Contemporary Economic Analysis

1.1 Law of Demand, movement along the same demand curve and changes in the demand curve with its factors

The law of demand states that by keeping the factors constant that may affect the demand, the price and quantity of demanded goods and services are inversely related to each other, i.e. if the price of a product is increased then the demand for the same will be reduced (Crucini and Landry, 2019). Therefore, as per this law of demand, it has been analyzed that the purchasing choice of consumers mainly depends on the price of a particular commodity (Zietsman, Mostert, and Svensson, 2019). In context with the retail industry House of Fraser, offers products like fashion clothing, Cosmetics, Homeware, Toys, Furniture, Cosmetics, and more, in the UK marketplace (Propheter, 2019). So, there are several economic factors present that affect the demand for its product range, like wages, price/inflation, consumer confidence, employment, wages, and consumer confidence. These factors either create movement or shift in the demand curve of retail products at the marketplace, therefore, can be broadly classified into two main categories – Change in demand and Change in quantity demanded (BiliÅ„ska-Reformat and et. al., 2019). 

Price of the product – Applying the law of demand, to the chosen retail firm i.e. House of Fraser, as it offers products like clothing, cosmetics, and more, then increase in price of such items, highly fluctuating demand for same (Coe, Kelly and Yeung, 2019). For example – with an increase in taxation, labor prices, and more, the price of clothes might increase in the retail market. However, er it is not considered a necessity for people especially, who come from a middle or lower-class background. So, such people used to avoid buying clothes when the price of trousers, t-shirts, and other wearables is high. This would lead to creating movement in the demand curve as shown below in Figure –

Income distribution – This factor also impacts highly on profitability and sales of the retail market, as changes in the income level of people lead to either a shift in the demand curve to the right (when it is increased) or towards the left (when demand decreased). For example – when the income level of consumers increases by keeping the price of products remains the same, then under such case, it increases the capability of the public as well. In context with House of Fraser, it provides advantage to this firm to increase their feet in its stores, by offering them trendy clothes that meet their desire. This would help in shifting the demand curve towards the right. Similarly, with fluctuation in the economy i.e. the income of people decreases even if the price of products same, then it reduces the demand for clothes also. Resultantly, the curve of demand will shift toward the right (Teller, Brusset, and Kotzab, 2019).

Price of complementary goods - As per this demand analysis, other factors that shift the demand curve to the right, include the price of complement falls, which shift towards greater popularity and more (Crucini and Landry, 2019). Similarly, with the price of complement rises, decreases of complement goods, and more, shift the demand curve towards the left. With regards to House of Fraser, apart from clothes, it also deals in electronics, shoes, and accessories, so when the price of shoes decreases, then it increases the price of such items in its stores as well.

Furthermore, when a change is seen in the quantity demanded for a particular commodity due to a price change then movement in demand is seen along the same curve (Zietsman, Mostert, and Svensson, 2019). In such cases, the taste and income of customers along with the price of complement and substitute goods remain the same, with changes in the price of the commodity only. When the price of retail products like clothing, cosmetics, and more, increases then the demanded quantity is reduced and vice versa, which will move the demand curve accordingly (Propheter, 2019). In context with House of Fraser, as it offers a range of products like clothing, shoes, and all, therefore, movement along the demand curve can be determined by the below figure. For example – If the House of Fraser increases the price of shoes per pair from £80 to £100 then it decreases the demanded quantity from 4000 to 2000, which is just half of the previous demand.

Thus, it has been identified from all-over analysis that any changes in population size, income distribution, price of related goods and alternative products, etc., have created a direct impact on the demanded quantity of a particular commodity. In context with House of Fraser, which deals in the grocery or retail market, any changes in the demand curve result either in a surplus (with a decrease in demand) or a shortage (with an increase in demand) of its inventories. Both conditions directly impact its profitability, therefore, its management needs to make prior policies, to cope with such situations and run a business successfully.

Future expectations on increasing the price of homeware products, result in raising its demand in the current market and shifts the demand curve from the left to the right side. Therefore, considering such conditions, the management of House of Fraser used to increase its stocks related to homeware products in its stores and offer them at attractive prices. Similarly, as per lifestyle changes, people especially from younger groups of generations, seek to purchase fashionable clothes, shoes, and related accessories as per changes in trends. This would result in creating movement of the demand curve in an upward direction, as shown in the below figure. So, taking this as an advantage, House of Fraser increased the availability of clothes and other demanded products in its stores and used to change it every week, to retain the attention of the targeted audience (youngsters) towards the same, for enhancing sales.

1.2 Law of supply, movement along the same supply curve and changes in supply curve with its factors

The law of supply shows the relationship between the price and supply of a particular product, which states that when the price of a good hikhikesen the company would like to increase its production to earn a high profit (Bilińska-Reformat and et. al., 2019). This would automatically increase the supply in the marketplace. Similarly, with a decrease in price production of the same will also decrease that reduce Thus, the supply and price of a product are directly related to each other, where to supply a product, a firm waits for waitswaitsa hike in prices of the same, so that higher revenue can be earned (Coe, Kelly and Yeung, 2019). Supply can be defined as the quantity of a good that a company is able and willing to supply at a particular period, at a certain price. As compared to the demand curve, the supply curve always slopes in an upward direction (Teller, Brusset, and Kotzab, 2019).

In context with present British department store i.e. House of Fraser, it was established in 1849 in London and till then it has continuously expanded its business, due to increasing in demand and supply of those products, that every people buys on daily basis. With the decrease in the price of clothing, people increase their demand to buy the same, while firms reduce the production of the same, to balance the equilibrium. This retail firm offers a range of commodities like toys, gifts, cosmetics, homeware, accessories, and more, which are considered necessities of people (Crucini and Landry, 2019). So, with the demand for these products, effective supply of the same is always seen in the market. The factors that mostly affect the supply of such commodities in the retail market include the cost of production, transport conditions, policies of government, and more.

Taxations and Government interventions – In the state of decrease in tax rates on domestic goods like clothes, shoes, and other accessories, then it helps retail firms like House of Fraser to increase the supply of the same and offer amazing discounts, to gain their attention. This will create an upward movement of supply along with the supply curve as shown below figure:-

Similarly, if the price of cloth reduces then House of Eraser and other retail firms decrease the supply of the same, which refers to a contraction in supply. In this, case, movement of supply moves downward along with the same curve. To evaluate how price changes, create movement in the supply curve, an example is given below, where the increase in the price of shoes from £100 to £800 by House of Fraser, increases the supplied quantity and shifts the curve in the right direction.

Furthermore, factors other than price changes shift the curve towards the right or left, because the price under this case remains constant (Bilińska-Reformat and et. al., 2019). Studying the impact of other factors like changes in the cost of production, government policies, tax rates, and more, on supply rates of home-wares, shoes, clothing, and other products offered by House of Fraser in its retail stores, then it has been evaluated that a shift in rightward direction shows a positive effect on the supply curve. While a shift towards leftward dictates a negative effect on the supply curve. Thus, it shows that factors other than price can either have an inverse or a direct relationship with the supplied quantity of commodity.

From the above figure, it has been determined that reductions in tax, improvement of technology, fall in raw materials and other input prices, etc. shift the supply curve from the right side (Coe, Kelly, and Yeung, 2019). While poor natural conditions for production, the decline in technology, hikes in taxation, and others, the supply of the commodity will shift towards the leftward side. For example, an increase in taxation impacts highly on the supply of trading activities of products like footwear in both overseas and international markets. Therefore, under such conditions, due to a decrease in the supply of footwear from overseas markets, creates a shortage of the same in the marketplace. Under this situation, it increases the price of domestic shoes and other footwear. In context with House of Fraser, as it deals in the UK market only, therefore, taxation on overseas shoe products doesn’t impact much on its business. Along with this, taking the shortage of international brands as an advantage, it offers its shoes at a relatively higher price to meet the demand of the public, by supplying the same in all its stores.

Through discussion of various factors that create either a shift or move in the supply curve, it has been evaluated that there is a severe impact on the profitability and competitive advancement of House of Fraser, in case of ignorancetakingaken any wrong step regarding changes in price or any kind of policies. If the supply of products is not done properly, then it will lead customers to move away from a particular firm and buy desired goods from another store. Since in retail sectors, firms almost supply the same type of goods, therefore, management of House of Fraser needs to make proper strategies for managing retail operations effectively. This would help in minimizing the negative impact of factors that shift the supply curve towards the left or move the same in a downward direction, to provide demanded products on time to customers.

TASK 2

Emerging theories and models in 21st-century contemporary economics with those of the 20th century, and relate both of these to modern business practices.

 In the aspect of economics are vital range of models and theories have been developed by economists. Each theory and model of economics contributes in a significant manner to the current business environment. It depends on business entities how well they implement these theories in their business scenario. Herein below are some key theories of 2the 0^th and 21^st cecenturiesre mentioned along with their relation with modern business practices:

• Rational expectation theory – This theory evolved in the year 1970 and defines that people behave rationally on information about the economy (About modern and traditional theories, 2019). As per this theory, people will act according to their expectations, and the public policy of the government will be affected due to their actions. This theory is based on beliefs that market conditions are too competitive and prices of products are managed according to variations in the demand. The point on that people have enough range of information then prices of products and services can be sticky in a downward direction. It is so because if they go up then prices can fall. Another assumption of this theory is that the enlargement policy of the government will raise the inflation rate without increasing employment because of economic actors such as households and businesses.

Relation of this theory with current business practice-  In the current business scenario, this theory is linked to setting prices of products and services (Nikaido, 2016). This is so because if people behave to economic conditions then demand will be affected. As a result, business entities will tend to set prices accordingly. In addition, the rational expectation theory also contributes to keeping the inflation rate in a commanding position.

• Monetarism theory is much more similar to above mentioned rational expectation theory. The monetarism theory presents a modern way of classical theory which believes in the flexibility of wage and price system. Similar to classical theorists, they believe that the government must remain away from economic stabilization in their view, markets are competitive along with a higher degree of stabilization of the macro economy. These policies as expansionary monetary policy will become cause of price instability. This theory is of the modern era and has a significant impact on a company's performance and policies in such manner:

Relation of this theory with current business practice – As above stated this theory is based on the monetary policy of a particular nation. With the help of this policy, business entities can become aware of the economic condition and instability as well as according to it, they can set prices of products and services effectively. However, this policy is not effectively applied by companies because under it intervention of the government is more. As well as it can not be applied in all forms of business entities because it is suitable for large companies.

• Neoclassical economics theory is one of the main theories of the 20^th century as it was the replacement of previous classical economic theory. It is integrated with the original classical cost of production theory along with the utility to define commodity and price of factors. In addition, this theory uses demand and supply as determinants of the value of exchange. This theory assumes that everyone has the freedom to access the information that they need to make better judgments. This assumption makes it possible to minimize judgments to a mechanical application of rules to optimize. So by the neoclassical view, people's efficiency in increasing the value of output will impact productivity and assess the allocation of monetary & and monetary resources. As well as effective distribution of income. This theory is grounded in the rejection of Marxist economics and the belief that the external environmental system will ensure an effective and better allocation of resources.

Relation of this theory with current business practice – Though, this theory is of the 20^th century but still has a significant impact on current business entities. It has become a dominant economic doctrine, especially in the aspect of the United States of America. By applying this theory to current business entities, it becomes easier for companies to manage their overall resources as well as they can allocate financial and non-financial resources by activities (Brim, 2017). Apart from this, this theory is also used by governments of nations to check the distribution of income. Due to its effectiveness, this theory is being used in the context of the USA as their governance determines the proper allocation of financial resources as well as assures equal distribution of income.

• Marxist economics theory– Similar to the above-mentioned theory, this was also a replacement for classical theory. This is the theory of the modern era which evolved to find out issues of classical capitalist economics. This theory predicts the cycle of capitalism which will lead to the collapse of capitalism. According to Marxist theory, this cycle will be characterized by reserve army of unemployed, decreasing rate of revenues, crises of businesses, and many more. The neo-Marxist theory applies to both historical dimensions and in their description of economic relations, behavior, and outputs. Marx argued that in rationally and objectively pursuing their economic benefits. In addition,

Relation of this theory with current business practice – Same as the above-mentioned theories, this theory also contributes to a current business scenario. As above stated it is linked with proper management in the case of decreasing revenue of business entities (Becker, 2017). This becomes possible because, with the help of it, managers of companies can analyze economic factors, and based on it they find out the key causes of lower financial performance. So, these are some theories of the 20^th and 21^st centuries that are useful in the aspect of recent business scenarios. Apart from this, this is important to know that these theories are not limited to companies but also contribute to the government.

CONCLUSION

From this assignment, it has been concluded that the price of a commodity refers to the main factors other than production cost, consumer preferences, income of people, wages, and more, which mainly affect the supply and demand of the same. If the price of a good or service reduces then demand for the same will increase with a decrease in supply and vice versa. This is because the price of a product has an inverse relationship with demand and a direct relationship with supply. Along with this, it has also been summarised from this report that applications of economic theories that have emerged from the 20^th century to the 21^st, help retailers and employers of other fields to analyze positions of their businesses, including ways through which they can uplift the same. They can determine how certain changes in price and other factors, impact present and future demand as well as supply in the marketplace so that effective decisions and policies can be made to increase profitability.

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