Looking towards macroeconomics, two principles/concepts that are evident in the simulation are aggregate supply and demand and how policies can effect economics on the macro level. Aggregate supply and demand involve the connection between prices and the level of output provided by a firm (positive relationship for aggregate supply, negative for aggregate demand) (Aggregate Demand, 2015). In this case, it can be connected to supply and demand. As prices rise, you have a need to raise your level of production in order to meet the increased level of demand, which is the positive side of the aggregate concept (and vice versa for aggregate supply) (Aggregate Demand, 2015).
Although policies is a broad subject to cover for the simulation, its effect is evident when looking at macroeconomics. A policy can be put into place to stabilize a shaky economy, and its effects can be felt on the macro level (as it effects the entire economy) (The Five Fundamental Principles of Macroeconomics, 2015). A policy can have a particular effect on the price ceiling (or the price floor) as was evident in certain policies surrounding the price of meat during the great depression.
Microeconomic Principles/Concepts
Two principles/concepts that can be applied to the simulation is the exploitation of opportunities and that a market is always moving towards the equilibrium. The exploitation of opportunities is evident in the simulation when looking at supply and demand. Demand can be increased when people change their behaviors and patterns (usually through some sort of incentive, usually monetary), and this is related to people exploiting opportunities to better their situations (an example would be ethanol production. Demand is increased for the corn, so people need to meet the supply in order to exploit the opportunity to reap the benefits of the higher prices paid for the corn) (Econ 101: Principles of Microeconomics, 2010).
The principle that the market is always moving towards the equilibrium is evident in the simulation. Equilibrium is met when supply and demand meet on the curve. In this case, equilibrium is always shifting as people exploit opportunities to gain incentives (Econ 101: Principles of Microeconomics, 2010). Although it would be nice if equilibrium was constant, it never is (as the overall economy of a population is changing (more money might mean more of a demand for yacht, or less money might mean more of a demand for welfare)).
Shift of the Supply Curve, Shift of the Demand Curve
A shift of the supply curve was caused (in regards to the apartments) by a change in the preference for housing (shifted to the right). This will decrease the equilibrium price. Quantity will also increase (more available). Supply can fall as a marketing advantage (think of when they sold only a few Xbox 360s when they came out, this was a marketing ploy).
A shift to the left with the demand curve (in regards to the apartments) was caused by a decrease in the level of supply wanted (in this case, the market changed, and people didn’t want to rent the apartments as badly, the demand fell). Quantity sold will also decrease at the given equilibrium price, and equilibrium price will have to decrease in order to reach equilibrium again.
All of the concepts on macro and microeconomics has a play into the understanding of the way supply and demand curves shift (both to the left and to the right). You can see how preferences can affect the demand (it will decrease the demand, and therefore equilibrium quantity and price will fall) and how a change in the supply required (such as a shift in the supply curve to the left) will increase the price and decrease the quantity available.
These principles and concepts will lead to a better understanding of why some companies employ certain tactics when selling a product. Take for example, the sale of Xbox 360s when they were first launched. Demand was high, so Microsoft did not supply as many Xbox 360s. People were willing to pay extravagant costs in order to secure some of the first Xbox 360s. This was a way to take advantage of the situation (the incentive was there to limit the supply of Xbox 360s, Microsoft could charge more for the product).
You can also see the way price elasticity of demand works (such as with an elastic product, such as caviar, or an inelastic product, such as water).
- Aggregate Demand. (2015). Retrieved from econlib.org: http://www.econlib.org/library/Topics/HighSchool/AggregateDemand.html
- Econ 101: Principles of Microeconomics. (2010). Retrieved from iastate.edu: http://www2.econ.iastate.edu/classes/econ101/herriges/Lectures10/Chapter%201H%20-%20First%20Principles.pdf
- The Five Fundamental Principles of Macroeconomics. (2015). Retrieved from uga.edu: http://people.terry.uga.edu/last/classes/2105h/overheads/overheads2.pdf
