Supply and Demand Simulation

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Supply and Demand Simulation � PAGE * MERGEFORMAT �1�

Supply and Demand Simulation

University of Phoenix

ECO/365: Principles of Microeconomics

October 26, 2009



Supply and Demand Simulation

IN THE UNIVERSITY OF PHOENIX SIMULATION (2003), APPLYING SUPPLY AND DEMAND CONCEPTS, A SITUATION IS PRESENTED CONCERNING THE SUPPLY AND DEMAND OF TWO-BEDROOM RENTAL APARTMENTS IN ATLANTIS. THROUGHOUT THE SIMULATION SCENARIOS ARE PRESENTED AND CHOICES MUST BE MADE REGARDING "FACTORS THAT AFFECT DEMAND AND SUPPLY, AND THEREFORE, EQUILIBRIUM" (UNIVERSITY OF PHOENIX, 2003, PARA. 5).

CAUSE OF CHANGES

The changes in supply and demand in the simulation are caused by different factors throughout the simulation. The causes included changes in vacancy rates, low rental rates in neighboring towns, imbalances between quantity demanded and quantity supplied at current rental rates, changes in population, personal incomes, affordability of apartments, and price ceiling.

Effects of Shifts in Decision Making

Determining whether the shift affected supply or demand, then if the supply or demand were decreased or increased, and if the shifts were to the left or right had to be taken into consideration before decisions could be made. A supply shift to the right indicated a decrease in the rental rate was necessary, whereas a supply shift to the left indicated an increase in the rental rate was necessary to reestablish equilibrium. A demand shift to the right indicated an increase in the rental rate was necessary, while a demand shift to the left indicated a decrease in the rental rate was necessary to reestablish equilibrium.

Key Points of Reading Assignment

Four key points from the reading assignments that were emphasized in the simulation were supply and demand, equilibrium, shifts in supply and demand, and price ceiling. The supply curve is upward sloping because the quantity supplied increases as the price increases; price and quantity supplied are directly related. The demand curve is downward sloping because the as price increases, demand decreases; price and quantity demanded are inversely related. Equilibrium is the point where quantity demanded equals the quantity supplied. Prices above equilibrium create a surplus, whereas prices below equilibrium create a shortage in the market. Shifts in supply and demand are caused by various factors such as increasing population or a change in income can cause the supply and demand curves to shift. Price ceilings restrict market forces from establishing equilibrium. Price ceilings above equilibrium create a surplus, whereas price ceilings below equilibrium create a shortage in supply.

Application of Concepts

The concepts learned from the simulation can be applied in any workplace, including in the management of home and family. Knowing how different factors can affect the supply, demand, and price of goods can help in planning and budgeting for purchases. When items are in high demand prices will increase, such as home prices rising when the population increases due to a military base expanding. If planning a home purchase with knowledge of the aforementioned factors, researching and purchasing before the prices rise would be a wise decision. Knowledge of these concepts also aids in understanding why the pricing and amount of goods or services are as they are.

Price Elasticity of Demand

Price elasticity of demand affects the decision making of consumers in purchasing goods and organizations in determining prices. Price elasticity is "the percentage change in quantity demanded divided by the percentage change in price" (Colander, 2008, p. 128). Organizations use price elasticity of demand to determine "how quantity responds to a change in price" (Colander, 2008, p. 129). If demand is elastic, the quantity demanded will decrease as the price increases, and consumers are likely to purchase substitute goods in place of the original good. Some items are inelastic...
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