Supply and Demand Simulation Essay Sample
- Word count: 1000
- Category: microeconomics
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Supply and Demand Simulation Essay Sample
In the supply and demand simulation a neighborhood called Atlantis is given for the setting. Atlantis is a small city with open spaces, low population, and a low crime rate. There are plenty of sidewalks and street systems for easy access to the highway. The housing in Atlantis is detached homes and apartments. The supply and demand simulation consists of microeconomics and macroeconomics. The simulation presents shifts in the demand and supply curve, equilibrium, price, and quantity. Atlantis is a nice neighborhood with services consumers look for. A two-bedroom apartment in Atlantis is presented to show the effects of supply and demand. I am the property manager for GoodLife Management. GoodLife is the only firm in Atlantis that rents apartments; therefore GoodLife has a monopoly in this market (UOPX, 2013). The scenarios in the simulation show how price can affect supply and demand while in a competitive market. The microeconomics concepts in the simulation are the rental decision the management company has to make in order to decrease vacancy and maximize revenue. Determining the price and vacancy deals with supply and demand, to decrease how many apartments there are the company has to increase demand by lowing the rental rate.
GoodLife has reached 2,000 two-bedroom apartments and is required to decrease the monthly vacancy from 28% to at least 15% to increase revenue. GoodLife has to find what rental rate to input so all expenses are covered. The macroeconomics in this simulation is the behavior of the whole company. By bringing the vacancy rate down to less than 15% enables the company to increase revenue. As the rental rate lowers revenue initially increases then reaches a maximum at particular rental rate at a quantity demand and decreases. A new company called Lintech is moving into the area, which increases the demand of apartments. The supply and demand curves in the simulation shifts upward because the quality is demanded is more than supply of the original equilibrium. This creates a market shortage on apartments that are available to rent. The property management has made the decision to increase price of rentals to maximize revenue and decrease the surplus shortage. If all the 2,500 apartments were to lease the appropriate rental rate would be $1,550 per month (UOPX 2013). Another shift in curves in the simulation is after many of the new consumers coming into the community are going with detached homes instead of apartments. An adjustment to lower the rent as the demand becomes smaller for two-bedroom apartments.
The rental rate of $1,050 per month, leasing 2,000 apartments created a downward movement on the supply curve. The decision to lower the price will create revenue while decreasing the vacancy supply. The concepts of supply and demand are essential to understanding numerous real-world occurrences. In the simulation the demand curve sloped downward and the quantity demand increased as the price decreased down the curve. GoodLife could increase the quantity demand by reducing the rental rate. The supply curve in the upward slope showed an increase in supply and in the price. An increase in the rental rate would cause GoodLife to lease out more apartments. Also in the simulation the effect of a price ceiling was shown. A price ceiling beneath equilibrium causes shortages because the consumers’ demand surpasses the quantity supplied. The simulation showed an understanding of supply and demand concepts concerning microeconomics settings. What I learned from the supply and demand simulation at my workplace that I am familiar with is the time I worked at Petco. From a macroeconomics outlook every pet owner needs to go to a pet store and buy pet food and supplies.
The company at the time had a monopoly over the area because it was the largest pet store chain around. Petco has to decrease prices to create demand of services. Microeconomics and macroeconomics concepts assist in the understanding on how the affects the shifts of supply and demand affect equilibrium price and quantity. Microeconomics focuses on supply and demand. A company would look at ways to increase production so that the company could decrease their prices compared to competitors. This would adjust the equilibrium price of products by increasing the quantity that is available. This allows the company the capability of passing price savings to consumers. Macroeconomics is used as the economy changes such as with inflation. Inflation would cause a company to have a boost of cost in materials from producing their product. This creates a change in quantity to be provided as supply has to be adjusted to meet the decrease of demand from the effects on equilibrium price.
Demand can either decrease or increase based on price of a product or service. Consumers have a tendency to buy products when there is a decrease in price. Companies have to kick off discounts to the consumers to increase demand. Pricing strategies for consumers are to buy when prices are low, although companies have to change prices to increase and decrease demand when needed. The simulation showed the same effect from the property management company. When supply was low of apartments the company had to increase price to decrease demand. When supply was too high the company had to decrease price to increase demand. The price elasticity of demand is flexible in which it can be changed and in return have an immediate effect.
However, this can be harmful for companies as to where price is not elastic. The understanding of microeconomics and macroeconomics was gained by using different scenarios in the simulation to complete. Microeconomics is the use of supply and demand on a smaller scale while macroeconomics focuses on the economy as a whole. The simulation also provided how price and quantity can affect supply and demand in a business. The concepts learned in the simulation have helped me become more familiar with the supply and demand concept.
Colander, D. C. (2010). Economics (8th. Ed.). New York, NY: McGraw-Hill. http://www.netplaces.com/economics/supply-and-demand/demand.htm