Business Economics: Analysis of Supply, Demand, and Market Structure

This business economics assignment analyzes the supply, demand, and market conditions of a local law firm, Dewey, Cheatem, and Howe. The assignment explores factors affecting demand (price, related goods, legal disputes) and supply (price, number of lawyers, law institutions, cost of law courses). It also discusses price elasticity of demand, concluding that legal services are relatively inelastic. The assignment then examines the impact of various scenarios on the market, such as increased compensation claims, new store openings, plant closures, rising labor costs, government taxes, and policy changes like the disbanding of a compensation scheme and new safety standards. Finally, the assignment concludes that the market structure for law firms is oligopolistic, characterized by a few dominant firms and many buyers.

Running Head: BUSINESS ECONOMICS
Business Economics
Name of the Student
Name of the University
Author note

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BUSINESS ECONOMICS
Table of Contents
Answer to part A..............................................................................................................................2
Introduction and Summary..........................................................................................................2
Factors affecting demand.............................................................................................................2
Factors affecting supply...............................................................................................................2
Elasticity concepts and factors.....................................................................................................3
Answer to part B..............................................................................................................................3
Answer to part C..............................................................................................................................6
Market structure.........................................................................................................................10
References......................................................................................................................................11

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Answer to part A
Introduction and Summary
Law firms provide legal services to people to secure their legal rights. In this part, a local
law firm Dewey, Cheatem and Howe is chosen and its supply, demand and market conditions are
analyzed. There are different factors affecting demand and supply condition. Three demand side
and supply side factors are considered. The concept of price elasticity of demand and nature of
elasticity for the chosen firm’s service is discussed.
Factors affecting demand
Three factors affecting market demand curve for Dewey, Cheatem and Howe law firm are as
follows
 The primary determinant of demand for a product is its price. The demand for the
concerned law firm’s service is price charged by the firm for their legal services. Higher
the price lower is the demand and vice versa.
 Price of related goods like substitute or complementary products influences its demand
(Rios, McConnell and Brue 2013. The substitute of the firm’s law services is the legal
service provided by other local firms. If these firms offer similar services at a low price
then demand for its legal service increases. Similarly, if the services in local firms
become costly, then demand increases.
 The third factor affecting demand is the frequency of legal disputes in the area. More
legal disputes mean more demand for legal service and hence, a larger market demand.
Factors affecting supply
Three factors affecting market supply curve for Dewey, Cheatem and Howe law firm are as
follows
 Like demand, price is a direct influencing factor of supply. Supply of law services depend
on the price of the services (Bramley 2015.). When legal service becomes expensive then
the profession seems to be profitable. As more people join the business firm, supply
increases.

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 Supply in the law firm depends on of the number of efficient lawyers. The supply of
supply of lawyers depend on the number of law institution in the region. More law
institutions mean more lawyers and hence a greater supply.
 In addition to number of law institution, the supply also depends on the cost of the
course. An expensive law course means less students will afford to be enrolled in the
course. This reduces the number of lawyers in the region and hence, a smaller supply for
the legal firms.
Elasticity concepts and factors
Price elasticity of demand indicates how much proportionate change in demand expected
to happen in response to a change in price of that good (Thomas, Lubinda and Angula 2015).
The demand for legal services happen to be inelastic. In times of legal dispute people
have to take services of the law firms. Once the legal procedure began they cannot change their
demand even when price changes. As a result, the demand for legal service has very less price
elasticity. In the long-run it becomes more inelastic in nature.
Answer to part B
ii) There is a reported dramatic increase in the compensation claims going to court

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Figure 1: Effect of an increase in the compensation claims going to court
When there is an increase in compensation claims going to court, then demand for legal
service increases. This reflects an increase in demand for firm’s service shown from a rightward
shift in the demand curve from DD to D1D1 (Baumol and Blinder 2015). Consequently, prices in
the market increases and corresponding supply in the market.
iii) A multinational white goods retailer launches a strategy to open 20 new stores in
Australia

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Figure 2: Effect on launching new stores in Australia
When a multinational retailer launches a strategy to open 20 new stores in Australia, then
the existing stores demand for a compensation. To achieve their claim they need assistance from
legal firms. This raises the demand for the chosen firm and leads to an increase in price from P*
to P1 and corresponding quantity from Q* to Q1

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iv) Ford to close its Broadmeadows and Geelong plants for which Ex Hoon Pty Ltd is a
major supplier.
Figure 3: Effect of closing down of Broadmeadows and Geelong plants
Closing down of plant affects associated suppliers such as Ex Hoon Pty Ltd. This
hampers their business and they take legal action against Ford (Baiman 2018). This raises the
demand for legal services as shown in the above figure.
v) The construction industry faces a significant increase in labor costs
Figure 4: Effect of a rising labor cost for construction industry

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If labor cost rises because of a rising wage cost resulted from labor union bargaining
then, company owners take legal action against union. The legal disputes raises demand in the
market.
Answer to part C
i) The government introduces a tax on fertilizer used in agriculture due to runoff damages
to rivers and streams
Figure 5: Effect of tax on fertilizers
Introduction of tax on fertilizers used increases the cost to farmers. The farmers then
requires a compensation for the increased cost. The demand curve shifts rightward causing
increases in both price and quantity served in the market.

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ii) Government disbands the Traffic Accident Commission (TAC), a publicly funded
compensation scheme
Figure 6: effect of disbands of traffic accident commission
Disbanding of Traffic Accident Commission implies people now have to take their own
stands for claiming compensation. People go to local law firms boosting demand of the law
firms.

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iii) The government decides to increase GST from 10 to 15%
Figure 7: Effect of tax an increased GST
Increased GST increases the cost of the law firms leading to a shift in the supply curve
from ss to s1s1. The supply curve will shift by the tax amount causing an increase in price of the
service (Stiglitz and Rosengard 2015).

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iv)The government announces tough new safety standards for all new vehicles sold in
Australia
Figure 8: Effect of new safety standard
The introduction of new safety standard introduces new complexities. Sellers of new
vehicles now have to incorporate technology to increases their safety (Hildenbrand 2014).
Violation of rule leads to legal action. The new law increases demand in the market.

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v) The government announces it will scrap the First Home Buyers Grant
Figure 9: Effect of scraping first homebuyers grant
Elimination of first homebuyers grant reduces the assistance provided for buying own
home first time. This increases the number of homeless who then demand some other form of
compensation. As a result, demand for legal service increases claiming compensation.
Market structure
The structure of market depends on the presence of buyers and sellers in the market. For
law firms renowned law firms dominate the market. Dominance of the few firms is based on
their good will and efficient service delivery. Presence of few firms and a large number of buyers
makes the market structure oligopoly in nature (Kolmar 2017)