Simulation Featured a Number of Different Economic

¶ … simulation featured a number of different economic concepts. The first is the issue of the supply curve. Shifts in the supply curves occur as the result of changes in price, or also in changes in demand. When the price of a good in the market changes, firms are likely to increase production. When the price of a good in the market decreases, some firm are likely to reduce or eliminate production. Also, technological improvements can serve to increase supply by making firms in the industry more efficient.

There are also shifts in the demand curve. Such shifts occur when there is a change in the price or a change in the supply. There can also be external shocks such as recession that affect the amount of demand in the economy. When the price of a good drops, this typically will cause demand to increase. When the price of a good rises, this typically will cause demand to decrease. The extent of these increases and decreases will reflect the price elasticity of demand for the product, which is another microeconomic concept.

Both of these are microeconomic concepts, because deal with individual products and individual decision-making. These types of shifts will cause the market for the good to change, which will bring about a new equilibrium condition. The mechanics of this is fairly straightforward. If the price changes from the equilibrium point, both supply and demand will change. The effect of these changes is that both price and demand conditions are altered. Suppliers will respond either by increasing supply or decreasing it, and buyers will also do the same. For the new price, the equilibrium point will be higher or lower depending on the change in price, and the quantity in the economy will be different, as the result of the actions of the different market participants.

When demand for goods and services increases, that affects the macroeconomic environment. For example, GDP will increase. The individual decisions in microeconomics will translate to macroeconomic outcomes. Furthermore, we can see unemployment is affected as well. When the price of a product declines, this encourages more suppliers to get into the market. The result of this is that they must hire more workers. As they hire, that lowers the unemployment rate. It is known that when the economic is at equilibrium the unemployment rate is only around 3%.

Real World Learner

In terms of the real world, the simulation provided some insight. If we think about the market for bottled water we can see this in action. There are some brands that are differentiated, but for most brands there is no differentiation. As a result, consumers often make their purchase decision based on the price. If one brand lowers the price, then we can see that consumers will flock to that brand. Thus, demand increases. Other suppliers will either match that price or get out of the business if they cannot match that price profitably. The result will be that the new equilibrium price is reached. There will be more demand, because more people will think that bottled water has value to them, and there will be fewer suppliers because some will be forced to exit the business as they are no longer making enough money.

Concepts

The concepts of microeconomics provide excellent illustrative examples of the different factors that affect changes in supply and demand in an economy. The basic model is clear that the price and quantity settle into equilibrium when the demand and the supply are equal. There are any number of different factors that will cause a shift, and we can consider what they might be when we understand these basic microeconomic concepts. We know that things like price changes, the economic situation, and innovation will all affect the conditions of demand and supply in the market.