Contemporary Economic Analysis: Law of Demand and Supply

This report provides a comprehensive analysis of microeconomic principles, focusing on the law of demand and supply, and economic models. It begins with an introduction to microeconomics, emphasizing its role in understanding individual and firm behavior in resource allocation and decision-makin...Read More

Contemporary
Economic Analysis

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK-1............................................................................................................................................3
Give an analysis of law of demand, Movement along the demand curve and changes in
demand curve with factors..........................................................................................................3
Give an analysis of Law of supply, Movement along supply curve change in supply curve with
its factors:....................................................................................................................................6
TASK-2............................................................................................................................................8
Economics Model Theories.........................................................................................................8
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................12

INTRODUCTION
Microeconomic studies the behaviour of an individual, firm in relation of allocation of
resources and decision making in terms of consumption, production and exchange. Basicalli
microeconomic studies why and how the businesses and an individual acquire benefits from the
efffective production and exchange. It analyse how an individual behaviour towards taking
decision effects the demand and supply of products and services, which determines the
purchasing power of consumer and the quantity of goods demanded by consumers.
Microeconomic deals in a single market with the production and price. Most of the firm utilize
micoeconomics to identify that how much of the products are manufactured or services offered to
the consumers and on what price(Caves, and Murphy 2019).This report concern with the
SAINSBURY business which is the second largest grocery retailer of UK which deals in more
than 2000 employees in the company. Along with this the law of demand and supply which
effects the business operations and activities.
TASK-1
Give an analysis of law of demand, Movement along the demand curve and changes in demand
curve with factors
Law of Demand: Law of demand states that by keeping the other factors constant there is
a indirect or inverse relation between the price and quantity demanded that is when there is rise in
the prices, the quantity demanded decreases similarly, if the price decreases the qunatity
demanded increases. It states that if the price of any product rises consumer will demand low
quantity of product, this accur because consumer not want to spend nuch for the good only of the
fear of going out of the cash. law of demand shows the behaviour of consumer when the prices of
products changes.
In case of SAINSBURY business, the law of demand states that if the price of the
products raises then the demand of that product decreases automatically because this is the nature
of law of demand that there is inverse or negative relationship between the price and quantity
demanded in an economy (Taheripour, W.E.and Birur 2019).

Movement along demand curve: Movement along the demand curve states that by
keeping other factors constant when the quantity demanded of a good changes because of the
change in price. Thses other factors can be consumer's taste, consumer income, preferences etc.
In movement along the demand curve only the demand curve shows the same curve as befor
change in price, as the change in price affect the demand quantity this is known as the movement
along the demand curve. This movement of demand curve can be in downward direction or can
be in upward direction(Nijkamp and Suzuki 2019)
Above Fig.1 which represents the inverse relationship between the price and the
quantity demanded that how the change in the price of the commodity from OP to OP'' effects the
quantity demanded that is when there is increase in price from OP to OP'' there is fall in the
quantity demanded OL, this known as Upward movement of demand curve. Secondly, when
there is change in the price of commodity from OP to OP' effects the quantity demanded that is
when there is decrease in the price from OP to OP' there is increase in the quantity demanded ON
and that is known as Downward movement along the demand curve(North and Thomas 2021). In
relation of above case of SAINSBURY business if the company increases the price of their goods
from OP to OP'' then the quantity demand of their products will automatically falls from OL, and
if the comapany decreases their price of product from OP to OP' then the quantity demanded of
their products increases from ON.

Change In Demand Curve: Change in the demand curve or shift in the demand curve
represents the shifting of consumer wants and needs to buy a particular product and services. It
shows increase or decrease in the demand and this could be happens due to change in consumer
prefrence, tastes, income or related goods price(Henderson Dicken,and Yeung 2020).
There are two types of change in demand:
 Rightward shift ( Increase in demand)
 Leftward Shift ( Decrease in demand)
Above fig represents the rightwards shifting of demand curve ( Increase in demand) from
DD to D1D1 which shows that at the same price OP, rise in demand from OQ to OQ1 due to
change in any factors whether due to change in income of consumer, consumer's taste &
preference. Leftward shifting of demand curve (Decrease in demand) from DD to D2D2 which
also shows at the same price OP, fall in demand from OQ to OQ2 similarly, due to change in any
factor (Weisbrod Test and Stein 2019). In relation of above case of SAINSBURY business,
assumes that if the consumer income rises for a product like (Fashionable cloths) the purchasing
power of consumer for that particular product (cloth) will also increases. That is at the same price
OP, the demand of consumer for the fashionable cloths rises from DD to D1D1 this is known as
rightwards shifting of demand curve. Similarly if the income of consumer decreases, the
purchasing power of consumer also falls. That is at the same price OP, the demand for the
product (fashionable cloths ) decreases from DD to D2D2 This shows the leftward shifting of
demand curve.
Factor effecting Demand Curve:

 Expectation: It refers that consumer expectation towards the price of product, is that
consumer excepted that the price of product fall in future only for that consumer hold or
stop buying product which falls the demand of that product.
 Income of Consumer: This factor directly effects the demand of product and services.
Change in consumer income effects the demand that is amount for a product consumer
are willing to pay for buy good. This refers that raise in the consumer income also raises
the demand of particular product and fall in the consumer income also reduces the
demand of the product(Heathcote Perri, and Violante 2019).
Give an analysis of Law of supply, Movement along supply curve change in supply curve with
its factors:
Law Of Supply: Law of supply states that by keeping the other factor constant, there is a
positive and direct relationship between the price and quantity supply of the commodity. It refers
that at the high prices, the supply of the product raises in an econonmy, in the market seller are
willingly to sell more products at the high prices for the purpose of increasing their profit. In case
of SAINSBURY law of supply states that when the company increases the supply of the goods,
the demand of that goods also increases. When the price raises, supply also raise and at that
movement company are able to earn high profit in market.
Movement along supply curve: It refers that by keeping other factors constant, when the
price of a commodity increases the quantity supplied of that commodity also increases.
Movement long the supply cve happens due to change in price, as if the price raises this will
encourages the suppliers or producers to increase the supply of goods to earn more profit. In
movement along the supply curve, shows Two type of curves extension and contraction and the
Upward sloping supply curve as increase in prices, the quantity supplied also increases. Similarly
decrease in prices, quantity supplied also decreases(Williamson 2021).

Above Fig. Shows the direct and positive relation between the price and quantity supplied
and how the change in the price of commodity from OP1 to OP2 Effects the quantity supply of the
commodity. When there is increase in the prices from OP1 to OP2 the quantity supplied also raises
from OQ1 to OQ2 which represents the upward movement from S1 to S2 and this upward
movement refers as Expansion of supply. Secondly when the price changes in the price from
OP1 to OP3, the quantity supplied also effects that is when the prices decrease from OP1 to OP3,
quantity supplied also falls from OQ1 to OQ3 which represents the downward movement along
the supply curve from S1 to S and refers as Contraction of supply. In relation of SAINSBURY
business if the company increases the production or supply of goods like(Food) the price of that
particular product also increases because the quantity supplied in the market increases. Suppose
if the quantity supplied of goods increases by OQ1 to OQ2, then the price of the good also
increases by P1 to P2. Similarly when the quantity supplied decreses from the OQ1 to OQ3 ,
price also falls from P1 to P3(Primavera 2021).
Change in Supply Curve: Change in supply curve or shift in supply curve, refers to
increase or decrease in quantity supplied with change in the prices due to change in any other

factors such as production cost, technology etc. There are two type of change in supply that is
rightward shifting and leftward shifting(Khoroshiltsev 2018).
Above fig shows the rightward shifting in supply curve( Increase in supply) from SS to
S1S1 Which shows that at the same price when quantity supplied increases from OQ to OQ1, the
supply curve shifts rightward from SS to S1S1.Similarly at the same price when the wuantity
supplied decreses from OQ to OQ2, the supply curve shifts leftward from SS to S2S2. In relation
to SAINSBURY business suppose if the cost of production increases this will effects the supply
in the market. If production cost raise the supply in the market falls and the business not able to
generate more profit. Similarly if the production cost falls company produce more product which
increases supply in the market and business can maximize their profit.
Factors Effecting change in supply curve:
There are various factors that causes change in supply
 Technology: Upgraded and advance technology help the business in production process
which increases the supply in the market and helps the producers to maximize their profit.

 Production Cost: Cost of production increases when the inputs prices raises, which
decreases the supply and producers are not able to maximize profit, similarly decrease in
cost of production reduces the price of inputs which increases the supply in the
market(Nijkamp and Suzuki 2019).
TASK-2
Economics Model Theories
Economics Theories: It refers to the combination of principles and thoughts that reflects
there are various types of economies function. These theories are depend on the roles which are
different and have different purposes. All the theories have different aim and purpose which
gives a framework of ideas which helps the economists to forecast, analyse the overall nature of
market. All the theories which interpretate, analyse by the economists for the problem gives a
fruitful insight, thoughts and right direction to the issue.
There are several types of economic theories which discussed below:
 Monetarism Theory: This theory also refers as the menetarist theory. This theory is the
fundamental principle of macroeconomics theory which mainly concerned with the
supply of money in an economy and this is the main factor for the inflation and level of
price in an economy. There are various factors which are related with the monetarism
theory such as Money Supply in an economy, Raise in the money supply leads to increase
in the inflation rate and prices. Similarly decreasing in the money supply cause the risk in
economy, defaltion and recession in an economy. The main purpose of this theory is that
government should nutrition the stability of economy by focusing the total amount of
money supply and rate of growth which effects the other economic factors also. Famous
economist Milton Friedman, stands in front of government for the stable flow of money
supply. He argu with the government in regards of money supply for keeping them fairly
determined, and enhancing them narrowly every year for the economic growth. Keynesian Economics: This theory is also main fundamental principle of
macroeconomics economics theory whih mainly concern about the various
macroeconomics models and theories which mainly discuss about the aggregate demand
in an economy and how the whole spending of econonmy impacts the other various

factors of an economy such as rate of inflation, production etc. This is the believe of
Keynesians that the demand of the consumer is the main force in economy. Main purpose
of this theory is the government should do something which increase the demand and
growth in an economy. Expansionary fiscal policy are followed by this theory which
mainly focuses on spending of government on education, infrastructure etc. He also said
that there are also some factors which leads to unemployement there are serveral free
markets which lacks in self balancing. Keynes economists stands in front of government
for resolving the issue of spending on the main factor of economy aggregate demand.
They said that spending of government on these economic factors are important for
generating the employment opportunity for the people.
Keynesians disscuss three principle about the work of economy.
 Public and Private Decisions: Keynesians discuss about both the private and public
decisions outcomes which adversely effects the economy like at the recession time
consumer spending falls all these policies most of the time needs a proper government
active policies in an economy. Due to all this reasons keynesians follows the mixed
economy.
 Change in supply and demand: Other reasons which discuss about the keynesians is
that there is unstability in the prices of goods and services, changes in wage rates which
effects the demand and supply of goods, such as surplus, shortage in an economy.
 Shifting in Aggregate demand: It refers that there are various reasons which effects the
output to change, like prices are harsh, changes in spending of consumer effects the
various factors of economy like investment, expenditurs of government and in
consunption. This factors effect less if the government increase their spending, then there
will increase in the output. Keynesians theory discuss about overall the factors, changes
in output caused by the decreasing or increasing in spending.
 Market Socialism: This theory is also known as the Liberal Market socialism, This
theory main concern is about the development of the economic system which supports to
Connect both the free enterprise and planning of socialist. In this theory rather than the
government forces of market defines the exchange and production. Model of the Market
socialist observes socially firms profit origin for anlaysing the various channels like
financing for public, dividened or such remuneration for the employees. Market socialism

is basically separate from the non-market socialism. There is a one system lange model
market form helps in planning. This system was prepared by the socialist economy who
states that socialist economy can also function as the calculation of the equations or as the
calculation fo the natural units for solving the economic equations.
CONCLUSION
It is concluded form the above report that Microeconomic factors plays a vitual role in
economics and influencing the various factors of microeconomics. It describes about how the law
of demand and law of supply which effects the various other factors of an economy such as
demand and supply in the market. In Case of SAINSBURY how the economic factors effect the
law of demand and law of supply and also all the factors which effects the demand and supply
such as change in income of consumer, Taste and preference, Expectations of the consumer and
in supply changes in cost of production, change in technology etc. which highly effect the market
demand and supply. Another report includes the Economics theory which provides the analyses
of various economic principles. There are different theories with different purpose and viewpoint
about the economy.

REFERENCES
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