Demand, Supply, and a Comparison of Economic Theories in Business

This report delves into the fundamental economic principles of demand and supply, illustrating these concepts with examples from Walmart's business operations. It explains the law of demand and supply, detailing the movements along and shifts in the respective curves. Furthermore, the report compares and contrasts economic theories from the 20th and 21st centuries, highlighting the evolution of economic thought and the role of government intervention. The analysis covers factors influencing demand, such as consumer income and preferences, and supply, including resource prices and technology. The report concludes by emphasizing the dynamic nature of economic theories and their impact on business strategies.

Contemporary business economics

CONTENTS
INTRODUCTION......................................................................................................................1
TASK – 1...................................................................................................................................1
Explaining the law of demand, movement and change in demand curve..............................1
Explaining the law of supply, movement and change in supply curve..................................4
TASK – 2...................................................................................................................................6
Comparing and contrasting emerging theories from 21st century contemporary economies
with 20th century theories........................................................................................................6
CONCLUSION..........................................................................................................................8
REFERENCES...........................................................................................................................9

INTRODUCTION
Talking in relation with the demand and supply, they are being considered as one of
the most significant topic of the economy. Further, they are also connected with the economic
function of an organization. Considering this, the current research report will throw light on
law of supply and demand and the movement of their curves by taking an example of
Walmart. It is a multinational company of America dealing in retail and based in Bentonville.
Further, the research report will also focus on comparison of the theories and models of
contemporary economics of 21st and 20th century.
TASK – 1
Explaining the law of demand, movement and change in demand curve
As per Diblee (2018), the law of demand states that the quantity along with the price
of a product are inversely in proportion with each other, other factors remains the same. In
simple words, it can be said that the demand of a product will decrease if the price of that
particular product increase. This signifies that with the alteration in the price, the choices of
the people also alters as they can’t cross their spending limit (Kamath, 2018). Walmart is
very well aware of the demand of their products and it is very elastic in nature. When the
demand is elastic, it means that a very small fair alteration in the prices will result in to
greater response in the demand. This means that if Walmart changes prices of their products
then the customers will purchase less and will switch towards other companies who are
providing same product with lower prices.
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Figure 1: Demand curve of Walmart's product
As explained in the graph, when there is a change in the prices of the product from 12
euros to 16 Euros, there has been reduction in the quantity being demanded by the customers.
This thing takes place when the factors which identifies demand continue to remain
persistent. Furthermore, the movement along the same demand curve characterises a varied
occurrence in the market. In addition to this, this drive also represent alteration in both prices
as well as quantity being demanded from one point to another in the curve. Besides, it also
signifies that the association of demand often remains constant (Chen, 2017). In other words,
it can be said that when there is alteration in the Walmart’s product price, a change in the
quantity demanded can also be witnessed and this change will alter the prices of the product
as well. However, this will takes place only when other factors like taste, income of the
customers and other factors that influences the demand of the product remains constant.
Alteration in demand curve
Nevertheless, if the situation changes and there is a change in one of these factors then
the market demand of the product will also affect and demand curve will change its position.
As illustrated in the below graph. When quantity shifted from Q1 to Q2 then the demand
curve also shifted from D1 to D2 or in the left side.
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Figure 2: Shift in demand of the products of Walmart
Considering the income level of the customers, the product of the Walmart is very
much reliant on on the income of the consumers. The purchasing power of the consumers
increases if there income increases. In simple words, they can now purchase more products or
goods at the current ongoing prices. Due to this, the quantity demanded of the good is
enhanced and the demand curve moves in the right direction. Accordingly, if the income level
of the consumers decreases then their purchasing power will also reduce. This change in the
income level causes the demand curve to shift in the left direction. The other factor is taste
and preferences of the customers. This factor helps in determining the manner in which the
consumer acts in regards with acquiring a product. For instance, alteration in the fashion for
the products is being considered as the main incentive for taste and preferences of the clients.
In addition to this, the advertisement and promotional strategies of the sellers also impacts the
preferences as well as choices of the customers (Marien, 2012). If they are liking the products
and have a good taste, they will demand the product more. Because of this, the demand curve
will move towards the right direction. Opposite to this, there are some products which are out
of date or fashion. In such a scenario, consumer no longer prefer such kind of product and
this will result in decreasing the demand of the product. Due to this, there is a movement of
demand curve towards the left direction.
Moving further, there are certain types of products which are impacted by the prices
of other products particularly complementary or substitute products. If the prices of the inter-
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related products increases then this compels people to switch towards other goods or
complementary goods. For instance, Walmart has increased the prices of tea and income
remained constant. The customer will now change their preference and will shift towards
coffee and the demand for tea will decrease. This happened because coffee is a close
substitution of tea.
Explaining the law of supply, movement and change in supply curve
Focusing in relation with the law of supply, it simply specifies the amount of products
as well as services sold for a specified price. It states that if there is a change or increase in
the prices of a product, the quantity of a product or a service offered by the suppliers always
increase and vice-versa (Baye, 2017). From the below supply curve it can be attributed that
the association amid the quantity being supplied along with the prices that is charged
displaying a growing slope.
Figure 3: Supply curve for the product of the Walmart
The main concept of this law is that when the prices of the products or goods are
higher than in that case the suppliers will try to sell more amount of goods in the market. In
addition to this, Walmart will supply more goods at more prices because it will augment their
profit levels. Thus, time is being regarded as a crucial factor of supply. This is due to the fact
that suppliers need to response rapidly towards the variation in the demand or the prices.
Therefore, it is crucial for the suppliers to make efforts to identify whether alteration in the
demand are provisional or it is enduring. From the above graph, it can be very well
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understood that when there is an increase in the prices of the goods from OP to OP2 then
suppliers also react with this change and begin supplying higher amount (Backhouse, 2017).
In the similar case, when the prices are decreased from OP to OP1, the suppliers on the other
hand will decrease the supply of products in the market. All this will cause a supply curve to
shift from OQ to OQ1. This clearly reflects the movement in the supply in the same supply
curve. Furthermore, when there is increase in the prices of the products, the supply curve
will shift in the upward direction however when the prices are decreased, the supply curve
will shift in the downward direction. Speaking in relation with the Walmart, when it reduces
the prices of the merchandise, the suppliers of the company will search for another firm who
can provide enhanced prices for their merchandise. In such a condition, Walmart will answer
back through augmenting the prices of the merchandise in order to entice suppliers. The law
of supply holds here but on the condition that there is not modification in the income,
transportation cost, policies of the government and the methods of manufacturing. Moreover,
the law of supply will also be applicable where in case the prices of the other products, a
fixed scale of manufacturing and speculations remains same.
Alteration in the supply curve
Moving further, a supply can be influenced by different kinds of suppliers or sellers.
When the suppliers are larger in size, the amount of goods to be supplied will also be higher.
Due to this increase in the supply there will be movement of supply curve towards the right
direction. Similarly, when the suppliers in the market are less in numbers, the amount of
goods to be supplied will be quite low and this will move the supply curve towards left
direction. Other than this, amount of products to be supplied is highly impacted by the prices
of the resources. For example, when the prices of the resources augments then the cost of
production will also augment and the profit will be reduced (Kamath, 2018). Profits are being
regarded as an important incentive for the manufacturer for increasing the supply and thus, if
profits are decreased then supply will also decrease. Talking about the taxes and subsidies, it
also impacts the profit being earned by the suppliers. Considering the example, taxes result
into reduction of profit margin of the suppliers and increase in the costs. All this compels
suppliers to supply less amount of goods. Likewise, if the subsidies are decreased the
production will stop and this will impact the supply. Technology helps in improving the
effectiveness of the production. Due to this, the production level increases and supply on the
other hand will also increase. The supply curve will move towards the right direction.
However, a minute change in the expectation of the supplier in regards with the future prices
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might influence the present level supply as well. At times when Walmart also suspects that
the prices of the goods will increase in future then more amount of resources are being
employed for increasing the production.
TASK – 2
Comparing and contrasting emerging theories from 21st century contemporary economies
with 20th century theories
With the beginning of the 19th and the 20th century, a lot of transformation in the
economics was started witnessing right from the science of economies or from the political
economy. In the focussed collection of academics in philosophy, economics and intellectual;
history one can find the philosophical reflection on contemporary practice. Prior to the
introduction of the Keynesian economics in the year 1936, the classical macro-economic
ruled the industrial economies (Galí, 2018). All these economist mainly favoured free market
and the forces of the demand and supply were the main realizing factors for determining the
employment to the employees by the economy. When there was an increase in the amount of
labours in the labour market who are in search of jobs, the wages are decreased till the
impending employee is being engaged. Thus, it can be said that the ongoing situation of the
market can give assurance of employment to the employees. If the employment level of the
economy is full then it might result into static collective production or income. Focusing in
relation with the classical economic theories, these theories also assumed that rates of
inflation is being identified through the rotation of money in the economy. Additionally, the
demand as well as supply forces also helps in determining the real rate of interest. The
economists were also of the belief that mechanism of the market is self-adjusting. Moreover,
the structure of the market should have perfect competition situation along with wages which
are completely flexible and prices should be such that it helps the market mechanism to work
fully (Boettke, 2018).
Nevertheless, all these economic theories that were prevalent in the 20th century were
not successful enough in addressing the major role of the government as the forces in the
market stemmed towards compete employment symmetry. Besides, the financial policy are
also supposed to influence the prices and it does not have impact on the major elements of
production as well as employment. Additionally, the fiscal policies which are demarcated by
the expenditure and taxes of the government proved harmful. The borrowing of the
government generated herding out which implies that the borrowings for financing the
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expenditure of the government decreased the accessible capitals for reserved utilization as
well as asset outlay. In order to cater with the snowballing spending government increases
taxes which in turn leads in reduction in the private consumption. Consequently, the
utilization of laissez faire policy have been suggested by the economics. Also, the
government was also not allowed to utilize both fiscal as well as financial policy. The
Keynesian economics was developed due to the great depression of 1930s. The classical
economic theories resisted that market mechanism which is self-adjusting will help in taking
the economy back to the full employment level. One thing which has been learned from the
familiarity of the depression that the forces of the market cannot set the economy free (Dutt,
2015). A prediction has been done by an English economist John Maynard Keynes that the
economy will take more time to restore towards full employment level. Due to this, the errors
in the classical economic theories were determined. Keynes also made an argument that the
prices along with wages are not flexible. The main apprehension of the Keynesian theory was
that those people who have more income normally demands for products and services which
in turn leads in creation of employment. Other than this, this theory has also recognized the
governmental role in augmenting the cumulative demand (Gomułka, 2017). He also found
out spending of the government as an important strategy for increasing the cumulative
demand. If expenditure of the government will augment on projects then there will be
creation of more jobs along with income for the employees. This will enhance the demand for
the products and services for the private organizations and will create more jobs prospects.
This theory has also suggested that it is crucial for the government to utilize fiscal policy for
compensating deficit in private total demand as well as creation of more employment.
Keynesian suggested to the government that they should give jobs to people. However,
contemporary Keynesians originated that financial as well as fiscal policies are operative in
management of cumulative levels of demand (Casson and Wadeson, 2018).
In contrary to the 20th century economic theories, the supporters of the novel classical
economics are being formulated on the basis of coherent desire notion for developing actual
business evolution model. The economics which was prevalent during the industrial period
was not so effective in the 21st century. In the present economic market, both natural along
with human asset are increasingly respected. In addition, approximation of the national
product i.e. wealth along with the satisfaction of the human were inspected on a regular basis.
The economy of the world along with the environment was seriously destroyed or effected
due to the economic concepts of the 20th century especially the simpleminded and perfect
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“free market” economics which has resulted into the calamitous financial downturn of the
current years (Dwivedi, 2016). Speaking in regards with the current economies, it is coming
across with the situation of alteration in the market such as change in climate, shortage of
natural along with monetary resources, disaster of the environment, technological innovation
and increasing demand with ageing population. Due to this change over there has been
appearance of slowing down along with assimilation of some of the economic theories of 20th
century into the models of business. In the 21st century, the Keynesian model is being
smeared in the form of development theory.
CONCLUSION
From the above analysis it can be said that Walmart is the perfect company which
have shown the manner the law of demand as well as supply is applicable in order to achieve
success in this competitive market. It has been originated that the demand of the company’s
product is majorly impacted by their prices. Furthermore, it has also been explored that the
world of economics is majorly relied on the theories which were being formulated in the 20th
century. Nevertheless, some enhancements have been seen in these theories in the modern
economics for meeting out the present requirement of the business.
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REFERENCES
Books and journals
Backhouse, R., 2017. The debate over Milton Friedman's theoretical framework: an
economist's view. In Economics and Language. Routledge.
Baye, M., 2017. Managerial economics & business strategy. Boston: Irwin/McGraw-Hill.
Boettke, P.J., 2018. Twentieth-century economic methodology. 21st Century Economics:
A Reference Handbook. Sage publishing.
Casson, M. and Wadeson, N., 2018. Emerging market multinationals and internalization
theory. International Business Review, 27(6), pp.1150-1160.
Chen, X., 2017. Elasticity as Relative Slopes: A Graphical Approach to Linking the Concepts
of Elasticity and Slope. The American Economist, 62(2), pp.258-267.
Dutt, A.K., 2015. Keynesian growth theory in the 21st century. In 21st Century
Keynesian Economics. London: Palgrave Macmillan.
Dwivedi, D.N., 2016. Microeconomics: Theory and Applications. Vikas Publishing
House.
Galí, J., 2018. The state of new Keynesian economics: A partial assessment. Journal of
Economic Perspectives, 32(3), pp.87-112.
Gomułka, S., 2017. The Global Economy in the 21st Century: Will the Trends of the20th
Century Continue? Central European Economic Journal, 2(49), pp.62-72.
Kamath, R. 2018. Food traceability on blockchain: Walmart’s pork and mango pilots with
IBM. The Journal of the British Blockchain Association, 1(1), pp.1-12.
Marien, M., 2012. New and Appropriate Economics for the 21st Century: A Survey of
Critical Books, 1978-2013. Cadmus, 1(5), p.86.
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