Economics for Business: Analysis of Supply, Demand, and Pricing

This report provides an overview of business economics, focusing on the relationship between supply, demand, and price. It begins by defining demand and supply, then explains the law of demand and supply, and how they interact to determine price. The report further explores the concept of market equilibrium using supply and demand diagrams, illustrating how changes in demand and supply affect equilibrium. It then discusses the factors that influence changes in supply, such as monopoly, fiscal policies, and raw material prices. Finally, the report analyzes the impact of changes in supply and demand on product prices, including various scenarios like increases and decreases in both. The analysis also includes the effect of those changes on the product of Polo mint in the competitive market. The report concludes by emphasizing the importance of understanding these economic principles for business decision-making.

ECONOMICS FOR
BUSINESS

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Relationship between supply, demand and price........................................................................1
Explaining equilibrium using supply and demand diagram........................................................3
Explaining what results in change in demand.............................................................................7
Explaining reason behind change in supply ...............................................................................8
Impact of change in supply and demand over price of product..................................................8
CONCLUSION..............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Economics for business refers to a brief study of various factors of the economic
environment. It is a quantitative method of analysing overall business of the firm along with
various factors that leads in diversifying the overall structure Polo mint UK. In the present
assignment, a description of demand and supply and gaining equilibrium through it has been
included. Reasons behind change in demand and supply are also been explained. Further, the
study also includes impact of change in demand and supply over price of product and services.
Moreover, the study also shows diagram as to provide a better understanding of change in
demand and supply over price.
MAIN BODY
Relationship between supply, demand and price
Demand
The term demand refers to the amount of goods and services that customers wants to
purchase at a certain price (Grossman, 2017). It shows the desire of customers of market to buy a
specific product or services in the competitive market. As per analysing the operational scenario
of Polo mint UK on which if professional pauses a stable price over the product which will bring
them effective demand.
Supply
Supply can be defined as a quantity of products or services served by the companies in
market for the purpose of fulfilling demands and needs of customers of Polo mint UK.
Relationship between demand, supply and price
For the purpose of analysing relationship between these three element, it is necessary to
understand the law of demand and law of supply as well.
Law of demand
As per the law of demand, if all the factor remains same except the price, demand of
product would be changed. There is an inverse relation between demand and price of the
product or services. Therefore, if the price of Polo mint UK rises in the market, it would result in
decreasing the demand, as customers would be substituted towards other products having lower
price.
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On the other hand, in case price of product reduces it would lead in attracting customers
towards Polo mint UK’s product, through which its demand would be risen in the market. Both
the conditions results in shifting of demand curve.
Law of supply
Law of supply states that if price of product changes and all other factors remain
unchanged, it would result in changing the quantity of supply in the market. Further, as per this
law, there is direct relation between price and quantity of supply. In case, the price of product
rises, with a view to increase the profitability of business, company would increase the quantity
of supply in market.
Whereas, at the time of reduction in price of product or services, Polo mint would wait
for increase the price of product, as selling product or services would result in reducing
profitability of product. In this regard, increase in price would result decreasing the supply
quantity of product in equal ratio.
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Illustration 1: effect of price of demand curve
(source: Economics Basics: Supply and Demand, 2019)

Relationship between demand and supply
Demand and supply have direct relation. As when demand of any specific product or
services of Polo mint increases, for the purpose of fulfilling the needs of customer, firms also
needed to enhance the amount of supply accordingly (Aston and et.al., 2017). Furthermore, at the
time of reduction in demand of any product or services, the company would also reduce quantity
of supply, excessive of supply would result in suffering loss to the company.
On the other hand , if demand of product increases and Polo mint could not supply the
products accordingly, it would definitely result in providing dissatisfaction to the customers,
through which they may substituted to another company's product. This condition would also
result in enhancing the loss to the Polo mint.
Explaining equilibrium using supply and demand diagram
Equilibrium
Equilibrium is that point of time of market, at which the demand and supply of product
are equal. It is the most satisfactory situation of economic market. The equilibrium curve shows
intersection point of demand and supply curves. At equilibrium point, the most economic price
of product and services could be set.
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Illustration 2: equilibrium
(Source: Government Intervention
in Market Prices:. 2019)

Equilibrium shows the price of product. Product's price is being set at equilibrium point
of demand and supply curve. In this order, the price of a product of Polo mint gets affected
through both demand and supply of a product in the competitive market.
Effect of supply over equilibrium
Increase or decrease in the price of product result in shift of supply curve. Increase in
price results in upward shifting of supply curve of Polo mint, whereas, reduction in price of
product or services leads in downward shifting of supply curve. It results in changing the
meeting point of demand and supply curves. Therefore, the change in supply curve directly
effects the equilibrium of market.
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Illustration 3: Effect of supply over equilibrium
(Source: Supply and Demand Equilibrium. 2019)

Effect of demand over equilibrium
Same as the supply curve, change in price of product or services results in shifting of
demand curve through which equilibrium of demand and supply affects. The demand curve shifts
upwards with the reduction in price of product in the competitive market (Frey, Chamberlain and
Prestemon, 2018).
On the other hand, enhancement in the price results in downward shifting of the demand curve,
in case the supply curve remains unchanged, the meeting point, i.e. equilibrium of demand and
supply of Polo mint would be affected.
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Illustration 4: effect of demand over equilibrium
(Source: Supply and Demand Equilibrium. 2019)

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Explaining what results in change in demand
Change in demand can be defined as the increase or decrease in need of customers for
the quantity of products or services. This change results in changing the equilibrium of demand
and supply. Further, it can be resulted due to numerous reasons like change in price, taste,
preference, change in technology, launching of new products in market, etc.
further, the key elements that affects the demand of product or services are as under:
 Change in price: Price have direct relation with demand of product or services in
market. When the price of a product increases, customer finds some other substitutes of
product which results in decreasing the price of product. On the other hand, at the time
of reduction in price, more customers get attracted towards product or services of Polo
mint It leads in enhancing the demand of product in market.
 Change in economic conditions: Economic conditions represents the inflation rate,
saving habits, spending capacity etc. of the customers (Azevedo and Leshno, 2016). All
these elements directly influences the purchasing power of customers in market. In this
order, these elements affects demand of product and services provided by Polo mint in
market.
 Change in environment: Change in environment can be defined as change in weather,
season, climates, etc. Various products like umbrellas, fans, cold drinks, etc. have
influence over change in the weather and season. Demand of these products are
generated as per the climate. In this order, demand of these products are directly
influenced by the change in demand.
 New entry in the market: New entry is the major threat of reduction in demand of
products or services. New entry in the market results in enhancing the competition in the
market. It may result substituting existing customers towards products of new company,
which could result in reducing the demand.
 Change in taste and preference: It is the major element having effect over demand of
a specific product or services. In case the change in taste of customers is in favour of the
product, demand of it would rise. On the other hand, if the change is against Polo mint's
product,. It would definitely result in reduction of the demand.
In this order, it can be analysed that, there are numerous reasons due to which trhe
demand of a specific product or services could be affected.

Explaining reason behind change in supply
Change in supply refers to change in the quantity of product supplied by the company.
Change in the supply may result in either movement of the supply curve or shift of supply curve.
The change can be supply can be resulted through various reasons like monopoly, change in
fiscal policies, natural conditions, change in price of raw materials, etc.
 Monopoly: If the Polo mint wants to create monopoly in the market, it changes the
amount of supply that suits best as to enhance the need of customers.
 Change in fiscal policy: fiscal policy refers to policies made by government towards
import and export transactions. In case the import duty reduces, it would result in
increasing the supply of imported products. On the other hand, the enhancement in the
import duty would lead in reducing the supply of products as supplying more quantity
would result in enhancement of cost to the Polo mint .
 Natural conditions: Excessive rainfall, floods, etc. are some natural calamities that
affects volume of production by a business organisation. Polo mint can only supply the
quantity of product equal to its production. In this order, this factor also effects the supply
of products.
 Change in price of raw materials: Price of raw material effects the financial condition
of the business. If the price of raw material used by Polo mint rises, it would result in
reducing the capacity of production by a business. With the help of which it coulf
produce and supply more quantity of products (Knittel and Pindyck, 2016). On the other
hand, reduction in the price of raw material would result in enhancing the production
capacity of company through which the company can supply more quantity of products.
 Change in demand: for the sake of satisfying the needs and demand of customrs, Polo
mint needs to supply the amount of goods and services as per the demand in the market.
In this regard, this factor also have influence over the quantity of supply.
In this order, it can be analysed that there are various reasons due to which supply of a
specific product or services in the market is affected.
Impact of change in supply and demand over price of product
Price of product is determined at the equilibrium point. The point at which both demand
and supply curve meets, is termed as the equilibrium which shows the most appropriate price of
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products and services. As the equilibrium is being get through the demand and supply curves,
both are the major element having effect over the price of product or services of Polo mint.
Change in demand or supply results in shift of demand and supply curve. These results
change in equilibrium point and of price of the product or services as well. The impact of change
in supply and demand on the price of product can be analysed as under:
Increase in demand:
In case, the demand of a specific product increases, and supply of it remains constant, it
would result in shifting of demand curve. At the time of increase in demand, the demand curve
shifts towards upward direction (Grossman, 2017) . Further, as both demand and price have
inverse relation, increase in demand results in reducing the price of product of Polo mint in the
competitive market.
Decrease in demand:
when demand of product decreases due to any reason, without changing supply, it shifts
the demand curve downward. In this order, the reduction in the demand of product results in
shifting the equilibrium point in upward direction, due to which the price of product sold by Polo
mint increases in the market.
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Illustration 5: decrease in demand

Increase in supply:
In case, the supply of a specific product enhances in the market without enhancement of
demand in market, it results in shifting of supply curve. The increase in supply shifts the supply
curve in downward direction. Through it, the meeting point of demand and supply curve i.e. the
equilibrium of demand and supply also shifts towards downward direction. Through it, the price
of product goes on declining.
Decrease in supply:
A market condition in which the supply of product increases without changing the
demand, it leads in shifting supply curve without shifting of demand curve. Further, as the
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Illustration 6: increase in supply