Contemporary Economic Analysis: Demand and Supply in Retail Sector

This report provides a microeconomic analysis of the retail sector, focusing on the laws of demand and supply. It examines how factors such as consumer taste, income, prices of substitute and complementary goods, and advertising impact the demand curve. The report also explores the law of supply, analyzing how input prices, prices of substitutes, the number of suppliers, technology, and expected future prices affect the supply curve. The study uses the Arcadia Group Ltd. as a case study, illustrating how these economic principles influence business decisions, particularly in pricing and supply chain management within the clothing retail industry. The report concludes by emphasizing the importance of microeconomic analysis for making effective business policies and maintaining a competitive edge in the market.

Contemporary Economic Analysis

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
1.1 Discussion on law of demand, with evaluation of shift and movement of demand curve as
per different factors......................................................................................................................1
1.2 Demonstration of Supply Law, along with factors that create changes in supply curve.......4
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Microeconomics is considered as the most important concept, that helps in studying the
individualistic behaviour, while making economic decisions. Such decisions mostly based on
price of particular goods, quantity of products need to be produced or supplied, make changes in
same as per consumer behaviour etc. (Tiwari and et. al., 2018). This would help in identifying
ways to allocate the resources properly on different goods and services, for maximise utility of
same. Under present report, an analysis is done on retail sector, for analysing how different
factors impact on demand and supply of retailing business. For this purpose, Arcadia Group Ltd.,
is chosen that, which deals in same sector at multinational level, having 2500 outlets in UK. It
consists a large chain of clothing retailers like Burton, Evans, Topshop and more, to offer
branded clothes, accessories and shoes. Through applying the microeconomic concept on
retailing business of this firm, how demand and supply curve affects its business decisions.
TASK 1
1.1 Discussion on law of demand, with evaluation of shift and movement of demand curve as per
different factors
Demand law is one of the main concept of microeconomics that helps in studying how
changes in prices fluctuates the demanded quantity (Ali and et. al., 2018). This law states that
when price of any good decreases then it increases demand of same at marketplace. Similarly,
with increase in price, demand of product decreases simultaneously. So, it indicates directly
about consumer behaviour that people respond immediately when price of particular goods
fluctuates. In context with retail market, especially in clothing business, it has seen that people
always seek to purchase trendy and fashionable clothes at lowest price or on attractive discounts
(Ikeler, 2019). Therefore, organisations like Arcadia Group which offers shoes, accessories and
attires in a wide range, used to make changes in its pricing policies to gain high competitive
advantages. But a number of factors present in business environment, that highly influences
movement or shift in demand curve of clothing and related products at marketplace, as depicted
below –
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Figure 1: Factors affecting demand, 2019
(a) Change in taste / fashion– In fashion or clothing sector, changes in taste and preferences of
customer highly impact on demand of such products (Chen, Z. and Su, 2018). Considering the
below figure, it has seen that purchasing behaviour shifts the demand curve when it is available
on low prices from D1 to D2, while reducing the same D1 to D3 of existing ones. Therefore,
concerning on this factor, Arcadia Group used to offer its new and trendy clothes on affordable
prices, as well as sell existing ones on lowest price, so that negative impact of changes in
customer behaviour in terms of increase inventories, declining of sales etc. can be reduced.
(b) Income of customers – This factor also main factor which also affects demand of clothing,
shoes and related products at marketplace (Pantano, Priporas and Stylos, 2018). With increase in
income, people willing to purchase more trendy clothes on reasonable price, which shift demand
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curve to the right or moves in upward direction as shown in below figures and vice versa (Coe,
Kelly and Yeung, 2019). So, considering this factor, management of Arcadia Group used to
make changes in its pricing policies regularly, by offering its products at amazing offers, that
helps in increasing footprint of customers at its stores.
(c) Change in price of substitutes and complement goods – With changes in complement
goods like discount on trousers, trendy jeans and more, increase demand of other clothing
products as well (Dogan, Ayçin and Bulut, 2018). Similarly, price of substitutes like changes in
price of other branded products, fluctuates demand of a particular one. Therefore, marketing
department of Arcadia Group concerns on evaluating this factor more, to make attracting pricing
policies.
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(d) Advertising – This is another main factor that also fluctuates movement or shift in demand
curve of retailing products (Chen, Z. and Su, 2018). The company which advertise its products
more, will get attention of customers relatively higher than others. So, it shifts the demanded
quantity accordingly. In this regard, mangers of Arcadia Group highly concern on making better
investment for advertising its brand, especially on social media platform, to gain attention of
targeted customers (youth especially), for increasing its sales.
Thus, it has been evaluated that microeconomic analysis considers as most essential task
that every company requires to conduct, on regular manner (Ikeler, 2019). This would help in
making effective policies for running business successfully.
1.2 Demonstration of Supply Law, along with factors that create changes in supply curve
To manage inventories and protect business from declining of sales, it is essential for firms
like Arcadia Group to concern of Law of supply also (Dogan, Ayçin and Bulut, 2018). This law
states that supply of goods or services is directly related with pricing policies, i.e. increase in
price of goods, increases its supplied quantity as well. In context with retail sector, factors which
create movement in supply curve or shift it, includes price of input resources, technology use for
products or serving customer services etc. are needed to be analysed properly, so that higher
profitability can be earned (Ali and et. al., 2018).
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(a) Price of input – It is one of the most important and concerning factor, which includes labour
cost, price of raw materials and other production unit. Increase in price of any such resources,
increase price of goods as well (Coe, Kelly and Yeung, 2019). In context with retailing of clothes
and other accessories, fluctuation in input highly influence supply curve, as shown in below
figure. Therefore, managers of Arcadia Group concerning on utilise these resources, for
producing or suppling the goods more at marketplace.
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(b) Price of substitutes: This factor also influences supplied quantity of retailing products,
where increase in price of substitute products, that could be produced in place of certain goods
by suppliers, as shown below (Pantano, Priporas and Stylos, 2018). Therefore, management of
Arcadia Group highly concerns on this factor, while supplying clothes, shoes and other factors at
marketplace.
(c) Number of suppliers: Presence of various suppliers at marketplace, aid to increase supply of
goods and services at marketplace (Chen, Z. and Su, 2018). In retail or clothing industry, a
number of suppliers present at marketplace, so it helps Arcadia Group also to meet demand of
customers on time, by proper supply.
(d) Technology – This factor affects quality of supplied goods at marketplace, where using
best technology helps in maintaining quality of goods and offer them at reasonable price at
marketplace (Tiwari and et. al., 2018). Therefore, Arcadia Group utilise latest technology like AI
for improving its supply chain management and increase shopping experience of customers
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(Ikeler, 2019). It helps in achieving high satisfaction of customers , as well as maintaining
competitive brand image also.
(e) Expected price in future – This factor also influences supply curve of retail products, where
any expectations of increase in goods in future, reflects that supply of same may be decreased
(Ali and et. al., 2018). Therefore, consumer under such case, used to purchase such products in
bulk on any price and vice versa. In this regard, effect of higher expected prices in upcoming
period, shift supply curve towards right.
1. Increased flows of goods, ideas,
finance and
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people - via globalizationa and
urbanization - have
increased the extent of the market for
workers, pro-
ducers and consumers.
2. Growth at the global level in both
population and
per capita GDP has accelerated,
especially during
the last two centuries.
3. The variation in the rate of growth of
per capita
GDP increases with the distance from
the technol
-
ogy frontier.
4. Differences in measured inputs
explain less than
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half of the enormous cross-country
differences in
per capita GDP.
5. Human capital per worker is rising
dramatically
throughout the world
Thus, it has been analysed from law of supply that companies are required to regularly
analysing impact of factors that shift supply curve. Including above factors, other factors which
also needed to be considered in setting price and supplying goods at marketplace, includes
inflation rates, government interference, social awareness and more, so that production can be
sustained effectively (Tiwari and et. al., 2018). So, these factors also need to be considered while
making pricing policies.
CONCLUSION
It has been concluded from the entire report that to run business effectively, it is essential for
organisations to have knowledge about how to utilise microeconomic concepts for making
effective business policies. Through applying law of demand and supply in business, firms can
take better decisions about way to respond towards changes in consumer behaviour, market
trends and more, for maintaining competitive image of business.
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