BM533 Contemporary Business Economics: Analysis of Market Principles

This report provides a comprehensive analysis of contemporary business economics, focusing on the laws of demand and supply with specific reference to Nescafe coffee. It explains the law of demand, illustrating movements along the demand curve and shifts in the curve due to factors like taste, income, and price of related goods. Similarly, it elaborates on the law of supply, detailing movements along the supply curve and shifts caused by factors such as the price of commodities, production costs, technology, and firm goals. The report further compares and contrasts economic theories from the 20th and 21st centuries, including those of Adam Smith, Keynesian economics, and Marshall, relating these theories to modern business practices. The analysis aims to provide a clear understanding of how these economic principles apply to real-world business scenarios.

Contemporary
Business Economics

Table of Contents
INTRODUCTION ..........................................................................................................................2
TASK 1............................................................................................................................................3
1.1 Explain the law of demand, movement with the demand curve and changes in curve (with the
suitable diagram)..............................................................................................................................3
1.2 Explain the law of supply, movement with the same supply curve and changes in curve
(with the suitable diagram).....................................................................................................6
TASK 2..........................................................................................................................................10
Compare & contrast emerging theories & models of 21st century and 20th century in
contemporary economics and relate both of these to modern business practices. ..............10
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Economics is basically the study of a whole economy and the activities they are operating. It
mainly targets the activities of production, consumption, and the exchange activities that take
place in an economy keeping in mind that the resources are limited and how a country can use is
resources to take out the maximum profits out of them. Economics is further divided into two
parts of microeconomics which studies the operating activities and behaviours of an individual's
point of view and on the other hand, macroeconomics deals with the activities, behaviour and
decision- making at a national or aggregate level (Bruno, 2022) (de Almeida, 2022). In this
report, Nescafe company has been taken which is a brand of coffee made by Nestle which is a
Swiss international coffee processing company with the headquarter in Vevey, vaud, Switzerland.
It was started in the year 1960's. It deals in majorly coffee. Nestle on the other hand has been the
largest food company by net revenue since 2014 and has been ranked 64 on the Fortune global
500 in the year 2017. For this report, Nescafe coffee has been taken.
TASK 1
1.1 Explain the law of demand, movement with the demand curve and
changes in curve (with the suitable diagram)
Demand in the subject of economics can be defined as that amount of the good for which a
consumer is able and willing to pay the price of it at different price levels during a given period
of time the increase in the prices of the product the ability of the consumer to pay for it will fall
and hence there will be a fall in the quantity demanded for the same product.
LAW OF DEMAND: Law of demand basically shows the relationship between the price of the
product and the quantity demanded for it (Graef, 2022). In other words, when the price of any
product starts to increase, the quantity demanded for the same product will automatically
decrease as the consumer is no longer be able to pay for the same product now.

From the above diagram, it has been cleared as when the prices of nescafe coffee will increase
from p1 to p2 and then to p3, the quantity demanded for it will automatically decrease from q3 to
q2 to q1 respectively as people will then switch to the other competitive brands as they are
getting the same product but at a cheaper price.
DEMAND CURVE:
Demand curve can be characterized as the graphical representation of the law of demand which
shows the relation between the quantity demanded and the price of the product (Higgins-
Desbiolles and et. al., 2022). There is a change in the demand curves in different situations.
When its related to price there is a movement along the demand curve and when its related to
other factors that affects the demand, there is a shift in the demand curve.
MOVEMENT IN THE DEMAND CURVE:
Movement in the demand curve can be defined by two methods which are contraction which
means less demand and extension which means more demand. Movement along the demand
curve is only caused when there is a change in the pricing of the good.

1. CONTRACTION IN DEMAND: In context with Nescafe, if the prices of coffee
increases say from $10 to $12, that will lead to a fall in the quantity demanded by the
people. In contraction demand however the movement along the demand curve only
occurs when the price increases.
2. EXPANSION IN DEMAND: It only occurs when there is a fall in the price level. If the
prices of Nescafe fall from $10 to $7, the quantity demanded will increase as people are
getting things at cheaper rates.
FACTORS AFFECTING DEMAND:
1. TASTE AND PREFERENCES: People decides that what are they gonna buy for
themselves depends on various factors (Lai and et. al., 2022). They even switch from
products because of trends or maybe prices. With context to Nescafe if the seller set a
price level that for most of the people can't buy the quantity for it will reduce as it has an
inverse relationship price.
2. INCOME OF THE CONSUMER: To buy something consumer needs money and here
comes the income effect which states that the person is willing and able to pay for the
commodity he wishes to buy. If the income increases, the ability of people to buy more
amount of Nescafe coffee for themselves will also increase hence stating a direct
relationship with demand.

3. CHANGE IN THE PRICE OF RELATED GOODS: Competitors here play an important
role. If the price of the substitute or complementary goods decreases, people will then
switch to its substitute goods which in this case can be tea considering the situation that if
the prices of Nescafe coffee increases as it has a direct relationship with the demand.
4. PRICE OF THE PRODUCT: The price level at which consumers and sellers come
together and agree to have the exchange of goods is refereed as the price of the product.
With context to Nescafe, if the seller set the price at a level at which the consumer is not
willing to pay then he will choose some other alternative to fulfil his needs.
5. NUMBER OF CONSUMERS: Market demand can be defined as the total number of
individuals demanding for a good in the marketplace (Laurent and et. al., 2022) . People
switching from one commodity to other because of their reasons that will result in the
increase no. of consumers for that shifted product. In context to Nescafe if people start
switching from tea to coffee then Nescafe will have more customer demanding for their
product in the market.
SHIFT IN DEMAND CURVE:
A shift in the curve can be defined as the movement of the line to the right and left side due to all
the factors affecting demand that has been discussed above. Shift from D0 to D 2 have other
factors and D0 to D1 have other.

1.2 Explain the law of supply, movement with the same supply curve and changes in curve (with
the suitable diagram)
Supply in economics can be defined as the sum amount of all the goods and services that are
being provided to the customers.
LAW OF SUPPLY:
Law of supply basically states that if the prices of the good increases or high, the amount
supplied to the market will also be high.
From the above diagram,it has been concluded that with context to Nescafe coffee that according
to the law of supply of the prices of coffee increases from P3 to P2 to P1, the quantity demanded
for that same product will increase from Q3, Q2 to Q1 respectively.
SUPPLY CURVE: It can be defined as the graphical representation of law of law of supply
which is a relationship between the price of the product and the quantity of the good the producer
is able and willing to supply. It shows that how if the prices go higher then how it will effect the
producers to supply a higher quantity of the good produced.
MOVEMENT ALONG SUPPLY CURVE: A variation along the curve itself is called
movement along the supply curve which can be caused only when a change will occur in the
price levels while other factors remain constant (Light, D., 2022). It can be classified as follows:
1) EXTENSION OF SUPPLY: Increase in the price level resulting in the increasing amount
of quantity supplied is refers to the extension of supply.

From the above diagram with context of Nescafe coffee it can be seen that if the price increases
from P1 to P 3, the quantity supplied by the seller also increased by Q3 to Q1.
2) CONTRACTION IN SUPPLY: Decrease in the price level that results in the decreasing
quantity supplied which refers to the contraction in supply.
From the following diagram however,the difference in the price from P1 to P2 affects the
quantity supplied by the seller also decreases from Q1 to Q3 respectively.
SHIFT IN THE SUPPLY CURVE: The shift in supply curve however can not be only due to
the fluctuations in the price but also from the factors that affect the supply. Therefore the factors
affect supply are as follows:
1. PRICE OF THE COMMODITY: One of the important factor determining supply is its
price as there is a direct relationship between the quantity supplied and the price. In
context of Nescafe coffee, more the price set, the more will be the quantity supplied as
the quality of the good is also better.
2. PRICE OF FACTORS OF PRODUCTION: The price of product is determined by the
price of the raw material used and the labour hours spent at the time of production. If the
price of factors of production increases, the final selling price will also increase as a
result consumers having no other choice have to buy the necessary items. , proving a
direct relationship with supply. In context with Nescafe coffee if the wages paid to
workers is high then the final price will also be high.

3. TECHONOLOGY: Using modern and developed technology will reduce the cost of
production which increases the net profit. Nescafe uses the advanced technology for the
production which results in more profit for them and they increase the supply for the
coffee.
4. PRICE OF OTHER GOODS: Price dose not only depends on the price of raw materials
but also on of other goods. Increase in the price of other goods make more profits in
relation to the given commodity (Milano and et. al.,2022). If there is a good amount of
demand of Nescafe coffee, the firm will shift all its resources in the production of only
coffee hence increase in the cost of production.
5. GOALS OF THE FIRM: Every firm needs to maximise its profits and sometimes can be
ready to sell goods at lower prices due to taste and trends. Coffee is a thing that every
youth require, its kind of a necessary thing for the people, so if Nescafe set the price high
also people will then also buy it for the trust and the quality they provide and hence
maximising their profits.
From the above diagram representing the shift in the supply curves occurs due to all the factors
which have been discussed above but will vary from factor to factor.

TASK 2
Compare & contrast emerging theories & models of 21st century and 20th century in contemporary
economics and relate both of these to modern business practices.
In times of 20th and 21st century there are many economists that gave their respective theories in the world
of economics to understand better how an economy operates. In this report, theories of Adam smith,
Keynesian and Marshall has been discussed relating it with the company Nescafe coffee.
TRADITIONAL THEORIES OF ECONOMICS:
1. ADAM SMITH'S THEORY OF DEVELOPMENT: He is considered as the Father of Modern
Economics as he introduced his book THE WEALTH OF NATION in 1776 which helped in
completely changed the ideas on which economics works (Qin and et. al., 2022). According to
his book, an individual can make his decisions better if there is no interference of the
government. In relation to the economy he introduced the idea that markets tend to work at its
best level when there is no government interference which as Adam referred it as LAISSEZ-
FAIRE. Although this was just a part of the theory but played a very important role in the
development of economy. In context with Nescafe this theory of Adam smith does not works in
the real world as there is always an interference of the government on every business in the
economy.
2. KEYNESIAN THEORY: John Maynard Keynes was born in June 1883, an economist whose
ideas practically changed the practices applied on macroeconomics by introducing the book
named The General Theory of Employment, Interest and Money which was published in the
year 1936 in which he states that there should be free markets and a full employment in the
economy as long as they can be flexible regarding their wages. Or when there is an increase in the
employment the aggregate real income and level of consumption also starts to increase but not as
income level. In context with the company Nescafe coffee, if want can employ more people as
workers as practically, if every body in the economy is fully employed according to their ability
to work, their real income will also increase which will again result in the high purchasing power
of the consumers and in this context which is coffee. And that will help them to increase the no.
of customers for their product in the market and also increase the net revenue and their sales.

CONTEMPRORY THEORY OF ECONOMICS:
3. MARX'S ECONOMIC THEORY: Karl Marx was a German philosopher who was born on 5th
may 1818 helped a lot in the subject of economics with the theory he gave by introducing his
book named The Labour Theory of Value which states that the value of any commodity bonly
depends on the amount of labour or the working hours the workers have spent at the time of
production. As he elaborated that if one good requires more working labour hours than other then
it is more valuable in comparison to the other commodity (Sproten, 2022). If it is being related
with the company Nescafe, then the firm should employ more of working labours just to increase
the price of their product. But it is not applicable for the company in the real world as firm will
only employ a certain amount of labour as in today's world where the technology is very
advanced, every firms wants to lower its cost of production to increase its revenues. And if the
company still choose to apply this theory of employing more workers and increasing the prices,
here comes the law of demand which states that if the prices are high people will decrease their
demand for that particular product.
INTER-RELATION AND COMPARISION WITH MODERN BUSINESS PRACTICES:
Adam Smith's theory of development has been very helpful for the economy and as discussed above one
of the major point this theory had was LAISSEZ-FAIRE which means that an economy will run very
smoothly if there is no interference of the company. As when the government comes in the circle it brings
many rules and regulations for all the firms to follow which results in the producer exploitation
somewhere. In case of no governance a consumer can demand a particular quantity and producer can
supply them at a price where both are able and willing to do the operating activity (Visser, 2022).
Keynesian theory of employment, interest and money is also a very big achievement for the economical
study which can be defined as that an economy should run when there is free markets that is free entry
and exit in the markets and also to give full employment in an economy as he believed that if every
person of an economy is employed than it will increase their real incomes and the purchasing power at the
same time which will help all the organisation indirectly as the sales of their commodities will increase
with the net revenues.

Marx's economic theory focuses on the exploitation that is made on the workers of the economy. Karl
believed that labour is the only factor of production for all commodities and give the theory in favour of
the workers only in which he states that a firm should set the prices of its goods and services on the basis
of the workers hours that its labour is spending at the time of production (Sousa and et. al., 2022). But
if we took this theory in the real world, it cannot be applicable for all the industries in the economy even
it will be a major loss for all the companies if they start applying this theory in today's world because not
all the products require equal no. of labours and not every product needs same amount of working hours
at the stage of production.
When all the theories are being related to the modern business they all promote to maximise the profits
and promote growth for the organisation at some point but cannot be applicable for every business in
today's times as they have many limitations when applied to real world.
CONCLUSION
In this respective report of Nescafe it has been covered the law of demand and the factors that
affect demand which are taste and preferences, income of the consumer, price of the product and
price of related goods, and number of consumer in the market and on the other hand law of
supply has also been discussed and the factors affecting law of supply. Demand curve and supply
curve ahas also been included in this report with the detailed discussion of movements and shifts
that occur in both the curves. And lastly, the traditional and contemporary theories of the 21st and
20th century has also been discussed in this report and it has also been discussed that how they
are inter- related and also their comparison with the modern business practices. In this report of
Nescafe all the things which have been covered are being related to the company also.

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