Supply and Demand Simulation Essay

Robert Enrich As seen in the simulation, supply and demand can have a significant effect on price and quantity. In most cases, if the demand for a product or service goes up, then the price typically goes up. However, if the demand for a product or service goes down, then the price will typically do down in order for the seller to move the product and newer product in. Price Elasticity The price elasticity of demand affected Goodliest pricing decisions by determining the optimal profit margin.

Price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price (Colander, 2010). When Goodlier lowered the rental rate the quantity of apartments demanded increased. Tenants wanted to rent the apartments because of the lower rental rate. When Lenient decided to expand operations in the Atlantis area the population increased. The demand for Goodlier apartments increased but the amount of apartments available did not increase. Because of the influx of tenants in the Atlantis area the rental rates increased when the demand increased but the amount of available apartments were constant.

An elastic supply occurred when the quantity supplied changed by a larger percentage than the percentage change in price (Colander, 2010). Over time consumers preference’s changed from apartment rental’s to detached home purchases. This provided a substitute for consumers and would decrease the degree of necessity of the 2-bedroom rental units. This consumer preference change affects the price elasticity of the 2-bedroom rental apartments. The growing population of Atlantis needed places to live. There were now more available choices or substitutes for them to choose from.

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When a housing market has a number of substitutes such as apartments, condos, and detached homes consumers can choose a substitute if the rent price rises on the apartments. The greater number of substitutes the more elastic the demand. The price elasticity of demand affects both Goodliest pricing strategy on apartment rentals and also the price that tenants will pay for the apartments. Supply and Demand Curve According to the supply and the demand stimulation, “at a rental rate of 1 , 1 50 per onto there were tenants for 1 ,500 apartments, leading to a vacancy above the target rate.

This leads too surplus to apartments . Your revenue is 1. 7 million which is also below target. ” The demand curve which is the rental rate was too high to reduce the vacancy rate which also leads to not succeeding the maximum revenue. So with that I should have made the rental rate lower so that the property will make revenue. When running an apartment building with that many vacancies will have to have a low monthly rate in order to get people in there and also turn over revenue. If hey were to keep the rate at 1,150 a month then no one would want to live there.

Consumers look for the amount of people there and how you keep up the maintenance of the building. With the supply curve I choose to go up on the rental rate but according to the stimulation I should have charge higher. After going through it again I have to agree with the stimulation because with the cost of maintaining a building, you would have to raise the rent. “Supply curve is an imaginary line at point in time that tells you the quantities a supplier would provide at various prices of the product”.

So I would not be able to see that like the supplier would because he knows what is needed and how long before you would have to replace it. Handling an apartment building is a lot of work because you have to know how to price your rent so that you can bring in revenue to keep up with the maintenance. If you do not price your rent at the right price then you will either lose the building and consumers or you will not have enough money to fix things within the building. You have to really look in to something like this if you want to open up an apartment building.

You cannot Just go into something like this thinking that you will bring in a lot of money, it takes work and knowing the market and what consumers want. Macroeconomics Macroeconomics is part of the economics team that deals with performance, structure, behavior, and decision-making of the whole economy; national, regional, and global. One key term used to describe the mechanism that affects the shifts in supply and demand is the equilibrium price. First, let is define equilibrium price; when price of a product plus the quantity buyers are willing to purchase equals to he quantity in which the sellers will sell to the buyers.

In other words deciding to buy more of an item today because that item is expected to go up or with an increase in income some consumers may consume more by borrowing more. So, expectations on the outlook of future prices of goods may cause the demand to shift in any given period. Future expectation may affect demand, if demand increases and supply remains the same, a shortage occurs, resulting in a higher equilibrium price, when demand decreases and supply remains the same, a surplus occurs, resulting in a rower equilibrium price.

According to Capron (1990) also if demand remains the same and supply increases, a surplus occurs, resulting in a lower equilibrium price, and if demand remains the same and supply decreases, a shortage occurs, resulting in a higher equilibrium price is also call the laws of supply and demand (p. 537). For example, buyers may expect future prices of goods to increase and therefore more people maybe induce to buy the item bettor the price rises, this increase in the current demand because the consumers expectation of higher future price causes he current price of the good to increase.

On the other hand, when the consumer believes there will be a decrease, consumers may hold off on buying a product. This decrease in the current demand causes the current price to decrease. That is why, in the scenario of Good Life for the potential tenants to increase their quantity demanded, the rental rate has to decline because quantity demanded increases only when price decreases, other things remain constant. As the rental rate decreases, quality supplied of apartments also decreases because you would have less incentive o supply at a lower price.

The surplus becomes smaller and smaller and the rental rate decreases, leading to an increase in quantity supplied. This adjustment continues until equilibrium is attained. When there is a non-price it changes affect supply and shifts the supply curve also. New innovations are a good example of non-price changes because its cost of production decreases because its producers may be willing to supply more at any price causing the shift of the supply curve outward.

When this happens it causes the equilibrium price to decrease and the equilibrium quantity increases when the demand curve moves to the lower price resulting in a supply curve shift, leaving the price and the quantity to move in different directions. Microeconomics Microeconomics deals with those basic economic transactions focusing on the behavior of individuals. In microeconomics, it is assumed that most people in the economy will act with economic rational. Microeconomics studies buyers, sellers, prices, and profits. Supply and demand serves as the basis or foundation of microeconomics (Reference for Business, April 2010).

Microeconomics attempts to answer some of the most basic questions concerning why some products or services cost more than others. Commodities have prices because they are both usefully and scarce. The scarcer an item is, the more expensive it will likely be because consumers are more willing to pay more given the small amount available. However, in most cases, if a commodity price raises too quickly or too high, the demand will fall and therefore the price will likely decline. In the case of the scenario, as the demand for apartments rose, the prices rose.

However, once the demand fell either due to the prices being too expensive or people deciding to purchase homes instead of renting, apartment owners must adjust their prices or demand will fall continuously. This obviously creates less profit for the apartment owners, which is why the apartment owners built the apartments in the first place. The problem occurs when the demand for apartments is so low that lowering prices ends up costing the apartments more to occupy the apartment owners more to lease them then to find something else to do with the property.

A emperors decrease in demand is k, but let it go for a long period of time, and the apartment owners will likely be in bad financial trouble. Conclusion As one can see, the supply and demand of a product or service can greatly have an impact on the price of that product or service. Sellers off product or service must find that point where he or she can still make a profit but still keep their products or services in demand by consumer. The apartments in the scenario were having this exact problem with figuring out what their monthly rent should be based upon their supply and demand at the current time.

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