The simulation on supply and demand relates to the Goodlife Management Company which leases apartments to renters. As the property manager, I was asked to set rental prices in a variety of situations in order to meet the demands of the population in the area while attempting to maximize profits for my company. Microeconomic principles such as the law of demand, the law of supply, equilibrium, and price ceilings were all factors in determining price. Macroeconomic principles such as the consumer price index and fiscal policies which can institute price ceilings also related to this activity. Goodlife was considered a monopoly in the market in the area of Atlantis because it was the only rental company.
In the first simulation, I was asked to lower the rental rate to increase quantity demanded and lower the vacancy rate. I was successful in increasing demand but was unsuccessful in maximizing revenue. However I was successful in determining the equilibrium rental rate and equilibrium quantity. This can be done by finding the point at which the supply curve and demand curve intersect and there is no shortage or surplus.
A new company, Lintech, then moved to the area increasing the population and increasing the demand for apartments. Supply decreased and left a shortage of apartments. Was correct in identifying the increase in rental rate and demand by was incorrect in identifying the impact on supply. Employees of Lintech then began purchasing detached homes as opposed to renting apartments which decreased the demand for apartments. The equilibrium rate was $1,300 and supply and demand were equal at 2250.
More companies came to Atlantis, increasing the population again but the government instituted a price ceiling of $1550. While the demand increased, the price caused a shortage of 875 apartments. The quantity supplied at this price was 2275 while the quantity demanded was 3150. At this price ceiling we are unable to meet the demand from the population for apartments.
The factors affecting the shifts in this simulation were due to the population of the area and the needs or wants of this population. While there was an increase in population, the population then began to purchase substitutes such as the detached homes as opposed to apartments which decreased the demand. However, more companies came to the area increasing the population and increasing the demand again. The price ceiling was another factor as we could only increase our prices to this price ceiling and no more as instituted by the government.
These concepts help us to understand how the market is affected by outside forces and what can be changed in the market to reach equilibrium again. We may have no control of the outside forces but can change variables such as price in order to achieve success and meet the demands of the population. Demand may increase while supply may decrease. When supply equals demand, we have equilibrium. Equilibrium is essential to running a business successfully and meeting the needs of the consumer.
Every individual company has an effect of the economy as a whole. These companies produce, supply, and sell products to consumers. This meets the needs and wants of consumers and increase the flow of money in the economy. Demanding on the actions of the consumers we can either see an increase or decrease in the economy as a whole based on these individual actions. Small actions are like pieces of a puzzle in the economy. Microeconomics shows how individual situations can impact Macroeconomics or the whole economy.
This simulation help me to understand the factors that can affect market pricing and realize what can be done to respond to this factors. Elasticity of demand is the change in price impacting the quantity demanded while elasticity of supply is the change in quantity supplied impacting the price. This elasticity can either leave a surplus or shortage of the product but we strive for equilibrium where supply can equal demand. Now, when I am at the store purchasing a product, I think of how that price can be determined and the demand for the product as opposed to the supply.