Economics is the study of how people allocate scarce resources for production, distribution and consumption of goods and services (OpenStax, n.d). Over the last few decades, economic concepts and theories have advanced into important tools for improving human life. The contemporary economic approaches are largely aligned to behavioural economics implying that they differ slightly from the traditional economic approaches. Despite the slight differences from conventional economic approaches, they depend largely on the traditional economic approaches. To depict the extent to which both approaches relate to each other, the first part of the essay starts by critically evaluating the law of demand whereas the second one critically evaluates the law of supply as it applies to contemporary economics. The third part concludes the essay by critically comparing and contrasting the 21st economic theories and models with their 20th-century counterparts. This essay takes John’s ArielClean1 retail detergent business as a classical example. It identifies the concepts as critical in contemporary economic analysis.
The law of demand stipulates that when all factors in the market remain constant, then an increase in the price of goods/services demanded in the market causes the demand of those goods/services to decrease, but when their prices decrease, their demand increase (Dean, Elardo, Green, Wilson, and Berger, n.d.). The implication is that the demand for goods/services in the market depends on their prices; hence, when it goes up, their demand decreases whereas when it decreases, their demand goes up. In this respect, the demand curve tends to be downward sloping contrary to supply curve that tends to be upward sloping.
Movement along the demand curve would occur if the price of the goods/services demanded in the market would either increase or decrease. If the price of ArielClean1 detergent would increase P1 to P2 as Figure 1 depicts, then the quantity of goods/services demanded in the market would decrease from Q1 to Q2. Movement along the demand curve would occur as indicated by t1 and would be in response to the increase in the price of goods/services. As a result, it would be downward sloping as Figure 1 depicts. Conversely, if it would decrease from P2 to P1, then the quantity of ArielClean1 detergent demanded in the market would increase from Q2 to Q1. In contrast, movement along the demand curve would occur as indicated by t2 as Figure 1 depicts.
Figure 1: The demand curve/movement along the demand curve
Changes in the demand curve would occur if other factors that influence demand in the market other than price change. For instance, if brand A of detergent that is perceived to be stronger than ArielClean1 detergent was introduced into the market, then the demand for brand A may decrease. This would force the demand curve for brand A to shift from D1 to D2 and would decrease its quantity demanded from Q1 to Q2 as Figure 2 depicts. Other factors that may force the demand curve to shift include changes in income levels, expectation about the future and changes in the prices of substitutes among others (Whelan and Forrester, 1996).
Figure 2: Changes in the demand curve
The law of supply stipulates that when all factors in the market remain constant, then an increase in the price of goods/services supplied to the market causes the supply of those goods/services to increase, but when their prices decrease, their supply decrease as well (Akdeniz, 2019). The implication is that the supply for goods/services in the market depends on their prices; hence, when the price goes up, their supply increase as well, but when the prices decrease, their supply decrease as well.
Movement along the supply curve would occur if the price of the goods/services supplied to the market would either increase or decrease. If the price of ArielClean1 increased from P1 to P2 as Figure 3 depicts, then the quantity of detergent supplied to the market would increase from Q1 to Q2. Movement along the demand curve would occur as indicated by r1 and it would be in response to the increase in the price of the detergent. In line with the supply curve, it would be upward sloping as Figure 3 depicts. Conversely, if the price of detergent decreased from P2 to P1, then the quantity supplied to the market would decrease from Q2 to Q1. In contrast to the earlier case, movement along the supply curve would occur as indicated by r2 as Figure 3 depicts.
Figure 3: The supply curve/movement along the supply curve
Like in the demand case, changes in the supply curve occur when other factors that influence the supply of goods to the market other than price change. Some of those factors include taxes, weather and government regulation among others (Akdeniz, 2019). If any of them changes, it would force the supply curve to shift either to the right or left. In this respect, the discovery of a new type of technology that boosts the production of detergents is likely to increase the supply of detergents to the market without necessarily affecting their demand. Under such a case, the supply curve would shift from S1 to S2 as Figure 4 depicts and the quantities supplied to the market would increase to Q2.
Figure 4: Changes in the supply curve
While nothing much may be said about the emerging theories and models in comparison to traditional economic approaches that occurred during the 20th century, evidence suggests that the new approaches have inclined largely to behavioural economics (Gomulka, 2018). Accordingly, while most of the traditional economic approaches are theoretical as evidenced on how (Marglin, 2018) describes The General Theory, most of the emerging models and theories align to the way people behave in daily lives. The best thing about the new models and theories is that they align with modern business practices and play important roles in contemporary economic analysis. Nonetheless, this does not render the conventional economic approaches useless to the current economic practices, but it appreciates the new advancements in economics. Indeed, in appreciation that conventional economic practices continue to play important roles in contemporary economic practices, Marglin (2018) appreciates that the general theories of economics together with insights provided by Keynesian theory are largely similar to contemporary approaches applied in the 21st century. The support was despite the criticisms raised against the Keynes theory that was at one time shown to be largely theoretical rather than applicable in real life.
The essay has evaluated the law of demand and supply and established that they differ significantly. It established that whereas the demand curve is downward sloping, the supply curve is upward sloping. Despite the differences, the essay established that movement could occur in both types of curves. In addition, it established that both types of curves could shift at one time or the other if other factors that influence them other than the price would change. Thus, the essay shows that even if both laws were developed from traditional economic approaches, they applied to contemporary economic approaches that align largely to behavioural economics. Accordingly, it shows that even if the emerging models and theories were slightly different from the conventional ones, they were founded on traditional economic approaches.
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