Supply and Demand Simulation
Supply and Demand Simulation
Supply and demand is considered a basic economic concept, as well as a vital part of a free market economy. In whereas supply is the amount of something, such as a product or service, demand is the amount of the product or service that buyers want to purchase. The relationship between supply and demand has a good deal of influence on the price of goods and services. In the scenario, a number of factors, including price increases or decreases, cause change in supply and demand. For example, a decrease in the rental price of two roomed apartments caused an increase in the demand of houses by a significant margin. A rise in the population of Atlantis led to a greater demand for housing which in turn contributed to the rise in rental prices as demand-outstripped supply. As a consequence, the suppliers were eager to supply more units at improved rental prices. When the population decreased, the demand for housing fell and the available units were leased out at low prices. Naturally, the suppliers were not very keen to supply all their units to the market at depressed prices.
Available substitutes affect the demand and supply of a commodity. A number of people in Atlantis owned homes in the suburbs and did not need to rent houses in the town. The demand for houses dropped and this forced the suppliers to cut back on supply or reduce rents in bid to attract more clients. Consumer tastes and preferences affect the supply and demand of goods and services in the market When consumer trends shifted from two roomed apartments to detached houses, the shift in demand for apartments fell while the demand for detached houses rose. As a result, suppliers increased the supply of detached houses. Under free market conditions, a negative shift in demand results in lower quantities demanded and as such, suppliers are inclined to reduce supply. A positive shift in demand leads to a rise in quantities demanded and a positive shift in supply as supplier’s position themselves to take advantage of higher prices.
As a supplier, the lower the price, the less I will supply to the market in a bid to push up prices when demand increases. With a rise in demand, supplying more units to the market would make more profits by charging higher rents. The simulation focused on the following key points: The equilibrium price and quantity, Shifts in demand, Shifts in supply, and Changes in price. The concepts of demand and supply, as demonstrated in the simulation, instruct one how to respond to changes due to shifts in market fundamentals. Whenever there is a change in demand due to any of the factors affecting it, an entrepreneur should be quick to respond appropriately to maintain one’s share of the market. This may involve lowering of the price and a reduction in the number of units supplied. In the event that demand rises, the supplier should increase supply to realize higher profits from increased sales at higher prices.
When government authorities impose price restrictions, a supplier should only supply that number of units that correspond to the restricted price as determined by the intersection of the demand and supply curves. In regards to my results of the simulation, my vacancy rate was constant 12 % that generated total revenues of $ 1.8 million. Battling the rise and demand, I opted for those rents that equaled the equilibrium price as determined by the intersection of the demand and supply curves. With the imposition of a price ceiling, I chose the quantity supplied that equaled that quantity determined by the intersection of the supply and demand curves at the predetermined price. The underlying criteria I adopted for deciding on a particular price was the concept of equilibrium; I decided that the market forces of demand and supply are the best determinants of what is optimal for both producers and consumers.
Subject: Supply and demand,
University/College: University of Chicago
Type of paper: Thesis/Dissertation Chapter
Date: 23 October 2016
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