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Laws of Supply and Demand Essay Sample

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Laws of Supply and Demand Essay Sample

Professor CoulibalyComedian P.J. O’Rourke said it best when he said, “microeconomics concerns things that economists are specifically wrong about, while macroeconomics concerns things economists are wrong about generally. Or to be more technical, microeconomics is about money you don’t have, and macroeconomics is about money the government is out of” (Beggs, 2014). On a serious note however, macroeconomics and microeconomics are different from each other yet both play a crucial role. The Atlantis simulation gave a great example of the two important aspects of economics, microeconomics and macroeconomics. This simulation showed different scenarios and situations of the property management firm in the city of Atlantis, Goodlife Management. Those scenarios were based on differing situations and showed how different factors influenced the equilibrium. Those scenarios varied such as adjusting the rental rate of the apartments to maximize revenue, attempts to increase the price to make attempts at meeting sufficient number of apartments available for rent so as to satisfy the demands, and finally changing Goodlife’s normal way of doing business, that of renting apartments.

The simulation changed rentals to homeownership to try to meet the need of the growing population due to Lintech Inc.’s move into the neighborhood. Understanding those principles as well as understanding the price elasticity of demand will help in understanding the importance of how higher and lower demand can have a direct impact on prices. Macroeconomics focuses on factors that affect the economy as a whole and in the Law of Supply and Demand scenario where the company Lintech was introduced, the changes led to the economy of Atlantis, not just Goodlife’s financial situation. The firm perceived the increase of residential demands due to Lintech’s workers who relocated in the area. However, when the firm increased the rental price Goodlife’s apartments becomes high-priced and unaffordable. This led the council of the city of Atlantis to place a cap of $1,550 on rental rates. Quite different was the concept of microeconomics in the scenarios.

These concepts were much more effective and ideal; the rental rate was changed by reaching the maximum revenue and determining the price by adding the cost for maintenance on each apartment. The National Property Manager made the decision, and it was determined based on Goodlife’s economic drawbacks without being influenced by other companies or the government. Our textbook tells us “Microeconomics is the study of individual choice, and how that choice is influenced by economic forces. Microeconomics studies such things as the pricing policies of firms, households’ decisions on what to buy, and how markets allocate resources among alternative ends” (Colander, 2013, pg 5). “Microeconomics also studies how individual markets and industries are organized, what patterns of competition they follow, and how these patterns affect economic efficiency and welfare” (Plenert, 2014). Every human being is affected by the microeconomic principle of supply and demand. Understanding the supply and demand curves help in understanding when is the best time to buy and when to sell.

Even though most of us understand these aspects, it is important to know how these principles can impact our way of life. Then there are macroeconomic principles such as “such as growth, inflation, unemployment, interest rates, exchange rates, technological progress, and budget deficits” (Guerrieri, 2009). These principles relate more to the adjustments occurring in the population flow when discussing whether it is a good idea to rent or not to rent. The principle of law of demand and the law of supply was apparent in this simulation. The number of two bedroom apartments in the company reached a point of 2,000 and Goodlife wanted to find a way of increasing their revenue. They immediately looked at their current vacancy rate and then looked at ways to decrease that number from 28% to 15%. Their immediate response was to lower the rent and in doing so they raised the demand rate because it added to consumers desire to move into apartments with lower rental costs.

As the demand for the lower rental costs rises, the vacancy rate or the supply decreased. As the number of available apartments increases, the supply curve shifts right. As the rental rate increases, the supply also increases. By leasing all 2,500 apartments, the rental rate will be pushed to $1,500. The demand curve begins to shift down as the rental rate and supply of apartments increase. If Goodlife increases their rental rate to the $1,500, the demand for the apartments will decrease. To reach the equilibrium Goodlife must decrease the rental rate to $1,050 and in so doing the number of demanded units and the number of supplied units will be equal. In applying this to my workplace, supply and demand is based on the number of students brought into the system every other week. Most times we expect to get six to eight new students every fourteen days. If that number goes up we have to order more goods to take care of the increase. On the other hand if that number decreases we have to order fewer goods. Also, with fewer students we need fewer staff to take care of those students. In microeconomics, the market supply and demand rely on competitors and prices.

Market equilibrium is one of the most important concepts in the study of economics. “Market equilibrium is a market state where the supply in the market is equal to the demand in the market. The equilibrium price is the price of a good or service when the supply of it is equal to the demand for it in the market. If the market is at equilibrium, the price will not change unless an external factor changes the supply or demand, which results in a disruption of the equilibrium” (Grimsley, n.d.). Macroeconomics was shown in this simulation by displaying how the increase in jobs and population affected the increase or decrease on the apartments. Equilibrium rental rate is higher than previous, and the number of apartments demanded and supplied increased.

“The Price Elasticity of Demand (commonly known as just price elasticity) measures the rate of response of quantity demanded due to a price change” (Moffatt, n.d.). The simulation showed that if the demand decreases, the rental rate also decreases. However, the supply rate can increase and decrease without having a direct effect on the rental rate. When the demand increases, the rental rate will also increase because more people want to live in the company’s apartments with the lower rent. Since the demand increases, the company can safely raise the rental rate a bit to create a bigger profit margin.

References

Beggs, J. (2014). Microeconomics Versus Macroeconomics. Retrieved from About Education: http//economics.about.com/od/economics-basics/a/Microeconomics-Versus-Macroeconomics.ht.Colander, D. C. (2013). Microeconomics (9th ed.). Retrieved from The University of Phoenix eBook Collection database.Grimsley, S. (n.d.). Market Equilibrium in Economics: Definition, Examples & Quiz. Retrievedfrom Education Portal: http://education-portal-com/academy/lesson/market-equilirbium- in-economics-definition-examples-quiz.html#lesson Guerrieri, V. (2009). Principles of Macroeconomics. Retrieved from Massachusetts Institute of
Technology), http://ocw.mit.edu/courses/economics/14-02-principles-of-macroeconomics-fall-2009 (Accessed 10 Oct, 2014). Moffatt, M. (n.d.). Price Elasticity of Demand A Primer on the Elasticity of Demand. Retrieved from About Education: http://economics.about.com/cs/micfohelp/a/priceelasticity.htm Plenert, G. (2014). Economics. Retrieved from Reference for Business Encyclopedia of Business, 2nd Ed: http://www.referencefor business.com/management/De-Ele/Economics.html

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