An Analysis of Demand, Supply, and Contemporary Economic Theories

This report provides a comprehensive analysis of microeconomic principles, focusing on the laws of demand and supply, and contemporary economic theories, particularly the Neoclassical School. It explains the inverse relationship between price and quantity demanded, detailing factors that influence demand such as taste, income, and advertising, using Apple Inc. as a case study. The report also elucidates the law of supply, highlighting factors like price, production costs, technology, and government policies. Furthermore, it discusses the Neoclassical School, contrasting 20th-century economic thoughts with modern analysis, emphasizing the integration of mathematical techniques in economic research. The document concludes by underscoring the importance of these economic concepts in understanding market dynamics and business strategies. Desklib provides this document and many more resources for students.

CONTEMPORARY
ECONOMIC
ANALYSIS

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK A ..........................................................................................................................................1
Explain the law of demand with demand curve along with its influencing factors...............1
State law of supply with its influencing factors and curve.....................................................4
TASK B...........................................................................................................................................6
State the contemporary economic theories ............................................................................6
CONCLUSION................................................................................................................................8
REFERENCES ...............................................................................................................................9

INTRODUCTION
Micro economics is defined as the mainstream economics branch which studies the
conduct of firms, organizations, individuals, body corporates etc. in how they utilise available
scarce resources prudently and all of the business interactions they participate in. While
implementing and executing economic policies for enhancing productivity along with cost
effectiveness of transactions and concentrating on social welfare as well, micro economics tends
to play a vital role. It provides an in-depth knowledge about the workings of capitalist economy,
analyses the individual markets or industries, there mechanisms that constitute the relative prices
for products and services. Furthermore, the conditions arising due to market failure are also
looked upon and evaluated through this concept, because in a situation such as the market
failure, the markets tend to inadequate and less then optimal results (Blecker and et. al., 2019).
The report presents concepts of micro economics namely the law of demand together with
movements or deviations along the demand curve due to various factors. It further presents the
materializing theories and models and compares the revelations of 21st century from 20th century,
additionally it relates the data of both the centuries to present day practices.
TASK A
Explain the law of demand with demand curve along with its influencing factors
In micro-economics, the Law of Demand is the cardinal principle, according to which the
relationship between price and quantity demanded is inversely proportionate to each other. For
this notion to be fulfilled, all other factors must be equal. Henceforth, as the price of the goods
produced decreases, the quantity of demand increases and vice versa (Ma and et. al., 2021). This
law is also accompanied by the concept of diminishing marginal utility, in which the additional
utility accomplished from increasing the consumption, decreases with simultaneous decrease in
level of consumption. Considering Apple Inc., a multinational technology company based in
California, America, there company represents inelastic products, due to nil effect of changing
prices on the available products. The company's product garner masses, with demands almost
always on the rise, in this manner it incurs significant revenue and has an incremental profit
margin. There success is a result of understanding the needs and priorities of the consumers, for
whom smartphones are one the most essential commodity.
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Demand Curve:
The graph which defines the association between the quantity demanded with the price of
that commodity. Both of them are represented on the graph via x-axis and y-axis respectively,
and can be used for an individual consumer or a group of consumers in the same market or
industry. The demand curve is subjected to various economic and financial conditions and
henceforth represent a wide variety of essential factors to analyse the nature of demand and
supply. As a general assumption, economists expect the demand curves to slope downwards
according to the law of demand discussed before. However this concept has few exceptions such
as Veblen goods, Giffen goods and speculative bubbles (Gubbin, J., 2020). The demand curve is
mainly designed for estimation of an individual or consumers behaviour in the competitive
market and are usually compiled with the supply curves to determine the equilibrium price level
along with the quantity.
Demand curve for Apple Inc.:
Change in demand curve:
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Demand Curve for Burberry products

As represented by the graph below, the price of a commodity, will change with the
respective change in its demand, only when other related factors remain constant or unaffected.
The shift of price along with demand is represented from D.1 to D.2.
Factors leading to change in demand:
 Taste and Preferences – The demand of a certain commodity is determined by an
individual consumer acting along with other similar consumers having the same needs,
preferences and tastes (Sanderson and et. al., 2018). These preferences and wants are
influenced by various trends in the market and advertisements published by the sellers. In
case of Apple Inc., a certain product sold by them, may loose its gravity in the market if a
new product with advanced technological features is launched, as compared to its
predecessor. For instance the company launched “Siri” a virtual assistance, which
formulated the part of iOS, iPadOS, watchOS etc. in 2011, however failed to be in line let
alone surpass the popularity of Amazon's Echo which features “Alexa” as a personal
assistance. Holger Mueller, a technological analyst claimed that the inefficient
developments in Apple's personal assistance was due to high employee turnover rates, as
a result of lack of zeal to fulfil goals of the company and other shifting strategies planned
by them.
 Personal Income – The income an individual earns is tagged as the most crucial and
critical factor of demand change. Because, consumers will buy only those products or
services which fit there budget and for which they do not incur loss of any kind. A
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consumers purchasing power will increase as there earnings increase, which depicts that
such individual is capable of purchasing an existing commodity with income earned. In
contrast, if the purchasing power tends to decrease due to underlying circumstances,
thereof the products purchased would only consist of those which are essential or needed.
For Apple Inc., the products sold are almost always at the higher end, hence
concentrating on only the elite of consumers and leaving those who tend to buy with a
restricted budget. This leads to the company being defined as a luxury brand, however
provides few affordable (if compared to others) products for budget conscious
consumers.
 Advertisements – The consumers are implicitly attracted towards products with better
virtual or paper based advertisements. Hence companies concentrate on spending a
significant amount of there investments on advertisement campaigns, to attract the
masses and increase revenue (Gougheri and et. al., 2019). This will lead to a rightward shift
in the demand curve, if the demand increases as a result of advertisements made by the
company. Being a multinational company, Apple Inc. adopts various ways to gain
attention from the customer group it's focusing, it includes various ways to advertise new
products which it launches, such as television based advertisements including influential
people and catchy direction.
State law of supply with its influencing factors and curve
The law of supply, as by the name, is the concept defining supply and factors related to it.
Here, assuming that all other factors will remain constant, if the price of a commodity increases
then the goods or services to which the price is related will also have to be produced in higher
quantity and vice versa. It simply defines the relationship between supply and price, as a higher
price provides the business with an incentive to increase supply (Kun and A., 2018). The supply of
any product or service has various determinants such as input or raw material costs, government
sanctioned policies, technological changes, consumer expectations, price of substitute or
alternative products and competing producers in the market. Apple Inc. has established itself as
being a monopolistic, with inelastic supply, due to the fact that its products are high in demand
no matter what the price of such product is.
Supply curve:
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The graphical representation, between the correlation of price of the goods and the
quantity supply in a financial year or for a specific period (Mui and et. al., 2018). As given below,
the price of a commodity will appear on y-axis and the quantity supplied is given on x-axis. For
Apple Inc. the supply curve will be farther from the horizontal axis, due to its inelastic demand.
Supply curve for Apple Inc.:
Factors leading to change in Supply Curve:
 Price – The price is considered as the monetary amount, which consumers are willing to
pay to the seller for services or products availed. The price of any product or service
creates a direct effect on the supply of the same, that means if say, due to rise in prices of
petrol, the suppliers will increase there supply to produce more profits by expanding
search for oil reserves, investing in oil extraction projects as well as building oil
refineries or petrol pumps.
 Cost of production – The supply and production is bound to adversely affect each other,
that means, if the cost of production increases then the management will tend to decrease
the supply so as to save up valuable resources. It is important for any organization to
improve there production methods, ideologies and policies to make significant decrement
in cost of production so as to positively impact the overall turnover (Alquist and et. al.,
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2020). Hence, if the production process is not seamless then the supply will decrease due
to respective increase in the production costs.
 Technology – Advanced technology can also cause deviations in the supply curve, due to
efficiency in business workings as a result of modern software, tools and applications. In
various kinds of machineries used in organisations, the storage and processing units are
an integral part of the business processes, these tend to cost several dollars, however
today's computers as well as software are equipped with latest in built processors hence
costs few hundred dollars resulting in lower costs and higher supply.
 Government policies – The government is capable of regularising and controlling the
business workings of an entity. The policies, rules, regulations, provisions led down by
them are mandatory, hence any activity performed in the company must be in line with
such provisions (Iwao and et. al., 2018.). Furthermore, for achieving higher supply, the
company should fall under a lower tax bracket in case of exporting the commodities.
However, if excise duty is added in imports then, the supply of a product or service will
fall.
TASK B
State the contemporary economic theories
The Neoclassical School
The Neoclassical school begin developing and coming into existence during the last few
decades of 19th century and henceforth the development was completed in 20th century. All of the
major foundations were led down by A. Marshall in his book “The Principles of Economics”,
which analysis and interprets the basic and fundamental concepts as well as policies of
economics. In the 20th century various economists made efforts to analyse the theories of the past
which were underestimated before, now such theories are being thoroughly assessed and oriented
towards generalizations (Hartwig, 2022). The research objective is thus, highly sophisticated and
also a profound task. The most significant outcomes of 20th century is the Neoclassical School
and the theory of marginal factor productivity is also develops. Additional, the theory can be
analysed together with general market equilibrium, then information about the “theoretical
legacy” can also be understood. The Neoclassical approach integrates elemental developments
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which are theoretical in nature, also an article published in 2000 concentrates on such approach
as well as analyses the various economic developments in 20th century. In that article, W.
Baumol applies the Marshall's theory as a criterion, through which the comparison was made
with 20th century economic thoughts, because the Marshall does not present specific relation to
new elements of economic theories however the modern analysis includes such ideas. During the
beginning years of Neoclassical theory, it dealt with problems which are micro-economic from
the contemporary vision. Up to the time, Keynesian's macroeconomics begins to develop, the
micro economics played the role of a peculiar element, in which any new analytical instruments
and concepts are generated for studying the market economy (Champlin and et. al., 2018). The
consequential usage of mathematical techniques and methods in economic research, contributes
to a precise and systematic elucidation of rudimentary economic concepts. It also helps facilitate
for various test of theories, using mathematical and statistical methods as foundations. To
further understand the impact of this theory, it can be said that neoclassical examines the
consumer choice theory which acts as the theory of demand, additionally with emergence of this
theory, the thesis states that when price faces a decrement, then the quantity supplies is increased
and such is based on presumption on utility maximization.
New Classical Economics
The main characteristic of the New classical macroeconomics which dominates the 21th
century is the theoretical consistency along with legitimate business models, which it presents
and henceforth develops a dominant position in the field of macroeconomics. Initially, this new
school was known as the “Rational Expectation School”, which afterwards was converted to
“New classics” and in many ways addresses the pre-Keynesian economists program included in
the business cycle theory. The New Classical economics provides the concept of “rational
expectations”, which analysis and provides hypothesis about rational behaviour for formulating
the expectancies, with the assumption that information available has been successfully utilized
by every subject in case. This concept allows for the combination of classical assumptions which
reveal the pace through which the markets and industries attain equilibrium, with the idea of
rational expectations, leading to an alternative view about the allocation of resources and ways to
effectively manage the economy (Beker and V.A., 2019). When defining the pre conditions about
this theory, it is concluded that with flexible prices and wages, the unexpected shocks or
contingencies could be the cause for deviations in outputs produced. Moreover, during before
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mentioned cyclic fluctuations in output, the individual markets tend to remain in equilibrium and
generally those unexpected shocks relate to shocks in supply of money. This theory, if compared,
hits the heart of the compromise between Keynesian theory and Classical economics and gives
affect to fiscal and monetary policy if shifts in annual demand are noticed. This policy is also
impactful in maintaining the GDP of the nation as a whole, while concentrating on
implementation and execution of multiple policies drafted by the government along with foreign
authorized bodies. By combining the new methods and previously adopted economic theories,
the overall demand and supply process of the world economy can be significantly influenced,
while mitigating risks related to economical workings and adopting sustainable business
practices. Moreover, this new classical approach establishes itself via three diagnostic sources
which results in fluctuations in growth, namely, productivity wedge which measures the
aggregate efficiency of production, the capital wedge which defines differences between
marginal rate of substitution and marginal product of capital and labour wedge which is the ratio
between marginal rate of substitution belonging to consumption made for leisure and marginal
labour product (Madsen and et. al., 2019). It must be noted that new classical models seem to have
less explanations and predictive power, hence are not capable of explaining both duration along
with the magnitude of actual cycles, simultaneously.
CONCLUSION
The report analysed and executed above, presents Apple Inc. as an example for studying
the economic functions, practices and methods, as well as understands the demand and supply to
get a better grip of the industry and market as a whole. In case of Apple Inc. the demand
analysed as inelastic due to unique range of products they offer along with there monopolistic
presence in the market. The inelastic demand of the company simply defines minimal effect on
price when demand of a product changes, hence establishing the company as monopolistic,
which creates the flow of market. However, other determinants which are related to demand and
supply must remain constant for the change to be effective. As for the various economic theories
built and implemented in the economy, they have significantly impacted the way businesses and
individuals work. Although, the previously used theories must be effective only when they
become capable of bridging the gap between historical and current business practices, through
adoption of newer economic theories and practices.
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REFERENCES
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distribution and growth. Edward Elgar Publishing.
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System Conference (PSC) (pp. 234-240). IEEE.
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Incorporation and Implications of.
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Ma, J., Oppong, A., Adjei, G.K., Adjei, H., Atta-Osei, E., Agyei-Sakyi, M. and Adu-Poku, D.,
2021. Demand and supply-side determinants of electric power consumption and
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