BM533 Contemporary Business Economics: Demand, Supply and Theories

This report provides a comprehensive analysis of demand and supply principles in contemporary business economics, using Burberry as a case study. It explains the law of demand and supply, detailing movements along the curves and shifts in the curves with supporting diagrams. The report further compares and contrasts emerging economic theories and models of the 21st century with those of the 20th century, relating them to modern business practices, including Adam Smith's Classical Theory and Neoclassical Theory. It emphasizes how these economic concepts and theories impact business growth and success, particularly in understanding consumer behavior and market dynamics.

Contemporary Business
Economics

Table of Contents
INTRODUCTION...........................................................................................................................3
Task 1...............................................................................................................................................3
1.1.................................................................................................................................................3
Law of demand..................................................................................................................3
1.2.................................................................................................................................................5
Law of supply....................................................................................................................5
Task-2..............................................................................................................................................8
Comparing emerging theories and models in 21st century with 20th century contemporary
economics and relating them to modern business practices........................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Business economics refers to the field of economic which deals in financial,
market related, environmental related and organizational issues faced by business
corporations (Lawrence, 2018). It studies the subjects of business such as concept of
scarcity, product factors, consumption and distribution.
Burberry is is British luxury brand which deals in ready to wear clothes including
trench coats. The report will explain the law of supply and law of demand and the
changes in both the curves with the help of diagrams. It will also consist of comparison
between the emerging theories and models of contemporary business.
Task 1
1.1
Law of demand
The law of demand states that the price and quantity of a product demand, other
factors being consistent are inversely related to each other. It means that the law of
demand states that when the prices of a product or service increase, the demand of the
same product or service tend to decrease (Reeves, 2021). The curve of law of demand
is downward slopping. It explains the the changes in consumer behaviors due to prices
of commodities changes. It is the natural consumer behavior as the consumers switch
to other products if price changes due to the fear of being out of cash.
When the law of demand is applied in Burberry it states that if the prices of Burberry
increases, the demand of the same will decrease while the other factors remain
unaffected.
Assumptions of Law of demand:
 The prices of goods do not changes
 The income levels of consumers do not change
 The preferences of consumer remain same.
Movement in demand curve
Movement along demand curve means that the demand curve moves along as
the changes in prices and quantity demanded moves from one point to another. When
there is change in quantity due to change in prices of the commodities, assuming that

the other factors remain constant, it results in movements along the demand curve
(Galles and Sexton, 2021).
The movements in demand curve happens in two directions:
Upward movement: Upward movement in demand curve indicate the contraction of
demand. In this due to increase in prices the fall in quantity demanded is observed.
Downward movement: The downward movement in demand curves states the
expansion in demand. In this due to fall in prices the increase in quantity demanded is
observed.
Diagram
Price
P1
P
P2
0 Q1 Q Q2
Quantity demanded
Analysis: In the diagram, it can be interpreted that when the prices of commodity X were
P, then the quantity demanded was Q, creating the equilibrium point A. when the prices
changed to P1 the quantity demanded increased and created the equilibrium point of B.
it presented the downward movement in demand curve which indicates the expansion
of demand due to the reduced prices of commodity X. When the prices of commodity X
changed from P to P2, the quantity demanded moved to Q2, creating the equilibrium
point of C. It presents the upward movement in demand curve which indicates
contraction of demand due to increase in prices.
Reference to business:
If the prices of Burberry's products drop, the company can see increase in the
quality demanded of its products. However, if the prices of the commodity increase the
company will observe the decrease in quantity demanded of its products.
DC
C
A
B

Changes in demand curve
Changes in demand curve shows the shift in demand curve due to changes in
one or more other non-price determinants such as taste and preferences of customers
and changes in prices of related goods. As the demand curve shifts, the equilibrium
point also shifts.
Changes or shift in demand curve can be in sides:
Rightward shift: Rightward shift/ change in demand curve indicates the increase in
demand as the favorable changes in non-price variables at the existing prices are
observed (Davenant and Stigler, 2020).
Leftward shift: Leftward shift in demand curve indicates the decrease in quantity
demanded as the unfavorable changes in non-price determinants in the existing prices
are observed.
Diagram
Price
P
0 Q2 Q Q1
Quantity demanded
Analysis: From the diagram it can be interpreted that when the prices of commodity
were constant the demand of commodity X remains same and no changes in other
factors were observed. It creates the demand curve D. When the favorable changes in
Commodity X were observed, it leads to the rightward shit in the demand curve from D
to D1. Prices remain constant but the quantity demanded changed from Q to Q1. When
the unfavorable changes in Commodity X were observed, it leads to leftward shift in
demand curve from D to D2. Here prices remain constant but the quantity demanded
shifts from Q to Q2.
Reference to business
DD2
D1

If the changes in other determinants such as prices of substitutes increase the
company will observe increase in quantity demanded. However, if the prices of
substitutes fall the quantity demanded of the Burberry's products will also decease.
1.2
Law of supply
The law of Supply states that prices and quantity demanded of a commodity are
directly related to each other, assuming other factors remain constant. In simple words,
when the prices of a commodity rise the producers increase the supply of the same
goods in the market (Dinga, 2018). The law of supply states the behaviors of producers
during that times of changes in the prices of commodities. The producers increase the
quantity of the commodity when the pieces rise in order to earn more profits.
Assumptions of law of supply are following:
 Income level of consumers remain constant.
 The commodity can be measured.
 The taste and preferences of the consumers do not change.
 Cost of production do not change
There are some exceptions to law of Supply such as following:
The law of supply cannot be applied to agricultural products, goods of auction,
expectations of change in prices and supply of labor.
Movement along supply curve
Movements in supply curve are seen when the prices of a commodity changes
but the other factors remain constant and the quantity of supply changes accordingly. It
represents the variations in supply of a commodity with the changes in its prices (Wang,
2018). Movements in supply curve can be in two cases:
Extension of supply: Movement in supply curve represents extension of supply when
the increase in quantity supplied and prices is observed. It means if the prices of a
commodity increase the increase in quantity supply is observed.
Contraction of supply: Movement in Supply curve represents contraction of supply
when the prices of a commodity decrease the supply of the same commodity also
decreases, other factors remaining constant.

Diagram
Price
P1
P
P2
0 Q2 Q Q1
Quantity supplied
Analysis: From the diagram it can interpreted that when the prices of commodity X were
P then the quantity supplied was Q. It creates the equilibrium point of A. When the
prices of commodity moved from P to P1 the expansion in supply was observed and the
quantity moved from Q to Q1. It created the equilibrium point of B. Contraction in supply
can be seen when the prices of commodity X moved from P to P2 and the quantity
moved from Q to Q2. It created the equilibrium point of C.
Reference to business: If the prices of commodities increase in the market, the
company will increase the supply of its products to increase profitability. However, if the
prices in commodity decreases in market, the company will decrease its supply.
Changes in supply curve
When the other factors than the price affect the supply curve, it is called
change/shift in supply curve. The non-price factors can cause the supply curve to shift.
The shift in supply curve happens in two directions:
Rightward shift: Rightward shift in supply curve indicate the positive effects of changes
in non-price determinants which causes the supply curve to shift. These changes in
other factors and the supply curves shift in the same direction (Del Negro and et.al.,
2020).
Leftward shift: The leftward shift in supply curve indicates the negative effect of non-
price factors on the supply curve. These changes in other factors and the supply curves
shift in the opposite direction.
SC
A
C
C

Diagram
Price
P
0 Q2 Q Q1
Quantity supplied
Analysis: From the diagram it can be interpreted that when the prices of commodity
were constant the supply of commodity X remains same and no changes in other
factors were observed. It creates the demand curve D. When the favorable changes in
Commodity X were observed, it leads to the rightward shit in the supply curve from S to
S1. Prices remain constant but the quantity supplied changed from Q to Q1. When the
unfavorable changes in Commodity X were observed, it leads to leftward shift in supply
curve from S to S2. Here prices remain constant but the quantity supplied shifts from Q
to Q2.
Reference to business
Task-2
Comparing emerging theories and models in 21st century with 20th century contemporary
economics and relating them to modern business practices
There are various economic theories among which some important theories which are
being taken for the explanation of 20th and 21st century are described as follows -
The 20th century theories are -
Adam Smith Classical Theory of Free Market — Adam Smith is known as the Father
of Economics. Smith defined the theory by arguing against mercantilism and was a
major follower of lassiez — faire economic policies. Along with this, smith argued that
freedom should be given to everyone so that the goods can be produced and
exchanged that pleases free trade and opens up the market to foreign and domestic
competition. This classical theory of free market helps Burberry in making and framing
the business practices so that the work is being effectively performed by the employees.
(Graafland and et.al., 2021). The theory is best explained as the idea which helps in
S1
S
S2

analyzing and evaluating the markets when the government leaves the market alone.
But at same basis, government should enforce contracts and grant patents and
copyrights so that new ideas and inventions are encouraged. This will help Burberry in
covering free trade marketing ways and with help of this major changes which helps in
encouraging business practices which are being taken into consideration. The modern
business practices at Burberry helps in knowing that the changes for the growth and
development in the market are encouraged for how the business is being taken into
valuing the patterns and systems being undertaken.
Neoclassical Theory — Neoclassical theory is also known as capitalist theory which is
described as the production, valuation, consumption of services and goods are driven
by the supply and demand model. The neoclassical theory helps in clarifying and
arguing any interference on part of the government which helps in bringing optimal
allocation of resources at large scale (Angner, 2019). This theory helps in the internal
capital market which is efficient with the economy as it helps in knowing the various
forms of business and the capital structure which helps in managing the scale through
which all possible factors of how the theory is changing its patterns and practices in the
business forms are being described and evaluated. Burberry analyzes the neoclassical
theory which helps in creating the value through which all perspectives of business
practices are undertaken. This theory helps in analyzing and evaluating that competition
leads to an efficient allocation of resources within an economy. The market equilibrium
is created with forces of supply and demand. The neoclassical theory is best practice
which helps in analyzing the customers' satisfaction and this can be evaluated through
evaluations of utility of a product or service. This theory stipulates that the products and
services of Burberry are valued beyond production costs.
Karl Marks Theory — Karl Marx focused on the struggle between the working class
and the capitalist. The theory argued that profit margins are actually located in labor and
labor has economic value which helps in generating the profits through which all
possible factors are being scaled up and valued at large scale. The theory helped in
knowing the evolution of humanity from a capitalist from a socialist economy and
society. This encouraged business practices which were being undertaken by the
society (Alpidovskaya and et.al., 2019). The theory mainly focused on social class. The

business practices in Burberry have been applied by this theory so that the employees
are treated equally. The theory also focused on capitalists but the labor belongs to the
who are in concern with how effectively the major things are taken into consideration.
The theory's focus is on capitalism on productivity, economic development and labor.
This theory helps in defining the major factors through which all possible facts and
information are being concerned and through which various business practices for
Burberry can be benefited by understanding and applying this theory in business.
The 21st century theories are -
Nudge Theory — Nudge theory is the theory which is described as modern concept for
understanding how people think, behave and make decisions for change to be taken
into consideration and this helps in valuing the work which is being performed. The
theory helps in denoting the major changes by different perceptions which helps in
enabling and encouraging the change in the people, groups etc (Sunstein and et.al.,
2017). This helps in creating value through which all possible factors of knowing and
improving the business practices are taken into consideration at large scale. Through
the business practices and different strategies being formed, Burberry is helpful in
creating value to the organization at large scale. This helps in enabling the thinking
process which aids in changing the business patterns through which new ways are
being created for how the Burberry business flourish and maintain their superiority
significantly. This theory helps in enforcing positive environment which is included in the
behavioral sciences. The theory will help in business decision-making practices which
will help the Burberry to grow and develop at large scale. Therefore, the nudge theory
helps in analyzing the behavior of groups and individuals.
Behaviors Theory — Behaviors economic theory is described as how the customers
behave towards the products and services being served by Burberry. Behavioral
economics combines the knowledge of how the individuals or the customers react to the
products and services which are being served to them at large scale. The business
practices of Burberry helps in analyzing that how decision-making processes are being
undertaken. This is the standard customer theory which is in practice with the
behavioral patterns of how customers ensure what type of products and services they

are in requirement or need of (Bidabad, 2019). This considers economic behavior of a
rational, optimizing agent within market. There are various business practices which are
being considered as how effectively and appropriately behavioral theory is applied to
the business of Burberry. Behavior theory is the main stream of economics which helps
in identifying possible facts and information which is being taken into consideration at
large scale. Therefore, business practices which are being undertaken by Burberry are
considered important and this helps in creating value to which all the factors are
identified for growth and development of the economy.
CONCLUSION
From the above discussion it can be concluded that the Law of demand describe
the inverse relationship with demand and prices while the Law of supply describe the
Positive relationship between the prices and supply. Changes in movement in demand
and supply curve were seen when the prices changed while the changes in demand
and supply curve were observed when prices were constant but the non-price
determinant changed. The contemporary economic theories involves the classical
theory of free market, Neoclassical and behaviours theory which describes the
behaviours of customers and profit margins of the companies.

REFERENCES
Books and journals
Alpidovskaya, M.L. and et.al., 2019. Marx and modernity: a political and economic
analysis of social systems management. IAP.
Angner, E., 2019. We're all behavioral economists now. Journal of Economic
Methodology.26(3).pp.195-207.
Bidabad, B., 2019. Squandering in Ethic Economics: Consumer and Producer
Behaviors Analysis. International Journal of Islamic Business &
Management.3(2).pp.30-41.
Davenant, C. and Stigler, G., 2020. 4.3 Deriving a Demand Curve. Intermediate
Microeconomics with Microsoft ExcelR. p.129.
Del Negro, M. and et.al., 2020. What’s up with the Phillips Curve? (No. w27003).
National Bureau of Economic Research.
Dinga, E., 2018. A comment on ‘Comment on the law of supply and demand’. Journal of
Philosophical Economics. 11(2). pp.81-94.
Galles, G.M. and Sexton, R.L., 2021. Why the kinked demand curve may still be
useful. The European Journal of the History of Economic Thought. 28(4). pp.559-
576.
Graafland, J. and et.al., 2021. In Adam Smith’s own words: The role of virtues in the
relationship between free market economies and societal flourishing, a semantic
network data-mining approach. Journal of Business Ethics.172(1).pp.31-42.
Lawrence, R.J., 2018. Applications in economics and business. In Lognormal
Distributions (pp. 229-266). Routledge.
Reeves, T., 2021. The Inviolable Law of Demand. Available at SSRN 3930186.
Sunstein, C.R. and et.al., 2017. The economics of nudge. Routledge.
Wang, Y., 2018. A Profit-Based Theory of Economic Growth and Upward Shift of Labor
Supply Curve Implied by Phillips Curve. Available at SSRN 3350938.