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Instructions of ECO 201 3-2 Simulation Discussion
DISCUSSION
Prices are the driving force behind every buying and selling decision in a market economy. Prices are determined by the supply and demand equilibrium and are influenced by the price elasticity of demand and supply of goods and services.
For this discussion, first, play the simulation game Competitive Markets in the MindTap environment. Then, you will share your experiences playing that game. Your work in this discussion will directly support your success on the course project.
In your initial post, include the image of your simulation report in your response. See the How to Submit a Simulation Report Image PDF document for more information. Then, address the following questions:
Based on the outcome of the simulation, was the sale price you set the same as the equilibrium price? Refer to the supply and demand model to explain why they might be different.
Imagine that you own your own business. How would price elasticity of demand impact the pricing decisions of your business?
What are the determinants of price elasticity of demand? Identify at least three examples.
In your responses, comment on at least two posts from your peers and share an example of a company that experienced a change in revenue as the result of a change in the price of the good or service they provided. After reading your peers’ posts, explain which determinants of price elasticity of demand could be the cause of the change in demand.
To access your simulations, click the simulation link found in the module.
To complete this assignment, review the Module Three Simulation Discussion Rubric.
Step-By-Step Guide on ECO 201 3-2 Simulation Discussion: Competitive Markets
Introduction to ECO 201 3-2 Discussion
This Owlisdom How-To Guide is designed to help you navigate and complete the ECO 201 3-2 Simulation Discussion: Competitive Markets. This simulation provides a practical exploration of how prices are determined in a market economy, focusing on the interplay of supply, demand, and price elasticity. You will simulate running a business, set prices, and then analyse market equilibrium and business strategy outcomes.
Setting Up the Simulation
To start the ECO 201 3-2 Simulation Discussion: Competitive Markets, we need first to play the simulation on MindTap.
- Accessing the Simulation: Log into the MindTap environment using your student credentials. Locate the Competitive Markets simulation in the course content section.
- Understanding Basic Controls and Features: Familiarize yourself with the simulation interface. Identify controls for setting prices, adjusting supply, and other relevant parameters that affect the market outcome.
Based on the outcome of the simulation, was the sale price you set the same as the equilibrium price? Refer to the supply and demand model to explain their differences.
Analysing the Simulation Outcome
Next, in ECO 201 3-2 Simulation Discussion: Competitive Markets. We will analyse the results of the simulation.
- Comparing Sale Price and Equilibrium Price: Observe the price you set in the simulation and compare it with the equilibrium price that emerges. Document these findings.
- Explaining Differences Using Supply and Demand Model: Use the supply and demand model to analyse why your price may differ from the market equilibrium. Consider factors like production costs and desired profit margins.
Example
The selling price did not coincide with the market equilibrium price. The retail price is calculated by determining the total cost of production and then adding any desired profit margin (Mankiw, 2021). The price at which equilibrium is reached indicates where you ought to be to meet the requirements of the market. Dropping below the equilibrium point causes a scarcity of resources. When you get beyond the end of equilibrium, you will start to accumulate a surplus.
Imagine that you own your own business. How would price elasticity of demand impact your business’s pricing decisions?
Applying Price Elasticity of Demand to Business Decisions
For this section of ECO 201 3-2 Simulation Discussion: Competitive Markets, we will apply the principles of price elasticity of demand in our business decisions.
- Understanding Price Elasticity of Demand: Recognize how sensitive the demand for a product is to price changes.
- Influences on Pricing Decisions: Reflect on how understanding elasticity can inform your pricing strategies to maximise profits or market share.
Example
The price elasticity of demand significantly influences the price decisions made by any company. High price increases can reduce the willingness of customers to purchase the products (James, 2022). If you bring the price down, there will be a greater demand. People tend to give more consideration to purchase than is necessary if the cost of the goods is high.
What are the determinants of price elasticity of demand? Identify at least three examples
Determinants of Price Elasticity of Demand
Next, in ECO 201 3-2 Simulation Discussion: Competitive Markets, we will discuss the Drivers of Price Elasticity in Demand.
- Time and Price Changes: Discuss how the shifting in elasticity of demand occurs with the time customers are given to modify price changes.
- Availability of Substitutes: Explore how the presence of substitute products can affect the elasticity.
- Necessity vs. Luxury: Determine how a reasonable (necessity or luxury) classification impacts its price elasticity.
Time Elapsed Since a Change In Price
If you look at the influence of a price rise over a more extended period, such as one year, rather than over a shorter period, such as three days, you will find that the price elasticity of demand is more substantial (Corporate Finance Institute, 2022). People have more time to readjust their spending habits when the price adjustment is spread over a more extended period.
Availability of Substitutes
When a business deals with items that have near alternatives, such goods are said to have a high degree of price elasticity. This may result in a price increase or a drop in the required good, and consumers may switch to alternatives (Corporate Finance Institute, 2022). If a product has no near options, then the price elasticity of demand for that product is inelastic, which means that an increase in the price will not impact the desired amount.
If The Good Is a Necessity or a Luxury
Inelastic demand exists for goods that are required for life and have a price elasticity of less than one order (Corporate Finance Institute, 2022). If a specific product or service is regarded as a luxury item, then the price elasticity for demand is greater than 1, indicating that its demand is exceptionally elastic.
In your responses, comment on at least two posts from your peers and share an example of a company that experienced a change in revenue due to a change in the price of the good or service they provided. After reading your peers’ posts, explain which determinants of price elasticity of demand could cause the change in demand.
Peer Responses
Responding to peers is one of the vital parts of the ECO 201 3-2 Simulation Discussion: Competitive Markets. We need to provide at least two peer responses. I will provide one example post. You can write your peer responses by keeping the below points in mind.
- Reviewing and Commenting on Peers’ Posts: Engage with at least two peers. Analyse their experiences and outcomes in the simulation.
- Sharing Relevant Business Examples: Provide examples of companies that experienced revenue changes due to pricing adjustments and discuss the potential causes based on elasticity determinants.
Response 01:
The substitution effect pertains to the decrease in sales of goods that can be attributed to consumers choosing less expensive substitutes in response to an increase in the price of the original product. Several factors might cause a product to lose market share, but the substitution impact is an independent manifestation of thrifty behaviour (Boyle, 2022). Some customers may look for cheaper alternatives when a company increases its prices. Many people will switch to eating more chicken if there is an increase in the cost of beef.
Closing
The ECO 201 3-2 Simulation Discussion: Competitive Markets offers a hands-on approach to understanding fundamental economic principles that influence business decisions in real-world markets. By engaging with the simulation and reflecting on your and your peers’ experiences, you gain deeper insights into how market forces interact and how businesses can strategically respond to these dynamics. The discussion and application of price elasticity are precious for making informed pricing decisions in any business context.
You can also read our ECO 201 next module 4-2 Simulation Checkpoint Assignment.
References
Elasticity. (2022, May 7). https://corporatefinanceinstitute.com/resources/economics/elasticity/
James, M. (2022, August 30). Price Elasticity of Demand Meaning, Types, and Factors That Impact It. Investopedia. https://www.investopedia.com/terms/p/priceelasticity.asp
Mankiw, N. G. (2021). Principles of Economics (9th edition). Cengage Learning, Inc.
