Supply and Demand Simulation Term Paper

Supply and Demand Simulation

There are several factors that may affect the demand and supply curves and shift them to the right or to the left accordingly, with the respective consequences.

If we look at the demand curve first, perhaps the most important factor that causes a shift is the customers' preference or taste. For example, we may consider wheat as a product. The customers decide that wheat is not as healthy as rye and will begin to buy more rye bread than white wheat bread. In this case, the aggregate demand curve for wheat will suffer a shift leftwards. The consequences are that the equilibrium price, on a given supply curve will be lower than previously. Hence, a wheat producer or a company that commercializes wheat will probably lower its prices in order to regain some of the market share that has been lost due to consumer taste. Other factors that influence shifts in the demand curve are the customers' income or the prices for substitute and complementary goods. Following our example, if the customers' income will decrease, then it is probable that they will be buying the cheaper rye bread instead of wheat bread (assuming that rye is indeed cheaper than wheat). Hence, a new shift to the left. As for substitute goods, rye is indeed a substitute good for wheat: you can choose one or the other. A drop in rye prices will shift the aggregate demand curve for wheat leftwards, similarly as an increase in the price of rye will shift it to the right, because people will tend to turn to wheat as a cheaper product.

Much the same, the aggregate supply curve will shift to the right or to the left if there is "a change in costs, a change in the number of goods in competitive or joint supply or some unforeseen event which affects production." In all cases, one needs to change the price it uses to commercialize the product according to the new equilibrium price.If we chose to examine how the theoretical concepts of demand and supply apply in a private club for magicians, where dinner and drinks are served, there are several different aspects to be taken into consideration.

First of all, we should examine the owner's position and how changes and shifts in the supply and demand curves affect his decision making. Let's take a look, in the beginning, at the workforce. Basically, this is formed of freelance magicians, that are employed on a one show basis (although there may be the case that they are hired for a certain number of shows), and the waiters and waitresses, here including bartenders and auxiliary workforce.

The workforce can be represented as any other product on a graphic with price on the Y-axis and quantity on the X- axis. The quantity here refers to the number of magicians on the labor market (the same discussion applied to the waiters or to the auxiliary personnel). The price of the "product" is designed here to represent the salary or the pay that a magician will receive on his contract. Let's look now what are the results of different shifts in the supply and demand curves.

If we refer to a specific substitute for magicians, these may take the form of other performers. For example, a stand- up comedian is an example of a substitute product for magicians. This means that the club can decide to employ a stand-up comedian instead of a magician. If the price for a stand- up comedian (hence the fee that is paid for a performance will rise) increases, then the demand curve for magicians will move to the right. This is logical if we analyze the facts: the comedians have to be paid more, so it….....