ECONOMIC ANALYSIS

Table of Contents
Introduction ................................................................................................................................ 3

Part 1 .......................................................................................................................................... 3

Briefly explain the concepts of economics: ........................................................................... 3

Part 2 .......................................................................................................................................... 6

With examples of all three concepts explain what practical application the concepts have
for the business and individual decision making ................................................................... 6

Conclusion ................................................................................................................................. 7

Reference list ............................................................................................................................. 9

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Introduction
The business of a company depends on several economics factors like, demand, supply,
opportunity cost, availability of substitute products and many others. Due to this, at the time
of making business decisions companies need to consider these factors, so that accurate
decisions can be made for the business. Here, in this study, focus will be made on different
economic concepts, which are important for the business development of the company. At the
same time, the study will also explain the practical application of the concepts in the context
of a business.

Part 1

Briefly explain the concepts of economics:

Opportunity cost:

Opportunity cost refers to the cost or loss that is incurred due to the selection of one
alternative avoiding the other alternatives. In the other words, it can be mentioned that
opportunity cost if the value of the other alternative that has been rejected while making one
particular decision. Bellemare (2018) has described opportunity cost as the benefit that a
company or an individual has lost due to the selection of another alternative. Therefore,
considering the concept of opportunity cost, it can be stated that it is a very useful concept in
terms of decision making because using the concept of opportunity cost the most suitable
alternative can be selected for the business (Shavandi et al., 2019).

The concept of demand:

Demand is the most common concept in economics. It can be considered as the basic concept
of economics. Demand refers to the willingness as well as the capacity of the consumers to
consume any particular product or service. In the other words, demand can be referred as the
need of the consumers for a particular goods or service (Brandano et al., 2018). This is the
basic concept that is considered by the companies at the time of making the production
decision and forecasting sales and income level of the business. A perfect knowledge of
demand is very important for making a business successful in the market.

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The above diagram is showing the demand curve in an economy. At the same time, the
diagram is also showing how the demand is dependent on the price of the product.
Considering the above diagram, it can be noticed that when the price is high, quantity of
demand is low and when the price is low, quantity of demand is high.

Concept of supply:

This is another basic concept of economics. Supply refers to the total amount or quantity of
goods and services that is available in the market for the consumers. It means supply is the
availability of products and services in the market for meeting the needs of the consumers.
Supply is also an important concept of economics and the business organizations must have
clear knowledge of supply to meet the demand for the goods and services in the market
properly and ensure the sustainable growth of the company at the market place (Sertyesilisik,
2019). The knowledge of supply helps the companies maintaining the production at the
standard level.

The above diagram is showing the supply curve in the economy. It is showing that the supply
curve is downward loping curve and it is also showing that supply of goods and services

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depends on the wages and labour. However, there are other factors in the economy like, price,
substitute and other factors, which decide supply of goods and services in the economy.

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Part 2

With examples of all three concepts explain what practical application the
concepts have for the business and individual decision making
In the above three concepts have been discussed – opportunity cost, demand and supply. It
has also been mentioned that that these three concepts have direct impact on the
organizational decision making. This can be better understood with the help of practical
examples. The examples are shown below:

Example of the application of opportunity cost –

If the example of Tata and Jaguar merger is considered, the concept of opportunity cost can
be better understood. In this particular case, Tata Motors selected Jaguar for investment and
expansion of business in the foreign market. Jaguar was definitely a good option for Tata
Motors, but there was also the option of Ford Motors, in which the company could have
invested its funds. Ford is also a reputed brand in the international automotive industry. If the
higher management of Tata Motors would have selected Ford Motors for the investment and
expansion purpose, it could have gained the benefit of operating business in the markets
where the business of Ford is stronger. Moreover, Ford has wider customer base than Jaguar.
Therefore, in this case, Ford and the related business possibilities were the opportunity cost
for Tata Motors.

On the other hand, in the context of individual decision making, it can be better understood is
the example of share market investment is considered. An investor generally invests in few
shares in the share market. While making the investment decision, the investor selects some
shares and rejects the other shares (Bellemare, 2018). However, those rejected shares also
have the capacities of providing better return to the investment. Therefore, in this case the
value that the rejected shares could have generated is the opportunity cost to the investor.

Example of the application of concept of demand –

If the example of Apple iPhone is considered, the concept and application of demand can be
better understood. Apple Inc introduced iPhone for the first time and the product was
completely innovative in the market. At that time, the price of iPhone was very high an due to
that the quantity of demand was low. However, nowadays for increasing the demand for
iPhone, the company has decided to reduce the price of the old-model iPhone and introduced

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several versions of iPhone with different price range. The company has introduced several
versions of iPhone at different price range for generating and maintaining demand for all
models of iPhone in the market. Nowadays, thousands of people have the demand or
willingness and capacity to use iPhone. Due to this the company is capable of selling its
products at the standard price in the market.

In the context of individual decision making, it can be stated that the examples of demand can
be noted in daily life. When an individual decides to purchase a television, it is definitely that
the individual has the willingness of watching television and capability of purchasing the
same (Sertyesilisik, 2019). This combination of willingness and capability influences the
individual to demand for the television.

Example of the application of concept of supply –

If the example of international crude oil market is considered, the concept of supply can be
better understood. In the international market the supply of crude oil is provided mainly by
the Middle East countries and some other countries where availability of crude oil is enough.
These countries create a stock of crude oil from where the other countries purchase crude oil
for meeting the demand for crude oil of their citizens. Hence, in this case the supply of crude
oil is the amount or quantity of crude oil that the Middle East and some other countries
produce or collect for meeting the demand for crude oil in the entire world. Therefore, it can
be stated that the Middle East countries and some other crude oil providing countries make
the decision to supply the crude oil to the countries where demand is present.

In the case of individual decision making it can be stated that the decision made by the shop
keepers to create a stock of a particular product like, rice, can be referred as the decision
making to supply rice to the consumers (Heckman, 2018).

Therefore, from the above discussion, it can be understood, that the concepts of opportunity
cost, demand and supply are related to the regular decision making in the organizations and in
the daily life of the individuals.

Conclusion
In this study, it has been understood that demand, supply and opportunity costs are the three
basic concepts of economics. The application of these three basic concepts can be identified
in the daily life of human beings and in the process of regular decision making in the business

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organizations. Hence, it can be stated that these three concepts have significant impact on the
economic situations of the countries.

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Reference list
Bellemare, M.F., 2018. Contract farming: opportunity cost and trade‐offs. Agricultural
economics, 49(3), pp.279-288.

Brandano, M.G., Osti, L. and Pulina, M., 2018. An integrated demand and supply conceptual
framework: Investigating agritourism services. International Journal of Tourism
Research, 20(6), pp.713-725.

Heckman, J.J., 2018. The Race Between Demand and Supply: Tinbergen's Pioneering Studies
of Earnings Inequality (No. w25415). National Bureau of Economic Research.

Sertyesilisik, B., 2019. Potential Changes in the Demand and Supply Sides in the
Construction Industry: Emerging Concepts for the Sustainable and Innovative Economy.
In Emerging Economic Models for Global Sustainability and Social Development (pp. 187-
202). IGI Global.

Shavandi, H., Pirnia, M. and Fuller, J.D., 2019. Extended opportunity cost model to find near
equilibrium electricity prices under non-convexities. Applied Energy, 240, pp.251-264.