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8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
http://slidepdf.com/reader/full/system-dynamics-approach-to-teaching-supply-and-demand-preliminary-research 1/13
8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
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System Dynamics Approach to Teaching Supply and
Demand: Preliminary Research
• System dynamics
• Supply and demand
• Goal of the paper
• Methodology
• Results
• Conclusion
8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
http://slidepdf.com/reader/full/system-dynamics-approach-to-teaching-supply-and-demand-preliminary-research 3/13
System dynamics
• J. W. Forrester - 70es of the 20th century
• System dynamics - method used for understanding and modelling the
long-term behaviour of complex systems with feedback over time
• System dynamics - simulation method used to model a portion ofreality in a controlled setting and reproduce the behaviour of social,
economic or political systems
• System dynamics models are widely used for modelling social systems
due to many unpredicted factors and situation
The main advantage of using system dynamics model is the analysis of
the given results after making decision
8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
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Supply and demand
• The market is in equilibrium when the products are supplied at a rate equivalent to thedemand
• Oscillations occur when supply or demand changes from equilibrium
• The price could be affected by the inventory which is determined by the manufacturer
• Supply and demand are not static models - depend upon many different factors and are
part of dynamic models
Using system dynamic models in presenting and understanding supply and
demand to students is very useful since influence of long-term impact of
particular decisions to the system behaviour can be demonstrated
Demand - rate at whichconsumers are ready to
buy a product
Supply - quantity of products offered at particular price
8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
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Goal of the paper
• Goal of the paper is to discuss usage of system
dynamics in modell ing supply and demand , based on
the research of Whelan and Msefer , “Economic supply
& demand”, Prepared for the MIT System Dynamics inEducation Project, MIT, 2003
In our paper we shall discuss the model, its baseline behaviour, and
conduct three experiments with demand increase, changes in inventory
desired coverage and changes in price change delay
8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
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Methodology - System Dynamics Model of Supply and Demand
• System dynamics models - stocks, flows,
auxiliary variables and constants
• Model dynamic behaviour is the result of the
accumulation of flows in stocks. Stocks
accumulate or deplete over time, and a flow is
the rate of change in a stock.
• For example, inventory is increased by
the supply, and depleted by the shipment
of goods from the warehouse. However,
supply depends on the normal supply
(that is constant), and by the effect of
price on supply (that is auxiliary
variables)
Inventory
supply shipments
demand
effect ofprice on demand
NO RMAL D EMA ND
Price
change in price
pri ce ratioINITIAL PRICE
effect ofpriceon demand
lookup
PRICE CHANGE DELAY
effect of invent ory on p rice
effect of inventory on pri ce look up
desired inventory
DESIRED INVENTORY COVERAGE
inventory ratio
effect of price on sup ply
effect ofpriceon supply
lookup
NO RMAL SUP PL Y
<price ratio>
desired price
• System dynamics model of supply and demand is presented at the Figure, which depicts the dynamic
relation of demand and supply determined by the inventory and price
• The model consists on the two stocks: Inventory and Price; Inventory is the stock of produced items in
the company's warehouse, and Price represents the current price of the items on the market
8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
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Methodology - Experiments with the Model
•Experiments are prepared according to the Whelan and Msefer (2003), MIT, Road Maps programme
• The contribution of the paper is that we have presented the model to the students and asked
them to give their comments on the understanding of the supply and demand model
• Two groups of 10 students each were examined:
• First group was exposed to the supply and demand teaching using the S-D curves model, and the
second group was exposed to the system dynamics model of supply and demand system• Students were asked to estimate their perceived understanding regarding the changes in supply and
demand and two groups of student’s perceptions regarding the future behaviour (reaching
equilibrium, value of equilibrium, and oscillation) of the supply and demand were compared.
• Three experiments were used:
• 1st Experiment will examine what will happen if demand increases permanently for 10 items per
week
• 2nd Experiment was conducted by changing the desired inventory coverage, desired inventorycoverage was set to the 2, 4 and 6 weeks, and its impact to the inventory is commented
• 3rd Experiment was conducted by changing the price change delay to the 5, 15 and 30 weeks, and its
impact to the price was commented
• Model behaviour was predicted using Vensim software
8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
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Results - Experiment with Increase in Demand
•1
st
Experiment was conducted with the permanent increasein demand per 10 items per week
• The model behaviour:
• If demand increases permanently for 10 items per
week, new equilibrium value for price is $16.97, and
equilibrium value for demand is 61.36 items per week
• Therefore, equilibrium value for inventory is 245.44
items, and it is four times larger than demand because
desired inventory coverage is still 4 weeks
• Before inventory reaches equilibrium value it will
exhibits sustained oscillations
Behavior of inventory and price
400 shirt
20 $/s hirt
250 shirt15 $/s hirt
100 shirt
10 $/s hirt
2
2
2
2 2 2 2 2 2 2 2 2 2
1
1
1
1
1 1 1 1 1 1 1 1 1
0 30 60 90 120 150 180
Time (Week)
Inventory : Current shirt1 1 1 1 1 1 1 1 1
Price : Current $/shirt2 2 2 2 2 2 2 2 2 2
Among 10 students that were exposed to thesupply and demand teaching using the
S-D curves model, only 3 predicted that the
new equilibrium value will be higher than the old one
and that oscillations will occur, and 7 did not predict
any changes in equilibrium value
Among 10 students that were exposed to the
system dynamics model of supply and
demand, all of them predicted future
oscillations and new equilibrium;
however, only 6 students predicted
that exact value of the new
equilibrium value
8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
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Results - Experiments with Desired Inventory Coverage
Graph for Inventory
400
300
200
100
0
3
3
3
33
3 3 3 3 3 3 3 3 3
2
2
22
2 2 2 2 2 2 2 2 2 2 2
1
1
11
1 1
1 1 1 1 1 1 1 1 1
0 20 40 60 80 100 120 140 160 180 200
Time (Week)
Inventory : Current shirt1 1 1 1 1 1 1 1 1
Inventory : desired invent. coverage = 6 weeks shirt2 2 2 2 2
Inventory : desired invent. coverage = 2 weeks shirt3 3 3 3 3
• 2nd Experiment was conducted by changing the desired
inventory coverage to the 2, 4 and 6 weeks • The model behaviour:
• Value of desired inventory coverage influences
inventory equilibrium level, amplitude of
oscillations, and period of oscillations
• For shortest desired inventory coverage, inventory
equilibrium level is lowest, amplitude of
oscillations is smallest, and period of oscillations
is shortest
• For longest desired inventory coverage opposite
occurs
Among 10 students that were exposed to thesupply and demand teaching using the
S-D curves model, only 2 predicted that the new
equilibrium value will be higher than the old one and
that oscillations will occur, and 8 did not predict any
changes in equilibrium value.
Among 10 students that were exposed to the
system dynamics model of supply anddemand, all of them predicted future
oscillations and new
equilibrium; however, only 3
students predicted that exact value
of the new equilibrium value.
8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
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Results - Experiments with Price Change DelayGraph for Price
20
17.5
15
12.5
10
3
3
3
3
3
3
33
3 33 3
3 3
2
2
2 2 2 2 2 2 2 2 2 2 2 2
1
1
1
1
11 1 1 1 1 1 1 1 1 1
0 20 40 60 80 100 120 140 160 180 200
Time (Week)
Price : price change delay = 15 weeks $/shirt1 1 1 1 1 1
Price : price change delay = 5 weeks $/shirt2 2 2 2 2 2
Price : price change delay = 30 weeks $/shirt3 3 3 3 3
Among 10 students that were exposed to thesupply and demand teaching using the
S-D curves model, only 2 predicted that the new
equilibrium value will be higher than the old one and
that oscillations will occur, and 8 did not predict any
changes in equilibrium value
Among 10 students that were exposed to the
system dynamics model of supply anddemand, all of them predicted future
oscillations and new equilibrium;
however, only 1 student predicted
that exact value of the new
equilibrium value
•
3
rd
Experiment was conducted by changingchanging the price change delay to the 5, 15 and
30 weeks
• Model behaviour:
• Therefore, when price change delay is
shortest, system will reach equilibrium in
shortest time, and period of oscillations
would be shortest• Opposite happens when price change delay
is longest
8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
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• Students were asked to estimate
perceived understanding on the scale
from 1 to 10 (1-do not understand at all; 10-
undrstand completely)
• Average grade of the perceived
understanding of the first group of
students was 4.6 with standard deviation of2.8 (S-D curves model)
• Average grade of the perceived
understanding of the second group of
students was 7.3 with standard deviation of
3.1 (system dynamics model of supply and
demand)• T-test was conducted in order to compare
means, and the difference was statistically
significant at the 10% level (t=2.0439; p-
value=0.0559).
Results - Comparing the Perceived Understanding of Students
• Students were asked to estimate
satisfaction wi th the teaching on the
scale from 1 to 10 (1-do not understand at all;
10-undrstand completely)
• Average grade of the perceived satisfaction
of the first group of students was 6.3 with
standard deviation of 3.2 (S-D curves model)
• Average grade of the perceived satisfaction
of the first group of students was 6.8 with
standard deviation of 4.1 (system dynamics
model of supply and demand)
• T-test was conducted in order to compare
means, and the difference was notstatistically significant (t= 0.3040; p-
value= 0.7646).
8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
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Conclusion
In this paper we have investigated the possible usage of system
dynamics models to increase understanding of the supply and demand
dynamic behaviour by the economics students …
Students that were exposed to the static teaching of supply and demand demonstrated alower ability to predict the future behaviour of supply and demand , compared to the students
to whom the system dynamics model was explained - however, there was no statisticallysignificant difference according to their satisfaction with the teaching process
Our results are in line with the previous research of other authors that demonstrated the benefits of the usage of system dynamics teaching for the understanding of dynamic
phenomena
Practical implications of our research are in the field of enhancing the static approach toteaching of supply and demand with the system dynamics modelling; in order to gain moregeneral results, the experiments should be repeated on the larger sample of students
8/16/2019 System Dynamics Approach to Teaching Supply and Demand: Preliminary Research
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Thank you
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