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Supply And Demand Simulation Essay

1271 words - 6 pages

Supply and Demand Simulation PAGE \* MERGEFORMAT 1
Supply and Demand SimulationUniversity of PhoenixECO/365: Principles of MicroeconomicsOctober 26, 2009Supply and Demand SimulationIn 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 ChangesThe changes in supply and demand in the simulation are caused by different factors throughout the simulation. The causes ...view middle of the document...

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 ConceptsThe 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 DemandPrice 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 because substitutes are not available. Organizations must take into consideration the different price elasticity factors when considering changing its prices because it could have an adverse effect on revenue.Summary of ResultsScenario OneIn the first scenario the monthly rental rate needed to be determined to reduce the vacancy rate to about 15%, while maximizing profits. The change in the demand was due to the rental rate; lowering the rental rate to $950 increased the quantity demanded to 1900 with a surplus of 100, and maximized profits to $1.81 million.Scenario TwoIn the second...

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