Supply And Demand Simulation Economics Essay

862 word (3 pages) essay in Economics

5/12/16 Economics Reference this

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Factors such as increase or decrease in price, cause changes in supply and demand. An incremental decrease in the rental price is the main reason for the huge increase in the demand for houses.Also an rise in the rental price of two roomed apartments caused a decrease in the demand of houses by a significant margin. Suppliers were willing to supply more houses at higher prices and fewer ones at reduced price (McDowell et al., 2006).

An increase in the population of Atlantis led to a greater demand for housing which in turn made the reason for the increase in rental prices as demand-outstripped supply. As a result, the suppliers were ready to supply more units at higher rental prices. When the population reduced, the demand for housing fell and the available units were leased out at very low rents. Naturally, the suppliers were not much interested to supply all the houses to the market at reduced prices.

Available alternatives affect the demand and supply of a commodity. Many people in Atlantis owned their homes in the suburbs and they did not need to rent houses in the town. The demand for houses dropped and this forced the suppliers to reduce rent to attract more clients.

Similarly, consumer view and preferences affect the supply and demand of goods and business in the market (McDowell et al., 2006). When consumer trends changed from two roomed apartments to detached houses, the shift in demand for apartments fell and at the same time the demand for detached houses rose. According to this, suppliers increased the supply of detached houses.

Under free market conditions, a reverse shift in demand results in lower quantities demanded and as a result, suppliers are inclined to reduce supply. A positive shift in demand leads to a rise in houses demanded and a positive shift in supply as suppliers position themselves to take benefit of higher prices (Griffiths & Stuart, 2000). A supplier will supply less quantity to the market in a bid to push up prices when demand increases when the price is less. With an increase in demand, a supplier would supply more units to the market so that he can make more benefits by charging higher prices.

Four key points that were discussed in the simulation are:

The equilibrium price and quantity

Shifts in demand

Shifts in supply

Changes in price (McDowell et al., 2006)

The concepts of demand and supply, as demonstrated in the simulation, teach one how to react to changes due to changes in market fundamentals. Whenever there is a shift in demand due to any of the factors affecting it, an entrepreneur should respond immediately and appropriately to maintain one’s share of the market. This may include reducyion of the price and a reduction in the amount of units supplied. In the event that demand increases, the supplier should rise supply to realize higher profits from increased sales at higher prices. When government authorities charge price restrictions, a supplier should only supply that number of units that correspond to the restricted price as per the intersection of the demand and supply curves.

Competition from other alternatives should be contained by lowering the price of the goods and commodities sold. This will encourage consumers to select the cheaper commodity as opposed to the substitutes in the market. The same method can be applied in situations where consumer tastes and preferences change in favor of a rival product. It should be noted that there is a minimum below which charges cannot be reduced due to overheads and incidental costs like repair and maintenance. In other cases, it may be better for the firm to invest in products that the consumers prefer rather than engage in expensive price wars (Griffiths & Stuart, 2000).

The price elasticity of demand for goods and commodities determine the consumer’s response in the event of a price change. Products which are price elastic, experience huge movements in demand in response to changes in price(Chrystal & Lipsey, 1997). If the price is reduced, consumers will ask for a lot more of the commodity; however, if the price rises, consumers will demand significantly less amounts of the commodity. Suppliers that supply goods, which are price elastic, will deliver lesser units to the market when the price falls, and more if the price increases.

According to my results of the simulation, I select to have a vacancy rate of 12 % that created total revenues of $ 1.8 million. Faced with increasing or decreasing demand, I opted for those rents that maintained the equilibrium price as determined by the intersection of the demand and supply curves. With the imposition of a price ceiling, I opt for the amount supplied that equaled that quantity determined by the intersection of the supply and demand curves at the predetermined rates. The underlying criteria I adopted for deciding on a particular rate was the concept of equilibrium; I decided that the market forces of demand and supply are the best determinants of what is good for both producers and consumers.

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