Economics the Supply and Demand Simulation Featured

Economics

The supply and demand simulation featured a number of different economic prniciples at work. In terms of microeconomic principles, two that were featured prominently was the relationship between supply and demand. The impact of these two variables on the price and availability of apartments in Atlantis was at the core of the simulation. Another was price elasticity of demand. There were also some macroeconomic principles outlined, as they affect supply and demand. One was the overall population, its growth and demographic change. These factors all contribute to the supply and demand characteristics of the Atlantis rental housing market. Another macroeconomic concept that came into play was the concept of equilibrium and the effects of price ceilings on both supply and demand.

External factors cause the supply and demand curves to shift. The supply curve is shifted, for example, if there is new supply in the market. A new building would increase the supply and that would have the supply curve to shift, and the market would need to find a new equilibrium point. The demand curve shifts with factors like population growth. If Atlantis becomes a popular place to live, the demand curve is going to shift in order to reflect the extra people who want to find housing there.

Each shift has effects on the equilibrium price, the quantity and the way that people make their decisions. For example, a shift outward in the supply curve means that there is more supply on the market. If demand has remained the same, the equilibrium price will need to drop. As this happens, more renters are enticed to enter the market because the price is lower, but by the same token the lower price might flush a few suppliers out of the market. The result is that there will be a new equilibrium of supply, demand and price for the market. The same thing occurs when the population increases. The new population creates an outward shift in the demand curve. This will drive up the prices, and encourage more sellers into the market. Through this process a new equilibrium point will be set.

I have learned from this exercise a fair bit about supply and demand. I think of a real world product like smartphones as a good example of how this concept works. There used to be such Blackberry and Palm, and the demand was relatively low and the prices relatively high. Apple came out with the iPhone and that caused a major shift in the demand curve but only a minor shift in the supply curve. So many people wanted one of these phones, and the prices across the industry remained high. Then, Android phones came onto the market and there were a lot of different types. The demand for the phones was still very high, but supply was increasing to match demand. Some producers began to cut prices in order to entice buyers. Some premium producers did not cut prices, but overall the average price of smartphone decreased. Consumers became more price sensitivie, and the lower prices enticed more people to want to have a smartphone, so that now just about everybody does. The supply and demand characteristics of the industry changed several times in the past few years and the result is that there has been a change in the equilibrium price points as well.

I think that the concepts of microeconomics speak directly to demand, supply, and price in a marketplace. The simulation provided a fairly good illustration of how each different factor influences the equilibrium point. When you understand how each factor affects equilbiruim, and how the different factors affect each other, you get a better sense of how things are priced in the market.