[DOCUMENT

TITLE]BM533:  CONTEMP
ORARY BUSINESS
ECONOMICS
[Document subtitle]

[DATE]
[COMPANY NAME]
[Company address]
Table of Contents
Introduction........................................................................................................................2

1.0 Demand and Supply Analysis......................................................................................2

1.1 Demand....................................................................................................................2

Changes in Demand Curve........................................................................................3

Shift in Demand Curves:............................................................................................4

Conclusion..................................................................................................................5

1.2 Supply......................................................................................................................6

The Supply Curve.......................................................................................................6

Shift in Supply Curve..................................................................................................7

Conclusion..................................................................................................................9

2.0 Contemporary Economic Theory of 20th and 21st century, Modern business
application..........................................................................................................................9

Keynesian Theory..........................................................................................................9

Free Market Economy..................................................................................................10

20th Century Theories...................................................................................................10

21st Century Economic Theory.....................................................................................11

Relation to the Microeconomic Theory of Supply and Demand..................................11

Conclusion.......................................................................................................................12

References:......................................................................................................................12

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Introduction
Demand and supply are the core of every business nowadays. It determines what
should be produced, how much should be produce and the price as well. If a
consumer's need and want doesn't convert into demand, there's no point in producing a
particular product. To produce an effect, the supply of raw material and labour must be
at most economically valued condition. Here the significance of supply arises.
On the other hand, the macroeconomy determines the overall situation and environment
equally essential conduct any business.

1.0 Demand and Supply Analysis 

1.1 Demand  
The price customers pay to consume a product is called price. When a good or service
price increases, people tend to consume less product (Hildenbrand, 1983). And when
the price of a product decreases, people tend to consume more. When everything is
held constant, this nature of demand is known as the law of Demand (Hildenbrand,
1983).

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Figure 1- Market demand for rice (Monthly)
The Demand for rice monthly in the UK for Surya Foods is illustrated in Figure 1 as of
January 2021 (suryafoodsonline, 2021). The horizontal axis shows the price of the rice
per KG, whereas the vertical axis shows the quantity demanded at that specific price.
Here we have a negative correlation between price and quantity demanded. So, it looks
customers want to buy most at the least expense. They want to buy 1,000,000 Tonnes
per month for 50p. So, the curve of this figure acts according to the law of demand.

Changes in Demand Curve

Figure 2-Increase in Market Demand

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Figure 2-Decrease in market Demand
Shift in Demand Curves:
Some determinant like Substitutes, Complements and other behavioural changes of
human causes the shift in Demand Curves (Guiso et al., 2017). In this figure, the green
arrows indicate the shift in demand. Figure 2 shows an upward shift (Increase in
Demand), and Figure 3 shows the Downward shift in Demand (Decrease in Demand).
This shift can happen when the determinant of a shift in demand and supply changes its
value (Guiso et al., 2017). D0 means the original unchanged demand, and D1 show the
new demand curve after the shift in each figure. Here are some possible determinants
for shift in demand curves.
Income
A rise in income causes more consumption generally. Income increases disposable
income. Income increases the consumption of Normal Goods, decreasing the
consumption of inferior goods (Yilmaz et al., 2019). People always tend to higher
lifestyle when income rises. If income falls, people tend to consume less normal good
and more inferior good. So, the rise of rice sell depends more on the perceived type of
good than an increase or decrease in income.
Consumer Trend

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Consumers, sometimes for particulars reasons, tend to follow some trends. If they
become scared of a product, they automatically choose the substitute of that particular
product (Yilmaz et al., 2019). Thus, it can be said that consumer trend is also a
significant factor to make shifts in demand curves.
Price of Substitute Goods
If the price of substitute goods drops, then people tend to substitute their choice.
Because it seems they will have more spending the same amount of money or have the
same amount of utils spending less amount of money. People substitute their choices to
enjoy the cheap rate of satisfaction (Yilmaz et al., 2019). Here, for example, if the price
of flour decreases, people will substitute rice with flour. Thus, the shift in demand is also
become affected by the price of substitutes.
Price of Complements
Complements of a product is a product that must be availed to consume that particular
product. The price increase of complementary product increases the cost per util of
satisfaction (Yilmaz et al., 2019). For this reason, consumers tend to consume less of
that product. When the price of complement decreases the cost per util of satisfaction
decreases, then the customers tend to consume more because they are enjoying more
amount of product by spending less and vice-versa
Expectations of Future Price Changes
When customers know that the product's price will increase, the demand rises
significantly (opentextbc.ca, 2021). To avoid costly future consumption, customers will
likely store more product for the future (Yilmaz et al., 2019). If consumers know that rice
prices will increase, they will buy a considerable amount of rice at once, increasing the
demand significantly.
Similarly, if the consumer of Surya Food knows that rice prices will drop, they will tend
to purchase less and start to wait to enjoy the lower price. This incident will decrease
the demand for rice.
Conclusion
These determinants of a shift in demand and supply can significantly affect the actual
Demand of Surya Food. These determinants always influence consumers. It can affect
the real demand both negatively and positively.

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1.2 Supply
Supply has a positive correlation with price. When the price goes up, supply goes up,
and when the price goes down, supply goes down.
The Supply Curve

Figure 4-The Supply Curve

The rise of supply along the price increase is illustrated in figure 4 for rice supply
(suryafoodsonline, 2021). This indicates the positive correlation between Price and
Supply.
At the highest price point, the supply is at 1,000,000 Tonnes. On the other hand, the
supply is also at the lowest at 500,000 Tonnes at the lowest price point.

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Shift in Supply Curve

Figure 5-Shift in supply curve-Increase in supply

Figure 6-Shift in supply curves-Decrease in supply.

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Change of determinants except for price causes a Shift in supply curves. Figure 5
shows an upward shift of supply (Increase in Supply). Due to some particular reason,
this shift will be described later—a downward shift (Decrease in Supply) in the supply
curve. "D0" indicates demand, and "D1" means the new supply curve after the shift.
Here are some determinants that cause a shift in the supply curve.
The Production Cost
Production cost is a strong determinant that directly influences the price and supply
later. The increase in production amount helps achieve economies of scale within a
relevant range (opentextbc.ca, 2021). But if the production cost increases, Surya Food
will make less profit by selling the same amount of rice and quantity. Taxes, changes in
the production system, Organisational changes and technological changes change the
production cost usually. These changes may decrease the production cost, which will
trigger Surya Food to produce more to benefit profit possibilities.
The Number of Sellers
An increase in the number of sellers increases competition. This rivalry allows
consumers to bargain (opentextbc.ca, 2021). In this situation, the price of a product
decreases that increases the demand and lowers the supply. This indicates the low
possibility of profitability from a specific product. But if some sellers go bankrupt or stop
selling, then consumers' bargaining power decreases and then price, supply increases,
and people tend to purchase less.
Technology
Technological changes lessen the production cost that stimulates the supply
(opentextbc.ca, 2021). Here Surya Food will increase supply if the less production cost
opens the path of more profitability
Nature and Unpredictable events
Natural calamity or unpredictable events sometimes influences the supply chain badly.
This can make the shortage and excess both (opentextbc.ca, 2021). During this
pandemic, many countries are being failed to deliver promised order. A lot of factories
have to lay off compulsorily. This determinant is pretty much uncertain.
The Aim of Producers

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The aim of Producers will affect the supply of product. The supply of a profit maximising
company and the supply of a sales maximising company is very different
(opentextbc.ca, 2021). So, various producers have a various aim that influences the
actual demand.
Expectations of Future Price Changes
If there is any possibility of a price increase in future, the producer will be reluctant to
supply now. In some cases, they may prepare themselves by increasing their ability to
supply more during hiked price. Similarly, leaked information of price drop will stimulate
them to sell more, and thus, the increase of supply will happen in the market. Rice
producer or the backward linkage of Surya Food will be reluctant to supply based on the
news of future price increase and vice versa.
Conclusion
The determinants discussed here can shift the supply significantly. So, living in the
present market situation can bring a great deal of profitability to their business.
Producers, according to these determinants, seems to be very powerful.

2.0 Contemporary Economic Theory of 20th and 21st

century, Modern business application.
Keynesian Theory and Free Market Economics Theory are two primary macroeconomic
theory that emerged in the 20th century. Both of these are discussed here.
Keynesian Theory
Keynesian theory is a theory of macroeconomics developed in 1930. It is a demand-
side theory that focuses on short-run economic changes. To prevent economic
recessions, Keynesian economics focuses on using active government policy to
manage aggregate demand. The essence of Keynesian theory is government should
spend more during rescission or depression, and the government should spend less
during economic prosperity.
Keynesian theory says the government should increase the expenditure through
increasing social programs, lowering taxes, lowering interest rates. It will result
in market excesses being controlled and slowed, demand being stimulated, and total

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employment is maintained. Keynes argues that a country's GDP will increase by more
than the amount spent by the government if the government creates funds that are to be
sold at the market at a lower rate and distribute through spending flowing through the
economy.
Besides, according to Keynes, increasing aggregate demand for goods and services to
reduce unemployment during downturns in the market was the government's
responsibility. On the other hand, during upturns, the Keynesian Multiplier model
assumed that wage inflation would remain low as there were enough able-bodied
unemployed (Bloomberg, 2011). Critically, a fundamental failing of this theory was pre-
existing levels of high employment resulting in wage inflation (Davies, 2020). 
Free Market Economy
Free market economies are self-governing devices controlling and ensuring the
continued development of an economy at both micro and macro levels (Hayek, 1937).
According to this theory, the market will determine what will be produced and how much
will be produced.
Free market economies are more applicable in this era because this economic concept
is more adopted by scholars and people a lot! Though some part of it is still in doubt, it
is widely used, especially in the microeconomy.
According to free-market economies, no government intervention will happen, and no
coercion will happen. Researchers found that the wellness of a market has a positive
correlation with the freeness of economies (Friedman, 1982). It will only take place
between sellers and buyers, questioning at what price how much they want to buy or
sell. The argument is growing the economy from the bottom up would control the money
supply, suggesting that a household would use a three-year horizon to determine
permanent income and spread extra spending.
20th Century Theories
Those two theories are very different in the question of government intervention. When
Keynes says the government has to intervene while the economy is in recession or
depression, Friedman and Hayek strongly oppose the idea and suggest governments
not intervene.

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Eventually, both the theory proved wrong. Because the government has to intervene to
escape the economy from falling into depression and the intervention was not fruitful up
to the mark that Keynes anticipated.
It was not possible to employ every able-bodied person because of the automation
system. Keynes suggested this to avoid inflation in the economy. This indicates the
invalidity of this theory.
This pandemic forces the British government to intervene in the market because the
country was about to fall into a depression. This situation raises questions against
Keynesian theory again. Despite government interference, unemployment has
increased (ONS, 2020), and the economy is still suffering (BBC, 2020), demonstrating
that the Keynesian theory is no longer valid in the current economic climate.
21st Century Economic Theory
Modern Monetary Theory (MMT) is a modern macroeconomic theory that suggests
paying debts. One country should print its currency more. It also argues that increasing
or decreasing the interest rate is a futile effort. Instead, the increasing interest rate is a
giveaway to the investors. MMT suggests that the purpose of the tax system is to 'drive'
currency by creating a demand for the government's money so that this currency can be
spent or lent.
This modern theory cut the assumption of Keynes that every able-bodied worker should
be employed in the long run.
Relation to the Microeconomic Theory of Supply and Demand.
According to the Keynesian theory, government intervention should stimulate demand
for currency, increase spending and create aggregate demand. Supply has been
negatively impacted by the pandemic, with panic-buying, issues with suppliers, and the
sudden shift to online selling throughout the lockdowns, which has resulted in a drop in
consumer confidence, negatively impacting demand in kind once again demonstrating
that the Keynesian Theory is no longer applicable to modern economics.
On the other hand, Free market economies argue that the government should not
intervene in the market by any means, but the British government had to intervene as
described previously (Friedman, 1982). But it also argues that the market should
determine what should and shouldn't be produced and at what price they should be

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sold. This is happening with face mask, PPE, hand sanitisers all over the world. Apart
from a face mask, PPE and Hand sanitisers weren't familiar to ordinary people. But due
to the exponent demand, the producers have to produce an enormous amount of that
type of product, signifying the beauty of a free-market economy. In this context, the free-
market economy looks promising for the UK.

Conclusion
To conclude, it can be said the economic theories of the 20th century is now obsolete.
The modified version of it can be still used, but none of these theories is self-contained.
But the application after reduction is looking so handy. For example, the government
intervention of Keynesian theory and market determination of product to be produced
effectively plays an influential role in this century.

References:
BBC (2020) Keynes v Hayek: Two economic giants go head to head. Available
at: https://www.bbc.co.uk/news/business-14366054 (Accessed: 3rd January
2021). 
Bloomberg (2019) Warren buffett hates it. aoc is for it. a beginner's guide to modern
monetary theory. Available at: https://www.bloomberg.com/news/features/2019-
03-21/modern-monetary-theory-beginner-s-guide (Accessed: 20th December
2020).
Friedman, M. (1982) Capitalism and freedom. Chicago and London:University of
Chicago Press. 
Guiso, L., Herrera, H., Morelli, M. and Sonno, T., 2017. Demand and supply of
populism. London, UK: Centre for Economic Policy Research.
Hayek, F. A.  (1937). Economists and knowledge. Economica, New Series 4(February),
33–54. Institute for government (2021) The cost of coronavirus. Available
at: https://www.instituteforgovernment.org.uk/explainers/cost- coronavirus (
th
Accessed: 4  January 2021). 
Hildenbrand, W., 1983. On the" Law of Demand". Econometrica: Journal of the
Econometric Society, pp.997-1019.

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Office for National Statistics (2020) Unemployment. Available
at: https://www.ons.gov.uk/employmentandlabourmarket/peoplenotinwork/unemp
loyment (Accessed: 3rd January 2021). 
opentextbc.ca, D., 2021. [online] Available at:
<https://opentextbc.ca/principlesofeconomics/chapter/3-2-shifts-in-demand-and-
supply-for-goods-and services/#:~:text=Factors%20that%20can%20shift
%20the,about%20future%20c onditions%20and%20prices.> [Accessed 29 April
2021].
suryafoodsonline, D., 2021. Surya Foods Wholesale | UK’s Cash & Carry Marketplace
for Retailers. [online] Suryafoodsonline.com. Available at:
<https://suryafoodsonline.com/> [Accessed 2 May 2021].
Yilmaz, S., Weber, S. and Patel, M.K., 2019. Who is sensitive to DSM? Understanding
the determinants of the shape of electricity load curves and demand shifting:
Socio-demographic characteristics, appliance use and attitudes. Energy
policy, 133, p.110909.

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