BM533 Contemporary Business Economics

supply curve and its movement and shift due to changes in different factors

Supply is the second of the two main market forces, i.e., demand and supply, and shows the impact on the quantity supplied of a product. The law of supply states that when the price of a particular commodity increases, the amount or quantity of supply of a that commodity in  market at that given point of time increases. Since every seller in the market is working with the aim of maximizing their revenues, it will automatically lead to an increased supply, thus creating a positive relationship between the price and quantity supplied. At Asda as well, when the price of particular commodity increases, the stocks are maintained at a fuller scale, i.e. for instance, in winter, the demand for delicacies, bakery items, etc. increases, especially during the Christmas period, despite having higher prices, but they are always made available at the store so that the profit margin can be increased (Franks and Bryant, 2017).

The diagram above clearly depicts the upward-sloping supply curve that exists because of the positive relationship that exists between price and quantity supplied. It can be clearly seen that when the price increases from P to P1, the quantity that is supplied in the business also increases from Q to Q1. This is a practical aspect of economics because an increase in the price would obviously make the managers grab the chance at generating more revenue, thus increasing their sales. For more clarity, you can always seek Economics assignment help to understand such concepts better.

Movement along the supply curve: When the fluctuation in the quantity supplied is measured with respect to the price factors only and all the other factors are treated as constant, then the change in the supply thus observed is treated as the movement along the supply curve (Davies, 2019). This movement is referred to as an expansion or contraction and can be observed in Asda in the following manner:

From the above figure, it can be illustrated that an increase in price from P1 to P2 leads to an enhancement or rise in the quantity supplied of those goods as well from Q1 to Q2, which causes an expansion in the supply curve and a downward movement in the supply curve if the price of goods lowers from P1 to P3 and the quantity supplied also instantly decreases from Q1 to Q3, causing a contraction in the supply curve.

For instance, after Brexit, the prices of imported beef have risen significantly, and along with it, the supply of it by Asda in its grocery stores has also increased (Cerreia et al., 2016). This proves the expansion in the supply curve of beef at Asda. Similarly, when a product becomes outdated, its prices tend to decline at Asda, and consequently, the supply of such products also declines, thus leading to a contraction of the goods supplied. This expansion and contraction is termed the movement along the supply curve.

Shift in the supply curve: This occurs when the price factor is treated as constant and the remaining factors that affect supply are brought into view while evaluating their impact on the supply of such products in the market (Zweifel, Praktiknjo, and Erdmann, 2017). The other factors are then compared with the consequent increase in the price, and relatively appropriate conclusions are drawn.

In the illustration above, it can be clearly seen that when the quantity supplied of a good increases, it creates an increase in the supply, causing the supply curve to shift towards the right, but when the supply decreases, the supply curve shifts towards the left, showing a fall in the prices (Buechner, 2018). The shift in the curve from the point S1 to S2 depicts an increase in the supply, but the left shift of the supply curve from S1 to S2 shows a decrease in the curve. In Asda as well, there are other factors that impact the supply of the product apart from the price, and these are evaluated from time to time:

Price of Input: The input consists of the different types of raw material that are required in the manufacturing of the product and at Asda, there are different types or quantities of inputs required. When the cost of such inputs increase, the cost of producing that product also increases, thus increasing the price and automatically causing a shift to left.

Number of Sellers: Under this category of factors affecting supply apart from price, the quantum of sellers present in the market that can affect the supply of that product in the market is taken into consideration, i.e. when there are more sellers, the supply will also rise, thus making the supply curve shift in the right direction and when there are fewer sellers, it automatically leads to a shift in the right direction.

Technology: Technology is another important factor where a more advanced technology leads to higher productivity and therefore the supply of the product increases (Amir, Erickson and Jin, 2017). Asda's technological integration is at an advanced level, where they have adopted all the latest innovations in the retail industry. This has caused enhanced supply in their organization and therefore, the curve tends to shift to right.

Natural or social Factors: Natural causes such as droughts, floods, rains, etc. and social causes such as societal norms, etc. often impacts the supply in the market. This can impact the supply in a positive or negative manner and, therefore, cause a shift in the supply curve.

Market expectations: the market can be expected to be either bullish trend or bearish trend and hence, the sellers perceive how the market would be in future and take decisions accordingly regarding increase or decrease in the supply.

TASK 2

Contrast and comparison of the economic theories

The economists and the theory that have been presented by them have regularly evolved with time and newer and better concepts have arisen regularly (Rosenblatt, 2018). In the field of economics, the three major theories that have played a key role in developing the economics that is prevalent currently are:

Keynesian Theory: John Maynard Keynes gave this theory in the 21^st century and this theory highlighted the impact of the Great depression at the macro- or micro-level in an economy. This theory illustrated that aggregate spending is directly associated with inflation in the economy and after evaluation of the impact of different governmental policies, it was concluded that fiscal and monetary policies play an important role in addressing the different issues prevalent in an economy. It was also argued that a market can never return to its equilibrium state of equal demand and supply on its own and it was necessary to develop such fiscal and monetary interventions that would assist in regulating the depression in the economy.

This theory was heavily criticized by the free theorists, who argued that the market is self-regulating and demand or supply forces are sufficient to make the economy return to equilibrium.

Friedman Theory: Under this theory, also called the Monetarism theory, it was developed to meet the inefficiencies of the Keynesian Theory, and it was argued that the monetary levers in an economy should be given more power so that they can regulate the market accordingly (Makowski,  Piotrowski, SÅ‚adkowski and Syska, 2017). The equation of MV=PQ was given in this theory, where

M was the money supply, secondly, V was the velocity of the spending of euro per year, P denoted the price of goods and services; and lastly, Q signified the quantity of such goods that were demanded. It was presented that when the monetary aspect is more emphasized, the policies developed would be a better tool for regulating the market and bringing it back to equilibrium.

But, when the recession hit again in the economy in 2007–08, the incapability of this theory became cognizant, where the need for implementing fiscal measures as well as monetary measures was highlighted, and therefore, the heavy criticism of this theory paved the way ultimately for the Fisherian Theory.

Fisherian Theory: The Fisherian theory given by Irving Fisher signified that the inflation level in an economy can be controlled by the real and nominal interest rate. This was given in the 21^st century and the concept of real interest and nominal interest was illustrated. real interest rate can be ascertained by taking current nominal interest rate and then deducting the expected rate of inflation from such rate (Chu, Huang and Zhou, 2018). This theory claimed that when the rate at which inflation in an economy is increasing is equivalent to the rate at which the current nominal rate is, then it can be concluded that inflation is rising and real interest rate is declining in an economy.

This theory was extremely successful and was later developed further into an International Fisher Effect model that is used while conducting international transactions and dealing in foreign currency or exchange. It was widely supported and was categorized as an appropriate solution to regulate and control the movement of market forces in an economy.

CONCLUSION

The facts stated in the above report conclude that the two market forces, i.e., demand and supply, can be termed major controllers of the market. The report involved the application of the law of demand and supply in Asda, and how the company gets affected was evaluated and highlighted in the report. The movement and shift in supply and demand curves were also studied regarding the Asda company, and their applicability was discussed. Lastly, the report made a comparison between the past and existing economic theories that were prevalent in the market. Assignment Help can provide additional insights and guidance on these topics, ensuring a comprehensive understanding of how these economic forces impact businesses like Adidas.

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