Simulation There Are a Number

Simulation there are a number of factors that affect supply and demand. Price is one determinant of demand. The supply is determined by the price and the demand in the market. The different strategic objectives could also have an impact -- for example an early question asks about the price that would be needed to achieve a vacancy rate of zero. For the most part, however, the objective is going to be to maximize profit.

One of the demand drivers that is identified is the population. When the population of Atlantis increases, the total potential market for rentals increases, and with that demand also increases. A demand increase will affect the price of the apartments, if the supply of apartments remains unchanged. The effect that population increases have on the demand for apartments is not steady. There is a chart that shows the change in demand has a relatively low correlation, but a significant one nevertheless, with the change in population. For example when the population increased by 1.5%, demand increased 0.5%.

Some of the other factors identified include the desire for a product. For any given product, consumers will want it based on the role that the product plays in their lives, and the substitutes that might be available for the product. An unimportant product with multiple substitutes will not be subject to the same elasticity as an important product with few substitutes will have (for example gasoline). In this example, detached houses come into vogue, and that is a substitute. The popularity of the neighborhood is a factor in this simulation, and is traditionally a factor in real estate pricing.

b. Where the demand curve and the supply curve meet, there is an equilibrium point at a given price. When the factors that affect demand and supply change, the quantity provided by the market will change and so too will the price. For example, if the demand increases, it takes time to build new apartments. While that is happening, there will be a shortage. If there is a shortage, the price will rise and renters compete for properties by offering more. As the price rises, however, demand will fall. Thus, the market will find a new equilibrium point.

c. There were a number of points from the readings that were emphasized in the simulation -- rent, profit, interest, and the cost of conducting business. The apartment management company prices to cover costs. However, if there is scarcity in the market, the company can earn superior rents, leading to higher profit. The interest is related to the cost of doing business, if the landlord has leveraged in order to acquire the property.

d. In my workplace, supply and demand work much the same as in the simulation, albeit with different demand and supplier drivers. We see our markets fluctuate, and prices respond. If something is not popular, we must discount it in order to sell it. I have to think that if a product is very popular or scarce, we could increase the price, although we usually do not. The principles covered in the simulation are seen in my workplace every day. In the medical imaging business, prices are stable day over day, but in the long run these changes do take place. Products that are not that popular -- and therefore are not that profitable -- stop being produced. Thus, supply declines. If there is a new innovation, we will adopt it too, thereby increasing supply.