Supply And Demand Simulation Analysis

Supply and Demand Simulation
Timothy J. Vrabel
Axia College University of Phoenix

In the video, several principles and concepts of microeconomics and macroeconomics were simulated. In the simulated neighborhood of Atlantis, there are many amenities that customers demand. The simulation uses two bedroom apartments to teach the fundamentals of supply and demand. Several scenarios were used throughout the simulation to represent challenges with which management needed to contend. The scenarios showed how price can affect supply and demand while still being competitive within the market. Within the simulation, microeconomics are used. Microeconomics contends with smaller business sectors, while macroeconomics focuses on the entire economy (DifferenceBetween.net, n.d.). The simulation shows an example of microeconomics in the first scenario. Rental management within this scenario must calculate a rental rate for their two bedroom apartments that will decrease vacant units and increase revenue (University of Phoenix, 2012). This scenario relates to microeconomics because it aims toward supply and demand. The management team needed to decrease rental prices to decrease rental vacancy. Macroeconomics is represented in scenario two, which shows that the rental company has 2500 vacant
rental properties. When determining a rental price, the management team needs to factor in all rental costs. When factoring rental price, management needs to consider factors such as maintenance. Rental price needs to be high enough to cover this factor but not so high that demand decreases. Throughout the simulation, there are several examples of shifts in the demand and supply curve. By watching the simulation, one understands that there is a new company moving into Atlantis. This new company will bring an influx of new people within the community. This influx of new citizens will increase the demand of rental properties, shifting the demand curve to the right. The quantity that is demanded will be significantly higher than the current equilibrium. This will create a shortage in the apartments that are available. To maintain equilibrium, rental prices will increase to decrease demand, which in turn will allow the supply curve to move upward. This price increase is determined at the point where the demand curve and original supply curve meet. Management has determined to increase rental price to maximize revenue while at the same time decreasing surplus shortage. By increasing rental prices, the demand of apartments and the supply have met equilibrium within Atlantis. Another shift in the supply and demand curve is evident when a new rental company enters the community, renting detached homes rather than apartments. The demand of rental apartments decreased creating a surplus in supply. For equilibrium to occur in the apartment rental business, rental prices will need to be decreased to encourage citizens that two room apartments are more budget-friendly. With a lack of apartment tenants, the demand curve has shifted to the left. Rental management will need to decrease rental rates to increase the demand of apartments. Demand has also shifted to the left due to the lack of tenants. Decreased rental rates will allow the quantity of rentals to decrease also. This will create a downward movement to the supply curve. The supply company may not have wanted to lower their rental prices, but it is necessary to increase company revenue while decreasing rental vacancy (University of Phoenix, 2012). My company deals with the distribution of coal by barge on the rivers of Pittsburgh. The demand of the transportation of barges is always a factor, but companies need to compete to win these contracts. Teams within these companies need to factor in everything from the cost of fuel to expected weather conditions. Thinking in macroeconomics, the whole of the situation and economy, these companies can determine exactly what it will cost to move the product. By factoring in every possible scenario, a practical cost can be calculated. Microeconomics and macroeconomics are concepts used to help understand how shifts in supply and demand affect equilibrium in quantity and price (DifferenceBetween.net, n.d.). Companies look at ways to increase productivity so that the company can decrease prices below their competitors’ rates. Increasing the quantity that is available will adjust equilibrium price. This allows these companies to pass their savings over to the customer. Macroeconomics deals with the economy and events such as inflation. Inflation would cause the price of materials that are used to create products to increase. The new equilibrium price will then be passed onto the consumer. A decrease in demand of a product may occur due to increased customer prices, resulting in a surplus of company wares. Price elasticity of demand is reviewed in the simulation to show effects in pricing strategy.
Demand will either decrease or increase depending on the price of the product or service. Consumers tend to buy when prices are low, so companies will need to increase and decrease price according to demand. The simulation provided an example of price elasticity of demand; when the rental company’s supply was low, they raised they rental prices to lower demand. When the company had a surplus of vacant apartments, they lowered their price to encourage demand. Price elasticity of demand is elastic, so companies can use it for the immediate results they are trying to
achieve. The supply and demand simulation has taught me many concepts. The differences and similarities of microeconomics and macroeconomics were taught through different scenarios. I also learned how price and quantity can affect the supply and demand of an industry.

References
DifferenceBetween.net. (n.d.). Difference Between Microeconomics and Macroeconomics. Retrieved from http://www.differencebetween.net/business/difference-between-microeconomics-and-macroeconomics/
University of Phoenix, (2012). Supply and Demand Simulation. Retrieved March 10, 2012 from: www.ecampus.phoenix.edu