Business / Supply And Demand Simulation

Supply And Demand Simulation

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Autor:  anton  19 March 2011
Tags:  Supply,  Demand,  Simulation
Words: 887   |   Pages: 4
Views: 451

Supply and Demand Simulation

The University of Phoenix online simulation entitled “Applying Supply and Demand Concepts” starts with the description of a fictional small town, Atlantis, and the rental market for two bedroom rental apartments. Below we will discuss the key points of supply and demand covered in the simulation, and by David Colander in the Book Economics, along with real world examples and results for the simulation.

In this simulation the reader is a property manager for GoodLife Management. Whose responsibly is maintaining economic equilibrium in the two bedroom rental market. Wikipedia states “economic equilibrium often refers to an equilibrium in a market that "clears": this is the case where a market for a product has attained the price where the amount supplied of a certain product equals the quantity demanded” (Wikipedia, 2005). Demand in this situation is controlled by population, price, and consumer preference. Supply is controlled by the number of apartments built by the company, the percent of vacant units, and the number of units the company decides to rent out. Throughout the nines years covered in the simulation population growth, customer sentiment, and price.

Key points that this simulation shows that are covered in Economics by are David Colander are that there is a cycle in business. “Phases of the business cycle include peak, trough, upturn, and downturn.” (Colander, 2004) This is seen in the simulation when Lintech Inc moves into Atlantis and creates a population boom. Also when the home ownership becomes a trend and lowers demand for the two bedroom apartments.

Another point covered in the text and the simulation is “We must estimate potential output by looking at past levels of potential output and by looking at where the price level begins to rise” (Colander, 2004). This can be seen in year three of the simulation were historical data is used to help set the rental rate to increase demand and achieve equilibrium in the system.

A third point covered in both is “Quantity theorists tend to favor a policy that relies on rules rather than on discretionary policy” (Colander, 2004) Throughout the simulation the reader creates rules by setting the number of available units and the monthly rental rate for those units. By setting these rules the reader, ensures the GoodLife Company the greatest possible revenue.

“Firms respond to demand and supply pressures in other ways than changing observed prices. If observed equilibrium prices and quantities don’t match your supply/ demand analysis, look at other dimensions of the market or for other forces that may affect price and quantity.” (Colander, 2004) Is the fourth point that is in common between the text and the simulation. The GoodLife Company responds to supply pressure by opening up more units. The policy of keeping extra units in reserve allows them to accomplish this.

These supply and demand concepts can be applied to my workplace, by applying the concepts to hours worked. I have a staff of four people 2 of which work approvals, issue resolution and order management for a particular product. That product is growing at a year over year rate of one hundred and fifty percent. The work that they do carries service level agreements with the sales force. Applying the amount of time that they spend working on each deal, the number of deals and the current growth rates shows that in the fourth quarter of this year the demand will out weigh the supply. At this point my team will no longer be able to meet the promised service level. Using the concepts of supply and demand has allowed me to build a strong business case that show my team needs to add head count within the next three months or the business will begin to suffer.

In year one the vacancy rate of five percent maximized the revenue for the company at 1.81 million. The rental rate to achieve this was nine hundred and fifty dollars. In year three a surplus was achieved by offering two thousand units at a monthly rate of one thousand fifty dollars. Year five the company maintained the zero vacancy, but increased the available units to two thousand three hundred and fifty units and a monthly rate of fourteen hundred dollars. Year seven sees a change in the market trends which leads the company to decrease the number of available units and lower the monthly rate to thirteen hundred in order to maintain profits. Year nine the government employs rent control and the GoodLife Company decreases supply to create a shortage situation and maintain the highest possible monthly rate.

The “Applying Supply and Demand Concepts” simulation shows some concepts for supply and demand, but seems rather simplistic in its models for almost every year of the simulation a zero percent vacancy rate is attained. In order have supply to keep the business growing a five to ten percent vacancy rate must be maintained. The simulation shows many good concepts and express equilibrium quite well, but seems flawed in it’s vacancy rates.

References

Economic equilibrium, Wikipedia, modified July 11th, 2005, retrieved from

http://en.wikipedia.org/wiki/Economic_equilibrium on September 10th, 2005

Colander, David, Economics (5th ed.) Irwin/McGraw-Hill, 2004 Burr Ridge, Illinois



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