years ago, by John James Sainsbury. The
report covers several aspects such as demand and supply rule and the variables impacting curves
and causing them to move to the left or right side.
MAIN BODY
1. Explain the law of demand and factors which affecting the demand curve
Law of Demand: It is stated when all the factors are fixed, the quantity demanded for a
good has the reverse connection to a product’s price. This means the demand is decreasing as
prices rise. Below mention visual representation indicating negative relation between the
demanded quantity and price. As the price of the commodities decreases in comparison to
Sainsbury's, as the principle of demand implies, the need for its goods increases. Company's
division of product production must set the rates where maximum competition and higher profits
will be obtained.
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Figure 1Demand curve, 2020
The mentioned graph illustrates the connection between the commodity's price and
quantity. The X axis includes the quantity demanded, while the Y axis shows the price of
commodity is being demanded at. The chart above shows, when price to be fixed at p1 then q1 is
the demanded quantity to be claimed. If quantity increases to q2 then price of a product is
reduced to p2. This means that as the firm decreases the price of the product, the desired
quantity will rise, and vice versa. If Sainsbury's lowers the price of his brands, the demand for
his product categories will increase immediately.
Factors affecting demand curve:
There are a few variables that influence both the demand of goods & services and output
curve. In short, all variables are stable instead of price, but each factor in the long run affects
domestic consumption. Those will be discussed below:
Change the prices of related products: Price of the commodities involved will affect the
demanded quantity of product, as if the price of a replacement product is decreased as the market
for the item is then lowered as the consumer moves from one service to another resulting in less
market (McLennan, 2018). When Sainsbury's reduces the quality of the same goods to its rivals,
it will reduce competition for the goods.
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Disposable income: A person’s personal disposable income allowed to ask for a good or
service is among the most dependent factors that obviously impacts demand of goods and can
allow a person to have a more significant impact on the demand curve by raising the person's
salary. Increasing and decreasing demand for goods depends on disposable income, if it
increases then demand also increases and the curve shifts to the right and if it decreases, the
demand curve will move to the left side.
Taste and preference: Once a commodity or service is trendy the market curve shifts to
the right. The demand curve moves in the left direction when compared to a new pattern, and the
service or product appears to be going out of style once again. This aspect influences the demand
curve and causes them to turn from right to left.
Factor above define affects the demand of Sainsbury's good and services, so management
needs to establish strategy to maximize demand for their goods accordingly. If a person's
disposable income is high, the buying power will be increased or the market for goods
manufactured that will further support the business in manufacturing goods appropriately. From
the other hand, if the spending power is low, it could reduce product demand which affects the
Sainsbury's profitability.
Shift in Demand Curve:
The changeover in the demand curve happens when demand factors changed
excluding price of commodity (MUNRO, 2019). It occurs if changes are made to the demand for
products. There are, essentially, so many factors influencing the demand curve instead of the
price. Both the variables discussed above could affect the change in the demand curve and force
them to shift towards left or right that illustrated while using the graph:
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Figure 2Factors that shift demand curve, 2020
It is clearly represented according to the above mentioned graph that, changes in factors
excluding price force demand curve to move towards right or left side. Change in the taste and
preferences, increase demand of related goods etc, force the demand curve to shift right side. At
the other hand, decrease in demand certain reasons are moving the demand curve towards left
side.
2. Explain the law of supply along with supply curve and factors affecting supply curve
Law of supply: This is a fundamental economic principle that states the quantity of goods or
services provided by producers should increase when market prices grow as all other factors
remain stable, and vice versa (Parker, 2018). Supply law states suppliers should seek to optimize
their sales by increasing the amount available for sale as the price of a handle increased. As for
Sainsbury's, it is really important to create a strategy that helps them to maintain and extend the
production of their goods as demand grows so that their business does not run out of stock with
the top management. The graph below offers greater interpretation of supply law:
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Figure 3Supply Curve, 2020
Supply curve described the indicators with a positive relationship among price and quantity
whereby P denotes price of products and Q denotes the quantity supplied. Supply curve is
an upward direction, when commodity price rises then supplied volume always grows and the
supply curve shifts upward direction. It clearly stated in the diagram that as P1 increases to P2,
the quantity increases from Q1 to Q2 as well. Sainsbury's top executives have that in mind and
make business decisions appropriately.
Factors affecting supply curve:
There are various factors that determined the supply curve and it exclude the price factor,
since in the short term period only price of goods & services affects the supply of products but in
the long run several factors influence the supply curve. Sainsbury executives need to consider
these variables before they make any plans and most are listed below:
Production costs: This factors influence the supply curve and affecting the availability of
goods and services. In view of raises in production costs then reduce the amount supplied and
vice versa. In order to increase the production, Sainsbury's managers will ensure that production
cost will be minimal.
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Technology: This is among the key factors that contribute to improved overall performance
of the company. Advanced equipment helps in maximising productinivity and reduces overall
cost of manufacturing (Teece, 2019). Sainsbury's executives need to analyze this aspect or devise
policy as it impacts the amount of products and services provided.
Public regulation: It has a larger impact on the output of a good through particular
decisions of political such as monetary or economic policy. Rising excise tax would decrease a
product's supply. In addition, when tax rate reduces then demand of goods would also increase.
Sainsbury management board wants to re-evaluate those strategies before introducing the
strategies.
Price of substitute goods: This factor affects the consumption of consumer as the price of
substitute goods decreases over the demand of other products; it also rises, which allows the
business to produce more products. Before implementing any plan, Sainsbury manager should
determine the quality of the relevant products, or take suitable steps.
Above discussed factors influence the supply of Sainsbury which affects both its
productivity and overall efficiency. Effective implementation helps in improving and satisfying
administrators need to analyze these aspects to enhance both organizational efficiency and
product & services delivery.
Shift in supply curve:
Supply curve is a visual representation where some factors affect the supply curve rather
than the price of product that force to shift towards right or left side (Vuong, 2019). Graph gives
a clearer picture of the change in the supply curve:
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Figure 4Factors that shift supply curve, 2020
In the above diagram, S indicate the Supply curve that changes from S0 to S1 when
environmental situations or factors are in favourable, income taxes are low, industry adopts
modern technology and public policies are favourable. It will leads in shifting supply curve from
the right hand side that will be beneficial for Sainsbury Company. In another hand, negative
factors which influence the environmental situations such as high taxation, poor infrastructure
and rigid government policies reduce the supply of products and cause the curve to move from
S0 to S1 to left.
CONCLUSION
On the basis of above observation it has been analysed that in the contemporary business
environment there are several factors rather than price will influence the demand & supply of
goods and services. In order to manage their production and demand of goods in the market,
managers need to understand which factors and how it will affect the demand as well as
production of commodities. Further, managers will make their operational decisions accordingly.
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REFERENCES
Books & Journals
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