Supply and Demand Simulation

Supply and Demand Simulation

This week's simulation is based on GoodLife Management. GoodLife Management is located in the fictitious town of Atlantis, and rents two-bedroom apartments on a month-to-month basis. The simulation provided working examples of several factors that effectively change the supply and demand of GoodLife's rentals over the course of several years. These factors include GoodLife's management direction, population changes within Atlantis and outlying areas, changes in consumer's preferences and the implementation of price ceilings. Through the course of the simulation, several key points were addressed, they are: 1) demand and supply, 2) equilibrium, 3) shifts in demand and supply and 4) the potential effects of price ceilings. This paper will provide an overview of the four key points.

Four Key Points

1. Demand and Supply Curves

According to the simulation, a demand curve is downward sloping. According to our text, a demand curve illustrates how a "change in the price level will change aggregate expenditures on all goods and services in an economy" (Colander, 2004). As it applies to the simulation, as the price decreased, demand increased. The supply curve, on the other hand, is upward sloping. The quantity of two-bedroom apartments increased as the price increased.

2. Equilibrium

Colander defines equilibrium as "a concept in which opposing dynamic forces cancel each other out." He goes on to state that the "equilibrium price is the price toward which the invisible hand drives the market." Simply stated, equilibrium can be defined as the point at which quantity demanded exactly meets the supply available. Therefore, no shortage of surplus would exist once equilibrium is met. If prices are below the equilibrium point, then the quantity demanded will exceed the quantity supplied which will lead to shortages. When this happens, prices rise to in order to increase supply until equilibrium is attained. The inverse is true as well.

3. Shifts in Demand and Supply

In the case of Atlantis based GoodLife Management Co., shifts in supply and demand were caused by several different factors as illustrated above. They included: 1) GoodLife's management direction, 2) population changes within Atlantis and outlying areas, 3) changes in consumer's preferences, and 4) the implementation of price ceilings. A change in the supply and demand of two-bedroom apartments was demonstrated as either shifts upward or downward, or to the right or left on the supply and demand curve- dependent

upon the circumstances.

4. The Potential Effects of Price Ceilings

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