Applying Supply and Demand Concepts Essay
Applying Supply and Demand Concepts
The supply and demand simulation was a very helpful tool in understanding the effects of external factors on the supply and demand curves. Understanding this concept is fundamental in preparing for real life situations. I personally enjoyed the fact that the simulation was based on a real estate management company. I was able to understand and relate to the information given. There are a series of questions that will be answered and the topic of this paper will cover different concepts of micro and macroeconomics including; shifts in the supply and demand curves and its effect on the equilibrium price, quantity, and decision making.
I will explain my understanding and applications of these concepts to my workplace. Finally, it will cover how the price elasticity of demand affects a consumer’s purchasing and the firm’s pricing strategy Identify two microeconomics and two macroeconomics principles or concepts from the simulation. Explain why you have categorized these principles or concepts as macroeconomic or microeconomic. The concepts of supply and demand, as well as, scarcity are two examples of microeconomics that can be seen from the simulation.
I have decided to categorize these as such because these concepts will have a direct effect on the personal decisions that the consumers will have. The increase of jobs and population in the simulation has contributed to the scarcity of available housing as well as the shifts in the demand and supply curves. Now, if I were to expand my consideration into macroeconomic, the broader events that have taken place in the simulation would be the governmental restrictions on the rental price and the economic growth.
These external factors exhibit a greater amount of influence on the population as a whole compared the microeconomic concepts discussed earlier. Identify at least one shift of the supply curve and one shift of the demand curve in the simulation. What causes the shifts? A shift in the supply curve comes as the population’s income increase due to the incoming of newer jobs. The supply curve decreases and shifts to the left because renters prefer a detached rental over an apartment complex. The demand curve will shift when the population increases. This shift in demand has occurred because the influx of other companies to the area.
The added population creates a shortage of apartments and the demand curve shifts to the right. * * For each shift, analyze how it would affect the equilibrium price, quantity, and decision * making. * Analyzing the demand curve, if the supply curve is constant, a shift to the left will decrease the equilibrium price as well as increase the quantity demanded. The inverse effect will happen if there were to be a shift to the right of the demand curve. The effects on the supply curve, if the demand curve is constant, would have the inverse affect. A shift to the left would increase the equilibrium price and decrease the quantity demanded.
As the price increases the demand will decrease no matter what combination of shifts that may occur. * * How may you apply what you learned about supply and demand from the simulation to * Your workplace or your understanding of a real-world product with which you are * familiar? * An applicable application of supply and demand would be the efforts to maximize profits while maintaining a higher level of quantity demanded for our switchgear. The products that we manufacture must retain a certain price point so that our organization continues to operate in the green as well as hold a competitive advantage over our competitors.
There has to be a balance, we could easily increase the sale price of our equipment but then we would lose some of our customer base. * * How do the concepts of microeconomics help you understand the factors that affect shifts * in supply and demand on the equilibrium price and quantity? * Supply and demand is based on a certain level of market competition. The shifts of these curves are an attempt to find a common ground between businesses and their consumers. They strive to find a price to which the consumers would be willing to spend their money and at a level of which the company would be willing to sell their products.
Once this level is reached equilibrium of price and quantity demanded is created and they no longer push against each other, both parties are happy. * * How do the concepts of macroeconomics help you understand the factors that affect shifts * in supply and demand on the equilibrium price and quantity? * The concepts of macroeconomics help me understand that there are external factors that will affect the end users. For an example, in the simulation, the consumer’s decision making process will be altered based on the property management’s decision to convert some of their apartments to condos.
Also, the increase in population and the government mandates will have the effects as well. * * * * Relating to the simulation, explain how the price elasticity of demand affects a consumer’s * purchasing and the firm’s pricing strategy. According to the text, “price elasticity is the percentage change in quantity divided by the percentage change in price. (Colander, 2010)” Basically, what this aims to define is the responsiveness of their consumers to price change. This calculation helps Good Life predict the change in demand based on the changes that they make in the price.
The firm’s pricing strategy will be based on the ability to cover costs and maximize profits. If there is an external factor that changes the costs, the real estate firm will need to adjust proportionally to the change. This simulation has been a great exercise in understanding supply and demand. Being able to manipulate the shifts is a great way to understand how the different external factors will change the pricing strategy of a firm. This effective visual tool also helps in the forecasting abilities of a company to reach higher profits and maintain their customer base.