Eco360 Supply Demand Simulation
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- Category: Politics: Economics
- Date Submitted: 08/22/2011 09:21 PM
- Pages: 4
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Supply and Demand Simulation
Objective
The Supply and demand simulation is designed to apply real world business concepts to gain a better understanding of how a company analyzes supply and demand to optimize decision making. The simulation sample industry of rental property management can be used as a learning tool to identify the causes that change aggregate supply (AS) and aggregate demand (AD) and the shifts in supply and demand that impact surplus, shortages, and revenue. The primary goals are to maximize revenue and reduce vacancies through cause analysis followed by adjusting rental rates accordingly to compensate for shifts in the market (TATA, n.d.).
Changes in AS/AD
The aggregate supply (AS) is the economy’s gross production of goods and services to meet the total aggregate demand (AD), or the demand for final goods and services during a specific period. Economic changes frequently occur and determine whether to increase or decrease rental rates during a short-run cycle. For instance, a population increase will increase demand therefore presenting an opportunity to increase rental rates. Consequently, changes in preferences toward purchasing homes versus renting will decrease the demand. As identified in the simulation, the equilibrium will also change as the AD curve shifts. Rental price adjustments are then necessary to eliminate any potential surplus or shortage unless feasible to maximize profits with a marginal vacancy level.
Shifts in Supply and Demand
Shifts in supply and demand must be carefully monitored to avoid a surplus or shortage situation. A surplus of rentals will drive down rates, whereas, a shortage of rentals may induce an increase in price. The optimal decision is to ensure capacity demands and price per rental unit achieve equilibrium. Applying decision making toward addressing the shifts required forecasting statistics and surveys to predict the direction of change. For example, if the demand increases and supply...
Objective
The Supply and demand simulation is designed to apply real world business concepts to gain a better understanding of how a company analyzes supply and demand to optimize decision making. The simulation sample industry of rental property management can be used as a learning tool to identify the causes that change aggregate supply (AS) and aggregate demand (AD) and the shifts in supply and demand that impact surplus, shortages, and revenue. The primary goals are to maximize revenue and reduce vacancies through cause analysis followed by adjusting rental rates accordingly to compensate for shifts in the market (TATA, n.d.).
Changes in AS/AD
The aggregate supply (AS) is the economy’s gross production of goods and services to meet the total aggregate demand (AD), or the demand for final goods and services during a specific period. Economic changes frequently occur and determine whether to increase or decrease rental rates during a short-run cycle. For instance, a population increase will increase demand therefore presenting an opportunity to increase rental rates. Consequently, changes in preferences toward purchasing homes versus renting will decrease the demand. As identified in the simulation, the equilibrium will also change as the AD curve shifts. Rental price adjustments are then necessary to eliminate any potential surplus or shortage unless feasible to maximize profits with a marginal vacancy level.
Shifts in Supply and Demand
Shifts in supply and demand must be carefully monitored to avoid a surplus or shortage situation. A surplus of rentals will drive down rates, whereas, a shortage of rentals may induce an increase in price. The optimal decision is to ensure capacity demands and price per rental unit achieve equilibrium. Applying decision making toward addressing the shifts required forecasting statistics and surveys to predict the direction of change. For example, if the demand increases and supply...