Unit code: BM533
Unit title: Contemporary Business Economics
Contemporary Business Economics
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Table of Contents
Introduction......................................................................................................................................3
Task 1...............................................................................................................................................4
Section 1.1.......................................................................................................................................4
The Law of Demand for Tesco....................................................................................................4
Changes in demand with its factors.............................................................................................6
Section 1.2.......................................................................................................................................9
The Law of Supply for Tesco......................................................................................................9
Changes in supply with its factors.............................................................................................11
Task 2.............................................................................................................................................13
Emerging Theories and models in contemporary economics and 20th Century........................13
Conclusion.....................................................................................................................................15
Reference.......................................................................................................................................16
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Introduction
Each economic factor aims to maximize any specific characteristics. Consumers seek maximum
satisfaction, such as happiness and fulfillment, while businesses strive for maximum profit
(Dwivedi, 2016). In the retail industry, microeconomic concepts have played a vital role. The
current business environment is highly versatile, and retail giants like Tesco have risen to
dominate the industry. Tesco is a grocery and general merchandise retailer headquartered in the
United Kingdom (Tesco.com, 2021). The sector has experienced significant transformations
better to align itself with current demand and supply dynamics. This report describes briefly
how Tesco's microeconomic concepts and compares 21st-century theories to 20th-century
theories and how they relate to modern businesses.
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Task 1
Section 1.1
The Law of Demand for Tesco
In economics, the law of demand is fundamental. The theory identifies how economic systems or
companies allocate resources and set market prices for their goods. According to the law of
demand, the quantity purchased varies in direct proportion to the price charged. According to the
demand theory, raising the price of a product reduces demand by the same amount (Chen, 2017).
Changes in quantity demanded, and prices are caused by decreasing marginal utility. Consumers
use the first unit of an affordable product they purchase to meet their most important needs first,
and then use additional units to meet gradually less essential needs. For example - Tesco's
demand is elastic. When the demand for a product is elastic, a small proportionate change in the
product's price will result in a larger response in demand. This means that if the price of a Tesco
product changes, customers will be forced to buy less or look for similar products at a lower
price from other companies.
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Figure 1.1: Demand curve for Tesco products
Source: (Mankiw, Taylor and Ashwin, n.d.)
When the price of a product increases from 10 to 14 Euros, the consumer reacts by lowering the
quantity of products purchased. When the factors that influence demand remain constant, this
happens. The demand curve's movement represents a different market phenomenon. From one
point on the demand curve to the next, a movement represents changes in prices and quantities
demanded. This indicates that the demand-supply relationship is constant. As long as other
factors are held constant, demand will move when prices and demand for products change in
accordance with the original demand relationships. For example - any change in the price of
Tesco products affects the quantity demanded. Changes in the quantity demanded also result in
price changes. This occurs when other factors affecting Tesco's product demand remain
unchanged, such as consumer income, preferences, and other aspects. When a commodity's price
rises from 10 to 14 Euros, the quantity demanded drops from 80% to 60%. The demand curve
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shifts upwards as a result of this. Price reductions increase demand, causing the demand curve to
shift downward.
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Changes in demand with its factors
When prices change, demand for a product changes only if other factors remain constant. On the
other hand, changes in these factors affect the commodity's market demand and the demand
curve's positioning. The demand curve shifts due to changes in other demand factors other than
price. Demand falls from Q1 to Q2, causing the demand curve to shift from D1 to D2 at P1.
Figure 1.2: Shift in Demand for Tesco products
Source: (Mankiw, Taylor and Ashwin, n.d.)
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The income of the people
The customer's income determines the demand for Tesco products. The purchasing power of
customers increases as their income rises. This means that at current prices, people can afford
more products. The demand for the products rises as a result of this. The demand curve shifts to
the right as demand increases (Colander, n.d.). As a result, a drop in income lowers consumer
purchasing power. The average shopper buys few items and only those that are necessary. As a
result, demand for some products falls, and the demand curve shifts to the left.
Tastes and Preferences of consumer
Their taste and preferences influence the customer's attitude toward buying a product. Customer
taste and preferences are still highly affected by changes in product style. Customer tastes and
preferences are also influenced by the pressure exerted by advertisements from manufacturers
and sellers of various products. Consumers' demand will be higher if they are in a good mood
and have strong preferences for a product. The demand curve shifts right as a result of this. On
the other hand, certain products become out of style and lose the consumers' focus, resulting in a
decrease in demand. As a result of these changes, the demand curve moves to the left.
Changes in the prices of related goods
The prices of other goods, mainly substitute or complements, impact the demand for specific
products. Consumers are forced to switch to substitute or complementary goods when the prices
of related products rise. Customers will demand fewer hot dog buns if the price of hot dog buns
and incomes remain constant, but the hot dog process decreases. Customers will switch to hot
dogs because hot dog buns are a close substitute. As a result, demand for hot dogs will shift to
the right, while demand for hot dog buns will shift to the left. A decrease in the price of hot dog
buns, on the other hand, causes a drop in demand for hot dog products. Commentary goods have
an impact on each other's demand. When demand for one product rises, demand for the different
products rises as well. A decrease in the price of bread, for example, would result in more
purchases of Nutella, butter, and other complementary goods that will be in higher demand.
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Promotional Cost
Companies devote a considerable amount of money to marketing campaigns to persuade
consumers to buy a product. Consumers tend to purchase more once they are convinced of the
product's quality (Colander, n.d.). As a result of the increased demand, the demand curve shifts
to the right. Customers are unlikely to be convinced by fewer advertising campaigns. When
advertisements fail, the demand for the product does not increase.
Consumers in the market
The total number of customers determines the demand for a product in the marketplace. The
market demand for a product increases as the number of customers increases. The most
important question is which aspects of the product consumers rely on. When people substitute
one product for another, the number of people who buy that product decreases, while demand for
the substituted product rises. For example - If Tesco succeeds in finding a new market for its
products, the number of customers will rise, increasing demand. The number of consumers
grows alongside population growth. This is evident in essential goods, particularly food grains,
where demand increases, forcing the demand curve to shift to the right.
Consumers’ Expectations Regarding Future Prices
Customers' expectations for future price changes determine the demand for products. When
customers expect the price of a product to rise, they tend to buy more of it to avoid having to pay
more for the same product (Mankiw, Taylor and Ashwin, n.d.). Similarly, if consumers
anticipate a price drop in the near future, they will put off purchasing certain products, resulting
in lower demand.
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Section 1.2
The Law of Supply for Tesco
The law of supply determines how many products and services are sold for a given price. The
slope of the relationship between quantity supplied and prices charged is rising. According to the
law, when prices are higher, suppliers sell more products to the market. As a result, producers
will supply more products at higher prices, increasing their profits. Suppliers must respond
quickly to changes in demand or prices, so time is still essential in supply. As a result, suppliers
must try to figure out whether the changes in demand are short-term or permanent.
Figure 1.3: Supply curve for Tesco products
Source: (Mankiw, Taylor and Ashwin, n.d.)
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When a commodity's price rises from OP to OP 2, the market's suppliers respond by increasing
supply. Likewise, as prices fall from OP to OP 1, the supplier will reduce the amount of goods
available on the market, causing supply to fall from OQ to O Q1. The supply curve shifts as a
result of this. Price increases cause supply to move upwards along the supply curve, while price
decreases cause supply to move downwards. If there is a fixed scale of production, there are no
speculations, and the prices of other goods remain constant, the law of supply also applies. For
example - Tesco's suppliers will seek out additional clients who can offer better prices for the
goods if the goods drop. Tesco will retaliate by raising product prices to entice suppliers to join
the company. If there are no changes in income, production technique, transportation costs,
production costs, or government policies, the law of supply will hold.
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Changes in supply with its factors
A change in supply is a term that relates to when the producers or suppliers of a particular good
or service change their output or production. A shift in the supply curve is caused by a change in
supply, resulting in a market imbalance corrected by changing prices and demand. The supply
curve shifts to the right as the change in supply increases, while the supply curve shifts left as the
change in supply decreases (Pettinger, 2021). Technological advances, such as more efficient or
less expensive manufacturing processes, or a difference in the number of competitors in the
market, can cause a change in supply.
Increase firms or number of suppliers
The number of suppliers or sellers has an impact on supply. When there are a large number of
people in a market, it means there are a lot of products to sell. The supply curve will be shifted to
the right as supply increases (Pettinger, 2021). Similarly, when there are fewer suppliers, the
quantity supplied is higher, shifting the supply curve to the left.
The profitability of alternative products
Resource prices influence the supply of goods in the market. When the cost of resources rises, so
do production costs, reducing profits. Profits are a significant motivator for producers to increase
supply, so a drop in profit lowers supply. As a result, the supply curve will shift left, resulting in
a market shortage. Similarly, lower resource prices lower manufacturing costs. This causes a
shift to the right of the supply curve as the production and supply of the products increases.
Taxes and Subsidies
Taxes and subsidies influence the profit made by the supplier. For example, taxes reduce profits
by raising costs. As a result, suppliers are forced to reduce their output. Subsidies, on the other
hand, lower production costs, resulting in higher profits. Subsidies that are increased encourage
increased production and supply. If subsidies are cut, production will come to a halt, reducing
supply.
Technology advancement
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Technology boosts efficiency and productivity, lowers costs, and increases revenues. This results
in an increase in supply as a result of increased production. As a result, supply expands, and the
supply curve shifts to the right. Suppliers' expectations for future prices may impact the current
supply (Pettinger, 2021). When Tesco anticipates a price hike in the future, it will devote more
resources to increasing production and increasing supply.
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Task 2
Emerging Theories and models in contemporary economics and 20th Century
The turning of the economy from the political economy into economics took place at the
beginning of the late 19th and the entire 20th centuries (Boettke, 2010). A specialized collection
of scholars in philosophy, intellectual history, and economics studies the history of economic
ideas and methodological approach and the reflections of old elite economists on their careers.
Before the introduction of the Keynesian economy in 1936, classical macroeconomics ruled
capitalist economies. These economists believed in a free market, and with the forces of demand
and supply, the economy will create full employment for workers. When the job market
increases the number of employed workers, salaries will decrease until the potential employees
are employed. The prevailing conditions of the economy, therefore, assured the worker's
employment. Entire levels of employment have resulted in fixed total income or output. The
traditional economic theories also believed that the circulation of money in the economy
determined inflation rates. The current interest rates have also been determined by demand and
supply forces (Galí, 2018). They believed in the self-adjusting strategies of the market. It was
intended that the market structure would be perfect competition and that the market mechanisms
would be fully price-flexible. These theories have failed to recognize the role of the government,
as the market forces have created balance in terms of full employment. Monetary policy only
affects prices and does not influence actual production and job factors. Government expenditure
and trade policies were particularly hazardous. Capital borrowing created congestion, meaning
that public debt reduced private and capital expenditure financial resources (Boettke, 2010).
When the govt raises taxes to meet the rising costs, personal consumption decreases. This
economics thus recommended the application of the policy of laissez-faire. Neither monetary nor
fiscal policies were to apply to the govt.
The 1930s' Great Depression brought Keynesian economics ahead. The traditional economic
models claimed that the economy would become full jobs with auto-adjustment mechanisms.
Depression experience has shown that market forces are unable to save the economy. The British
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economist John Maynard Keynes forecasted that the economy would take longer before full
employment is restored. Keynesian theory was based on the fundamental concern that people
with incomes require goods and services and, therefore, help create jobs (Pettinger, 2021). The
idea recognizes the government's role in increasing aggregate demand. As an approach to
increasing aggregate demand, Keynes found government spending. Increased government
project spending will create jobs and revenue for employees (Galí, 2018). This will increase
private entities' demand for goods and services, generating more job opportunities. Keynesian
theory recommends using fiscal policy (government expenditure and tax decisions) to make up
for the private total demand deficit and create additional employment. Keynesian recommended
employing people to the government.
In the 1970s, the classical belief was reawakened (Boettke, 2010). The supporters of the new
classical economies claimed that by changing behaviours, they discourage expected policy action
if economic actors like eleven customers and businesses use rational beliefs about government
policies. Since market forces cannot have such influence, there were no necessities for monetary
and fiscal policies.
In service markets, in the 21st century, the economics of the industrial era has declined. Human
and natural resources are progressively appreciated in today's economics, and "wealth" estimates,
national products, and human satisfaction and satisfaction are reviewed regularly. The 20th-
century economic concepts have badly affected the global economy and the environment,
especially one-dimensional and idealized "free market" economies, leading to the catastrophic
economic recession of the last few years. The old-fashioned paradigms were refined or replaced
by the relevant 21st-century economics. Today's economies are undergoing changes in the
market, including natural hazards, changing climate, a limited resource, rising technological
advancements, globalization, multinationals, the aging population, and increasing complexity,
uncertainty, and stability (Marien, 2012). The transition is slow and integrated into business
models by some of the economic theories of the 20th century. The Keynesian model was used as
a growth theory in the 21st century (Dutt, 2010). Knowledge is internalized and used by home-
based costs (Casson & Wadeson, 2018). Behavioural Economics includes psychological studies
on economics, especially on human judgment and uncertainty in decision-making.
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Conclusion
Tesco offers a perfect example of how companies apply the law on demand and supply to market
success. In general, demand is heavily affected by the price of goods and services for Tesco
products. The customer reacts by reducing their purchases when the company changes the prices
for its products. This occurs if the demand factors are constant. Also, the company will respond
by raising supplies when the prices of Tesco products rise. This happens when the supply factors
remain constant. The economy has been based on theories developed in the 20th century. But
modern economics has seen these theories improve to meet the current business requirements.
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Reference
Dwivedi, D. N. (2016). Microeconomics: Theory and Applications. Vikas Publishing
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tesco.com. 2021. Tesco.com. [online] Available at: <https://www.tesco.com/> [Accessed 29
April 2021].
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Concepts of Elasticity and Slope. The American Economist, 62(2), 258-267.
Mankiw, N., Taylor, M. and Ashwin, A., n.d. Microeconomics.
Colander, D., n.d. Microeconomics.
Pettinger, T., 2021. Economics Help. [online] Economics Help. Available at:
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