Supply and Demand Simulation Essay Example for Free

Supply and Demand Simulation Essay Supply and demand is the common sense principle which defines the generally observed relationship between demand, supply and prices: as demand increases the price goes up which attracts new suppliers who increase the supply bringing the price back to normal (Law of Supply and Demand, 2010). A surplus in the market exerts a downward pressure on price while a shortage in the market exerts an upward pressure on price. In the supply and demand simulation Goodlife has control of the apartment rental community is Atlantis. In the first year Goodlife wants to bring down the vacancy rate to about 15 percent while maximizing revenue. Goodlife must lower the cost of rent in order to lower the vacancy rate but they have to make sure they don’t lower it too much or they will decrease their revenue so they must find at what rental rate they will lower vacancy but no lose revenue. As the years go by several things affect the supply and demand of the Goodlife Company, population increase, individuals wanting long-term housing and a price ceiling. Shifts in supply and demand affect decision making by causing the company to look at how to get the greatest revenue with the changes. The supply and demand simulation went over several key points that were also part of our textbook reading such as total revenue and demand, individual and market demand, cross price elasticity and shifting supply and demand. Total revenue and demand is the ability for a company to tell whether the total revenue will go up or down when they raise or lower their prices (Colander, 2008). Individual and market demand refers to how individuals may stop buying a product due to a slight rise in cost, the market demand is influenced both by how many people drop out totally and by how much an existing consumer marginally changes his or her quantity demanded (Colander, 2008). Cross price elasticity of demand is when the price of a product goes up and it positively impacts the demand of another product. Shifting supply and demand is the ability of the company to shift supply to meet demand and maintain equilibrium. At Regence BlueCross BlueShield supply and demand affects the cost of premiums as well as the type of benefits available on plans. It is important in healthcare to figure out which benefits are sought after and what it will cost to cover those benefits, by slimming down on the benefits that are used less then they can provide benefits that individuals want at a lower cost than if they supply all benefits. One example of this is putting limitations of such benefits as chiropractic or physical therapy while increasing the benefits for preventive care. Price elasticity of demand affects the decision making of the consumer and of the organization by changing the amount of a product available as well as the price of the product. Consumers will switch products if they are unable to find the product easily or if the price is higher than a similar product. Organizations must continue to shift the supply and price of a product in order to stay competitive and still make revenue. In the simulation I learned how to maintain equilibrium with supply, demand and price while maintaining company revenue at the highest rate. Goodlife must keep changing the availability and price of the apartments in order to keep up with supply and demand and maintain revenue, one way they did this is by turning some of their apartments into condos this decreased the number of apartments available but brought in revenue in a different manner.