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Microeconomics and Walmart

The economics discipline has gained immense popularity in the context of academic areas, and policies formulation. In the current liberal, global, and knowledge-based environment, the insights of economic issues have now become indispensable for all the sections in the society. Contemporary business economics include the organizational, financial, environmental related, and market related issues that are faced by the corporations (Tucker 2016). Hence, this report purposes to analyze the microeconomic concepts with reference to Walmart; and comparison and contrast will be done on the developing theories and the models in the twenty-first century modern economics with that of the twentieth century.

Task 1- Demand and Supply Analysis

Economics is stated as the study of a particular economy or the marketplace’s functions and the components, such as demand & supply. Microeconomics focuses on the role that businesses and consumers play in the economy. Its main goal is to understand the individual units’ behavior to predict the success. In businesses, microeconomic principles are used to take the decisions relating to the factors. For instance, decisions related to the productivity, labor, kinds of the goods & services to be offered, pricing, demand & supply, and economic utility. The microeconomic concepts have been highly used in the retail industry (Fine 2016). Walmart is the largest retail company that is based in the US. The total revenue of Walmart was $559 billion in 2020. This company has gone through some major changes to align with the ongoing market dynamics of supply and demand (Corporate.walmart.com. 2021).

The law of demand continues to be significant concept in economics. This concept help in describing the opposite relationship between the goods’ price and the quantity demanded (Conway and Eckersley 2017). The Law of demand states that, given the other factors being constant, the quantity demanded and the goods & services’ prices are inversely related to each other. It implies that when there is increase in the product’s price, the demand of that product will fall, as the consumer may start buying less or shift to the substitute product. The law of demand mainly explains the choice behavior of a consumer when there is any change in the product or services’ prices. A consumer usually hesitates to spend more for a product, whose price has been increased because of the fear of loosing the cash available to him or her (Mazurek, García and Rico 2019). The buyers purchase less quantity of a product at the higher price because as there is increase in the price of a product, the opportunity cost of purchasing that product also increases. As an outcome of which, people start avoiding to purchase a product or a service that pressurize them to sacrifice the product’s consumption they actually value more. Further, the demand ratio curve depicts the adverse relationship between the quantity demanded and price; hence, the curve is sloping in the downward position (Cerreia-Vioglio et al. 2016). For instance, the concept of the law of demand can be applied in the demand of the products of Walmart. Below is the curve depicting the demand curve of Walmart’s product:

The Law of Demand and Walmart's Demand Curve

 Demand Curve for Walmart

Figure 1: Demand Curve for Walmart

 Shift in Demand Curve for Walmart

Figure 2: Shift in Demand Curve for Walmart

The demand for the products of Walmart can be considered as the elastic demand. It implies that a small proportionate change in the prices of the product will result in increased demand for the product. It implies that the change in the price of any product of Walmart will results in purchasing less product by the customers. For instance, when the products’ price changes from $5 to $8, the customers will reduce purchasing the products; and when prices of the commodity decrease from $8 to $6, the customers will increase purchasing the product. It is when the factors determining demand remains constant. Further, movement of the demand curve signify a different aspect in the market (Chu, Huang and Liu 2017). It indicates changes in quantities demanded and prices from one point to the other on the curve. In case of Walmart, the change in its products’ prices result in the change in the quantity demanded. It happens when the other factors affecting the demand of the products of Walmart continues to be same. A change in the factors help in determining the commodity’s market demand, and also affect positioning of demand curve (Salerno, 2020).

Both law of demand and supply are considered as one of the most basic concepts, as well as considered as the backbone of the market economy. As per the law of supply, given the other factors being constant, the supplied quantity and the price of the goods are related directly to each other. It implies that when there is increase in the price paid by the buyers for the goods, the suppliers increase the total supply of those goods in the market (Ragni and Baldin 2015). This law shows the behavior of a producer at the time of changes in the goods & services’ prices. When the product’s price increases, the supply is increased by the suppliers, so as to earn more profits due to the higher prices. Just as the law of demand, the law of supply indicates the quantities to be sold at the given price. The difference lies in the inclination of the demand and supply ratio, as the supply ratio in the law of supply indicates the upward slope compared to the law of demand that shows the downward slope. It implies that higher the price, the higher will be the overall supplied quantity. In the expectations of earning more revenue, producers supply more at the higher price (Kakarot-Handtke 2014). For instance, the concept of law of supply is applied to the supply of Walmart’s product to the customers or buyers. Below is the supply curve indicating the movements of Walmart’s product along the supply curve:

Supply Curve for Walmart

Figure 3: Supply Curve for Walmart

When there is increase in the price of commodity, suppose $1 to $3, the suppliers supply more to the market; and when the price decreases from $3 to $2, the supply of the goods will be reduced by the supplier, causing reduction in the supply. This results in the supply movement along the supply curve. Further, supply curve moves in an upward direction with the rise in the price, and move downward with the reduction in the product’s price. Likewise, in case of Walmart, when there is reduction in the price of goods, its suppliers look for the other clients offering better prices, which results in increasing the goods’ prices by Walmart to attract the suppliers. Law of supply holds that there includes direct functional relationship between quantity supplied of the commodity and price, given other things remaining constant. Some of the factors affecting supply includes products’ price, availability of the factors of production and their prices, market structure, government policy, advancement in technology, natural weather conditions, and improvement in transport (Buechner 2018).

The Law of Supply and Walmart's Supply Curve

Supply is affected by the number of factors, such as high numbers of suppliers in the market result in more supply of goods in the market. The supply curve shifts right with the increase in the supply due to more suppliers, and shifts left with less supply due to less supplier. The resources’ prices affect the total number of the goods supplied in the market. A reduction in the price will increase supply resulting in shifting of supply curve towards left, and increase in the price will decrease supply. Moreover, subsidies and taxes affect the total income gained by the supplier. For instance, taxes reduce the profit due to increasing cost that causes less supply by the suppliers; and increase in subsidies encourage more supply and production, and vice versa (Kakarot-Handtke 2014). Further, technology enhances efficiency in the production, cost reduction, and increasing cost, which results in increasing supply, and supply curve shifts in the rightward direction. The change in the expectations of suppliers regarding the future prices may affect their present supply. In case, Walmart expect an increase in the prices in future, they start employing more resources in order to increase their output that increases the supply (Yoshii 2017).

Economics is considered as a science, which studies the way goods and services are produced and consumed by the societies. The economic subject has undergone through the overwhelming changes over the years. The theories of economics have influenced the global finance at various key junctures all through the history as well as is the integral factor in everyday lives. Nevertheless, the beliefs guiding the economics study have dramatically changes all through the history. The 20th century has seen profound progress in the economic thought. It has been related, among the other things, with the evolution of the economics to a completely disciplinary status that had started to be established late in the 19th century. The classical macroeconomics has ruled the capitalist economics prior to the introduction of Keynesian economics in the year 1936, who believed in the free market, and realization of full employment through the demand and supply forces. They believed in the self-adjusting market mechanisms. Their economic theories have failed to acknowledge the role of governments because market forces result in the complete employment (Durlauf and Blume 2016).

The development of the Keynesian economics is the result of The Great Depression of 1930s. This depression has revealed that the market forces could not save the economy. In the early 20th century, John Maynard Keynes developed the economics theories that are still used by the Federal Reserve to manage the monetary policies. He styled the classical economists and he assumed that while their economic theories might be applied to the goods markets and individual choices, they did not sufficiently explain the economics operation as a whole. Rather than specific goods markets and the prices or marginal units, the Keynesian macro-economic presented the overall economy in the terms of large-scale aggregates, which signified the aggregate-demand, unemployment rate, or the average price-level inflation for the total goods. The theory of Keynes stated that the governments are the powerful and the most significant players in the economy, who helps in saving the economy from recession through implementing the expansionary monetary and fiscal policy, manipulating the spending of government, taxing, and creating of money for managing the overall economy (Cooley and Prescott 2021).

Comparison of 21st Century and 20th Century Economics

Keynes found the spending of government as an approach of increasing the aggregate demand. Keynesians found that both fiscal and monetary policies to be effective in managing the aggregate demand levels. It has established itself as a significant economic theory by 1950. In 1960, there was emergence of monetarism form that advocated allowing supply of money to increase at the continuous rates without any monetary or fiscal policy measures to stabilize an economy. Later, in 1970s, the efforts were made to revive classical belief. Further, proponents of the new classical economics have asserted that if the economic agents, for instance, businesses and consumers use the rational views related to the policies of government that they will discourage the likely policy actions by changing the behaviors. It is because the market forces are not responsive to such kind of influence, the fiscal and monetary policies were not required (Pradella 2014). However, most of the contemporary theories of economics are based on Keynes’ work and Milton Friedman- free-market theories suggest that more capital in the system reduces the requirement for the involvement of the government (Raworth 2017).  

In the neoclassical synthesis, different streams of the economic belief have developed, many times in contrast to one another. The main differences between the neoclassical micro-economics that suggests free markets as beneficial and efficient, and the Keynesian macro-economics that beliefs markets as fundamentally susceptible to the tragic failures, has resulted in the persistent public policy and academic disagreements, with the different theories dominant at the different periods. The proponents of the new classical economics developed the concept of rational expectation to develop the real business progression models. Further, the 21st century have been the time of the economic and technological progress, in spite of the 2008 global financial crisis. In 21st century service markets, economics of the industrial period has somewhat become quite less appropriate (Gilpin 2018).

In the contemporary world of the economics, natural and human capital are increasingly valued, and estimation of the national product, wealth, and the human satisfaction and gratification are usually assessed on regular basis. The economic notions of the twentieth century have highly affected the world’s economy, especially one-dimensional and idealized free market economics, which has resulted into terrible economic recession of the recent years. Moreover, the fundamental GDP measures overlook the key components of the wealth and the other activities. Hence, the suitable economics of 21st century have improved the outdated paradigms. The Keynesian model has been now applied as the growth theory, and internalization theory has been now applied in explaining MNCs exploiting superior knowledge overseas rather than allowing the users to the foreign partnership. The behavioral economics has integrated the insights from the psychological study into the economic science, especially regarding human judgement and the decision-making under uncertainty (Deleplace and Nell 2016).

Hence, it can be said that the theories of economic grew out of the requirements of the societies to account for the future plan, resources, and allocation and exchanges of the goods & services. Over the period, these fundamental tools of accounting grew into the economic models of rising complexity level, blending mathematics needed to calculate compound interest, along with moral philosophy and ethics. Economics is the system to understand as well as control the materialistic world and prevent the emerged and developed risk across the world in the staggered way. With the growth of the societies and trade, theories of economics turned out to the statistics, mathematics, computational modeling, used by the economists to assist in guiding the policymakers. Further, the business cycle keeps on changing, booms and busts, measures of anti-inflation, and the mortgage interest rates are the economic outgrowths. Therefore, the contribution made by the different economists whether 20th or 21st century is of huge significance; the understanding and knowledge of these contributions assists the government and market to adjust the variables and make the decisions for the betterment of the overall economy and the societies (Nelson, 2016).

Conclusion

Conclusion

Therefore, this report concludes that in the market economy, the demand and supply level of all the goods and services helps in determining the level of price and quantity of the goods & services in the economy. In case of Walmart, it has been found that this company applies the law of demand and supply in its business operations to success in the market it is serving. The demand for the products of Walmart is highly influenced by their prices. The customers reduce their purchases, when prices are increased by Walmart, given the determinants of demand are constant. Moreover, the supply increases, when price increases, given the determinants of supply are constant. Further, the conventional fundamental theories of economies still exist, and are applied to the business organization; however, because of changing business environment, contemporary economics has witnessed some improvement in these theories. However, the changes are never permanent, the economic theories will continue to evolve with the coming period.

Reference 

Buechner, M. N., 2018. A comment on the law of supply and demand. Journal of Philosophical Economics, 11(2), 67-80.

Cerreia-Vioglio, S., Maccheroni, F., Marinacci, M., & Rustichini, A. (2016). Law of Demand and Forced Choice (No. 593).

Chu, C. N., Huang, T. Y. and Liu, S. S., 2017, May. Hedonic Pricing Method, the Third Law of Demand, and Marketing Strategy: An Abstract. In Academy of Marketing Science Annual Conference (pp. 721-722). Springer, Cham.

Conway, A. and Eckersley, P., 2017. When does law enforcement's demand to read your data become a demand to read your mind?. Communications of the ACM, 60(9), 38-40.

Cooley, T.F. and Prescott, E.C., 2021. 1. Economic Growth and Business Cycles. In Frontiers of business cycle research (pp. 1-38). Princeton University Press.

Corporate.walmart.com. 2021. [online] Available at: <https://corporate.walmart.com/media-library/document/2020-walmart-annual-report/_proxyDocument?id=00000171-a3ea-dfc0-af71-b3fea8490000> [Accessed 9 July 2021].

Deleplace, G. and Nell, E. J. eds., 2016. Money in Motion: the post-Keynesian and circulation approaches. Springer.

Durlauf, S. and Blume, L. E., 2016. The new Palgrave dictionary of economics. Springer.

Fine, B., 2016. Microeconomics. University of Chicago Press Economics Books.

Gilpin, R., 2018. The challenge of global capitalism: The world economy in the 21st century. Princeton University Press.

Kakarot-Handtke, E., 2014. The Law of Supply and Demand: Here it is Finally. Available at SSRN 2481840.

Kakarot-Handtke, E., 2014. The Law of Supply and Demand: Here it is Finally. Available at SSRN 2481840.

Mazurek, J., García, C.F. and Rico, C.P., 2019. The law of demand and the loss of confidence effect: An experimental study. Heliyon, 5(11), p.e02685.

Nelson, R. R., 2016. Economic development as an evolutionary process. In Handbook of alternative theories of economic development. Edward Elgar Publishing.

Pradella, L., 2014. Globalization and the critique of political economy: New insights from Marx?s writings. Routledge.

Ragni, L. and Baldin, C., 2015. The Contribution of Pellegrino Rossi to the Law of Supply and Demand: an Attempt Interpretation. HAL.

Raworth, K., 2017. Doughnut economics: seven ways to think like a 21st-century economist. Chelsea Green Publishing.

Salerno, J., 2020. The Wealth Effect and the Law of Demand: A Comment on Karl-Friedrich Israel. Quarterly Journal of Austrian Economics, 22(4), 579-595.

Tucker, I. B., 2016. Microeconomics for today. Cengage Learning.

Yoshii, S., 2017. An Extinction of Adjustment Time and an Introduction of Stability Condition in Economics through Misunderstandings to JS Mill’s Law of Supply and Demand and International Value Theory. In A new construction of Ricardian theory of international values (pp. 245-263). Springer, Singapore.

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