Supply and Demand Simulation

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1. The simulation illustrates a number of different economic concepts. The relationship between supply, demand and price is highlighted. The simulation shows what happens under normal conditions when the price of a good changes. For example, when the price increased the supply of the good increased but the demand fell. As a result, the market was no longer in a state of equilibrium (Riley, 2012). Thus, the concept of supply-demand equilibrium was identified. This is a microeconomic concept, following from the definition of microeconomics as the study of economics relating to individual decision-making (NetMBA, 2010). The simulation, when discussing the issue of supply, price and demand also touched on the issue of price elasticity of demand. The price elasticity of demand for a product determines by how much the demand for the product drops when the price increases or gains when the price decreases. This statistic the elasticity is different for all types of goods and it can change as the price changes even. For example, we learn that discretionary purchases tend to have a higher price elasticity of demand than non-discretionary goods. For goods that have a combination of these attributes, elasticity can change. Gasoline is a good example some driving we need to do, but some driving is optional. If the price of gas goes up too high, we might cancel the road trip, but we will still drive to work. Price elasticity of demand can help understand these types of dynamics for

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