Supply and Demand Simulation Essay Sample
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- Category: microeconomics
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Supply and Demand Simulation Essay Sample
The Supply and Demand Simulation consist of microeconomics and macroeconomics concepts. The concepts are explained and how they apply to the principle of microeconomics and macroeconomics. The simulations presents shifts in the supply and demand curve, the rationale for the shift is given. Each shift is analyzed showing the effects of the equilibrium price, quantity, and decision making for the company presented. An explanation of the price elasticity affects the pricing strategy for consumers and company. In the simulation a neighborhood called Atlantis is used. Atlantis is a nice neighborhood with many amenities that consumers demand (University of Phoenix, 2012). A two bedroom apartment rental in Atlantis is used in the simulation to present the effects of supply and demand. The simulation presents several scenarios that have been acquired by the management company of the two bedroom apartment rentals. The scenarios will show how price can affect supply and demand while being competitive within the market. In the simulation, microeconomics concepts are used. Microeconomics is the study of behavior on a smaller scale such as households and businesses (Colander, 2010). This is the opposite of macroeconomics. In the simulation the first scenario represents microeconomics.
This is because the property management company has to make a decision on the rental rate required for the two bedroom available rentals to decrease vacancy and to maximize revenue (University of Phoenix, 2012). This is related to the principle of microeconomics because its focus is on supply and demand. To decrease supply of vacancies the company has to increase demand by lowering rental rates. Macroeconomics is presented in the simulation in the second scenario. Macroeconomics is the study of the behavior of the economy as a whole (Colander, 2010). The second scenario shows that the property management company has 2,500 available rentals. The company has to find what rental rate to input so that all expenses in renting out apartments are covered. The property management company has to consider current cost of maintenance to the apartments as each apartment is rented (University of Phoenix, 2012).
The company has to ensure that rental rate is high enough to incorporate additional cost of maintaining along with not to high of cost to decrease the demand. The simulation consists of shifts in the supply and demand curves. A scenario in the simulation is presented in which consist of a new company moving to the Atlantis area in which increase the demand of apartments (University of Phoenix, 2012). The demand curve shifts to the right. The quality that is demanded is more than supply of the original equilibrium, thus creating a market shortage of apartments available for rent. To create an a equilibrium the rental rate is increased to create a decrease in demand while allowing the supply curve move upward (University of Phoenix, 2012). This is done until there is a point where the demand curve and original supply curve meet. The property management company has made the decision to increase price of rentals to maximize revenue along with decreasing the surplus shortage. The quality demand to rent apartments in the city of Atlantis and supply available has increased to a new equilibrium point. Another shift is in the simulation after the new company has overcame entry to the community and caused many consumers to go with detached homes instead of apartments (University of Phoenix, 2012).
The supply and demand of homes is affected in which demand has decreased and supply has increased. To create equilibrium the property management company has to decrease rental rates to encourage a demand for the apartments. This is because demand has shifted to the left, lack of available tenants for the apartments. The property management company has to decrease rental rates allowing the quantity supplied to decrease as well (University of Phoenix, 2012). Creating a downward movement of the supply curve. The price of rentals decreased to create less quantity that is available for rent creating an equilibrium and decrease in surplus. This is a hard decision to lower the price significantly but will continue to create revenue for the property management company while decreasing supply of vacancy. Microeconomics and macroeconomics concepts aide in the understanding on how they affect the shifts of supply and demand affect equilibrium price and quantity. Microeconomics focuses on supply and demand (Colander, 2010). A company would look at ways to increase production that could decrease their prices compared to competitors.
This would adjust the equilibrium price of products by increasing the quantity that is available. This would allow the company the ability to pass price savings to consumers. Macroeconomics is used as the economy changes such as with inflation (Colander, 2010). Inflation would cause a company to have increase cost of materials in producing their product. This creates a change in quantity to be provided as supply has to be adjusted to meet the decrease of demand due to the economy affects on equilibrium price. Using the simulation as a guide the price elasticity of demand is reviewed to determine the effects of pricing strategies. Demand can either decrease or increase based on price of a product or service (Colander, 2010). Consumers tend to buy products were there is a decrease in price (Colander, 2010). Companies have to initiate discounts to the consumers to increase demand. Pricing strategies for consumers are to buy when prices are low, while companies have to change prices to increase and decrease demand when needed.
In the simulation we saw the same effect from the property management company. When supply was low of apartments the company had to increase price to decrease demand. When supply was too high the company had to decrease price to increase demand. The price elasticity of demand is elastic in which it can be changed and in return have an immediate effect, however this can be negative for companies as to where price is not elastic. In summary the Supply and Demand simulation provided an understanding of many different concepts. The understanding of microeconomics and macroeconomics was obtained by using different scenarios in the simulation to complete. Microeconomics is the use of supply and demand on a smaller scale while macroeconomics focuses on the economy as a whole. The simulation also provided how price and quantity can affect supply and demand in an industry. After simulation was completed an individual will be able to use these concepts in their day to day lives.
Colander, D. C. (2010). Macroeconomics (8th ed.). Boston, MA: McGraw-Hill/Irwin.