Supply and Demand Simulation
The GoodLife Management supply and demand simulation is based on the management of 2500 two-bedroom condominium apartments in a fictitious town named Atlantis. According to the simulation they are the only management firm in Atlantis and have a monopoly in the market. The simulation shows the issues the management deals with and gives the opportunity to see how the right or wrong decisions can affect the outcome of those decisions. What causes the changes in supply and demand?
GoodLife Management wants to drop their vacancy rate to 15%, in order to change the demand they know they will have to lower the rental rate it will then change the supply and increase the quantity demand. The changes in the simulation that affect supply and demand are driven by the availability of the rental apartments, the demand for the rentals, price of the rentals, and the number of available renters. They can also be caused by changes in population, consumer preferences, and price ceilings.
As the price of the rentals decreases it causes an increase in the demand, the opposite would have occurred if the prices would have been above the equilibrium. How do shifts in supply and demand affect decision making? The
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To maintain the balance of quantity demanded and the quantity supplied, GoodLife would need to raise the prices. The Four Key Points Within the simulation there are four key points •Supply and Demand •Equilibrium •Shifts in Supply and Demand •Price Ceilings Definitions of the Key Points Supply and demand Supply and demand is perhaps one of the most fundamental concepts of economics, and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers.
The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship.
Price, therefore, is a reflection of supply and demand. Equilibrium According to Basic Economics; “Equilibrium is defined as the intersection of supply and demand curves. The equilibrium price is the price where the quantity demanded matches the quantity supplied. The equilibrium quantity is the quantity where price has adjusted so that QD = QS. At the equilibrium price, the quantity that buyers are willing to purchase exactly equals the quantity the producers are willing to sell.
Actions of buyers and sellers naturally tend to move a market towards the equilibrium” (Basic Economics, 2011, para 1). Shifts in the supply and demand A shift in a demand or supply curve occurs when a good’s quantity demanded or supplied changes even though price remains the same. Shifts in the demand curve imply that the original demand relationship has changed, meaning that quantity demand is affected by a factor other than price. A shift in the demand relationship would occur if, for instance, beer suddenly became the only type of alcohol available for consumption.
Within the simulation of GoodLife Management the shifts in supply and demand were caused by several different factors GoodLife’s management direction, population changes, changes in consumer’s preferences, and price ceilings. A change in the supply and demand of two-bedroom apartments was demonstrated as either shifts upward or downward on the supply and demand curve- dependent on the time of the happenings. Price ceilings Economics Fundamental Finance explains “A price ceiling occurs when the government puts a legal limit on how high the price of a product can be.
In order for a price ceiling to be effective, it must be set below the natural market equilibrium. When a price ceiling is set, a shortage occurs. For the price that the ceiling is set at, there is more demand than there is at the equilibrium price” (Economics Fundamental Finance, 2011, para 1). Price ceilings can have good or bad effects on supply and demand. In the simulation the price ceiling was below equilibrium and caused shortages of apartments. Summarize results of the assessment
The results of the simulation said Good construction and it was a little tricky. The results concluded that the appropriate steps to reduce the vacancy rate were taken but did not maximize the revenue. It was a pleasant learning experience and showed the different outcomes to the decisions made by the managers and what happens when prices are reduced, to how they affect the demand for that product or service. Conclusion The simulation is based on supply and demand and the different factors that can affect it.
At GoodLife Management the prices were below equilibrium, the quantity of apartments demanded exceeded the quantity available and caused a shortage in the number of available apartments, it then caused the prices of the rental apartment to increase. The simulation provided a working environment that helped me to understand the basis of supply and demand. The simulation was based on the management side of supply and demand and showed the shifts in supply and demand that can occur. It also showed how equilibrium is met and how price ceilings and other factors can affect it.