CHAPTER 5: MARKET FORCES

Business Economics by Ahmad Jamli, Drs., M.A.

ANSWER
Further Questions
2) Draw a demand and supply diagram showing the effects of the Internet on UK retailing. Explain your
answer.

The Shift of Demand and Supply Curve:

1. Increase in Online Shopping (Demand Shift):
a. The Internet has led to a substantial increase in online shopping in the UK. Consumers
now have the convenience of browsing and purchasing products from the comfort of their
homes or on-the-go using various devices.
b. This shift in consumer behaviour can be represented as an outward shift in the demand
curve for online retail goods and services. As more consumers demand products online,
the quantity demanded at each price level increases.
2. Expansion of E-commerce (Supply Shift):
a. UK retailers have responded to the demand for online shopping by expanding their
e-commerce operations. Traditional brick-and-mortar retailers have developed online
platforms, and new e-commerce businesses have emerged.
b. This expansion of supply can be represented as an outward shift in the supply curve for
online retail goods and services. As more businesses enter the online market, the quantity
supplied at each price level increases.
Discussion:
The Internet has transformed the UK retailing sector by increasing consumer demand for online
shopping, leading to a corresponding supply expansion by retailers. This shift has sparked price
competition, benefiting consumers with lower prices and more choices. Additionally, changes in
consumer preferences have influenced both demand and supply. Traditional retailers have had to adapt,
with some integrating online operations, while others face challenges in this evolving market landscape.
Overall, the Internet has significantly altered the demand and supply dynamics, reshaping the retail
industry in the UK, explored bellow:

Caroline Velenthio Amansyah

22/492311/EK/23737 1
 1. Price Competition (Price Adjustment):
a. The increased competition among online retailers has led to price adjustments.
Businesses often offer competitive prices, discounts, and promotions to attract online
shoppers.
b. In economic terms, this can be seen as a decrease in the equilibrium price for many goods
and services in the online retail sector. Consumers benefit from lower prices and more
choices.
2. Changes in Consumer Preferences (Shift in Demand and Supply):
a. The Internet has not only changed where consumers shop but also what they buy. The
ease of comparison shopping and access to a wider range of products have influenced
consumer preferences.
b. These changes can lead to shifts in both the demand and supply curves. For example, the
demand for certain products or categories may increase online, while suppliers may
adjust their product offerings accordingly.
3. Impact on Traditional Retail (Market Structure Change):
a. Traditional brick-and-mortar retailers have faced challenges as consumers increasingly
turn to online shopping. Some have had to adapt their business models by integrating
online and offline operations, while others have struggled to compete.
b. This dynamic can be seen as a shift in market structure, with traditional retailers
experiencing a decrease in market share, while online retailers gain ground.

4) If unlimited parallel/grey imports are permitted into the UK, firms will be discouraged from developing
new products and selling existing ones so consumers will lose out in the end. Discuss the validity of this
statement.
The validity of the statement that allowing unlimited parallel or grey imports into the UK would
discourage firms from developing new products and selling existing ones, ultimately resulting in
consumers losing out, is a multifaceted issue. On one hand, concerns exist that increased parallel imports
might diminish the incentive for companies to invest in innovation, as they could fear diminished returns
on their research and development investments. However, it's essential to consider the potential
counterarguments. Competition from parallel imports could stimulate innovation by forcing companies to
focus on quality, cost-efficiency, and unique features to maintain their competitive edge. Moreover, the
impact of parallel imports on pricing and market competition can be twofold, with potential disruptions to
pricing strategies but also the possibility of lower prices and improved product availability for consumers.
The influence on consumer access to products and brand reputation depends on how companies manage
their distribution and quality control in response to parallel imports. Lastly, legal and regulatory
considerations play a significant role, and a well-balanced regulatory framework can address concerns
while still fostering competition. Ultimately, the effects of unlimited parallel imports are complex and
depend on how they are managed and regulated in practice, with potential benefits and drawbacks for
both firms and consumers.

Caroline Velenthio Amansyah

22/492311/EK/23737 2