This week’s assignment examined the effects of supply and demand on the pricing and availability of real world goods. In this instance, the simulation looked at pricing and availability of two bedroom apartments in the fictional city of Atlantis. The simulation takes a look at several different situations, outside market factors and governmental influence. By going through the simulation and adjusting the pricing levels of the apartments and the number that are being made available to be rented, the simulation shows the effects of things like new employers moving into the area, rent control laws being put into effect and the change in trend from apartments to homeownership and back again. Microeconomics Versus Macroeconomics
In this simulation, concepts from the study of both microeconomics and macroeconomics are observed. Macroeconomics covers factors that affect the whole economy of an area, not just one company. Events such as scenario four’s introduction of Lintech into the area changes the economy of the entire city, not just GoodLife Inc’s financial situation. GoodLife saw an increase in demands for their apartments because of the influx of workers in the area. However, as evidenced in scenario seven, the increase in price due to the increase in demand because of the influx of businesses into Atlantis made GoodLife’s apartments unaffordable by many people and the city council stepped in, placing a cap on how high rent could go. Scenarios one and three exhibit microeconomic concepts far better, with the prices and the balancing act of revenue coming in from rentals versus the cost of maintaining those apartments being decided by and affecting only the business of GoodLife itself, with no outside influence from other companies or governmental influence.
Supply and Demand Curves
Scenarios 1 and 2 are excellent examples of the supply and demand curves shifting based on market or internal influences. In scenario 1, the vacancy rate of the apartment complexes is trying to be reduced to 15 percent. Thus, this means that a reduction in rent will increase the demand for apartments, filling more apartments with tenants and reducing the number of vacant apartments. The lowering of the prices causes the curve to drop, as the reduction in rent makes more apartments fill up with tenants, thus achieving lower equilibrium prices. Scenario 2 is a bit different, where there is a push for there to be a zero percent vacancy rate. This means that the prices would have to be increased to such a point that it would be profitable for the company to have every apartment filled when considering the increased maintenance costs for those apartments.
By raising the prices and filling the apartments, this tends towards a shortage of apartments, leading to higher equilibrium prices for the apartments available. Income elasticity is another term heard of when discussing things like supply and demand. As a person’s income increases, so does their rate of consumption and their acceptable price for goods. This happens frequently in economic upturns, where a person’s wages increase and their spending habits become more expensive. In the simulation, this was evidenced by the Lintech situation, in which well paid workers were moving into the city and needed housing, and GoodLife was able to increase the price for their apartments to reduce demand to manageable levels and increase their profits. What Does It All Mean?
In my workplace, I tend to focus primarily on the service side of industry as opposed to the creation of tangible products. Thus, in my workplace our shifts tend to focus more on intangible factors, such as employee productivity, customer satisfaction and repeat business. In the business of telephone customer service, we view our supply and demand in terms of how well we are meeting the demand of calls coming in and how well we supply the desire of our customers to have their issues resolved in a timely manner. During periods of high demand, such as the holiday season, we staff more employees to work the phones. Similar to the situation in scenario 2, we have to be certain that the number of representatives on the phone is still profitable by the business, so while there may be a small wait time for a customer to speak with an agent, it is more profitable for the customer to have a five minute wait than to put twenty more people on the phone to meet that increased business need.
Macroeconomic principles come into play when the whole market or more outside factors are involved. Examples of this in the video game industry, which I work in, would be when the rating system for games are under scrutiny, or when a new console is put on the market as competition. These outside factors affect not only the company I work for, but every other company in the industry, from the hardware manufacturers such as Microsoft and Sony, but also the game studios such as Activision, EA and Rockstar Games. Microeconomic principles are caused by and effect only my company in particular, such as an update to our console software that increases call volume, or technical issues that lead to downtime, thus lowering customer satisfaction.
In closing, there are many factors that influence the supply and demand curve of goods and services in the economy. Microeconomic and macroeconomic concepts bring their own rewards and challenges to each company and allow them to decide how they will respond to the market’s fluctuations while maintaining their own corporate interests. Every business must recognize and account for these figures, regardless of what they produce or sell and that balancing act between cost and profit, consumer value and corporate interest, is what gives both consumer and producer power in our market environment today.
Colander, D. C. (2010).Economics (8th ed.). New York, NY: McGraw-Hill. Applying Supply and Demand Concepts. University of Phoenix Retrieved Dec 17th, 2012 from https://ecampus.phoenix.edu/secure/aapd/vendors/tata/UBAMsims/economics1/economics1_supply_demand_simulation.html