Eco 365 Supply and Demand Essay

The supply and demand simulation shows different aspects of economic structures. Although mostly focused on microeconomics, the simulation does show a small role of macroeconomics. The principles of microeconomics would apply to drop in rent prices to increase the supply being demanded. Another microeconomic principle shown in the simulation is the rise in demand when the cost of rent is lowered. Macroeconomics principles came into play when the rise in demand for apartment was a direct product of the establishment of a new company in town. Same principles of microeconomics apply to an excess supply created by a price ceiling enforced by the government. Supply and Demand Shifts A shift in the demand curve was created when the new company brought an increase in population to Atlantis. A greater amount of people created a greater demand for the apartments. Equilibrium is reached in the demand shift by raising the price of rent to decrease demand. A supply shift was created when 400 apartments were converted into condominiums, which in turn caused a drop in supply. The equilibrium would be fixed by raising the cost to lower the demand because of a decrease in supply. Real World Application With the nutritional corporations expanding and health awareness on the rise prices of nutritional supplements are rising to meet the demand. Especially in local areas, there aren’t too many health and wellness shops that offer the best available supplements or expert advice, therefore the few local shops in town can raise the prices of their products because of high demand and low supply. Microeconomics: Supply/Demand Shifts A sudden increase in population can cause a demand shift which would either cause you to increase or decrease price reach equilibrium and maximize revenue. Supply shifts are caused by eliminating or adding supply to an economy to meet the choices of the population. Macroeconomics: Supply/Demand Shifts An increase in wages from neighboring business may cause a demand shift. This would cause a company to make changes to their prices to try to reach another target or meet the needs of the current target. A shift in supply because of macroeconomics can be caused by price ceilings or floors that would lead to a surplus or shortage of supply. Pricing Strategy Price elasticity of demand will always change the pricing strategy of a company so that they can maximize revenue, not demand. If a company figures they have low demand for their products they may lower the price so that more people become interested and vise-versa. The price elasticity is the equal to the percent change of quantity demand times the percent change in price. Price elasticity is used to figure the change in demand after a change in price (Colander, 2010). PEoD = (% Change in Quantity Demanded)/(% Change in Price) When the price of causes a change in the demand the formula will recognize that change and give you an indication of delicate that products demand is to a change in price. The higher the result equals higher sensitivity to price change (Moffatt, 2013). References Colander, D. C. (2010). Economics (8th ed.). New York, NY: McGraw-Hill. Moffatt, M. (2013). Price Elasticity of Demand. Retrieved from http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm