May 25, 2015
Economic Principles: Supply and Demand
Several different scenarios can be used to simply explain the economic principles of supply and demand and how they affect a local economy. In the simulation “Applying Supply and Demand Concepts”, Goodlife Management has a monopoly on two bedroom apartments in Atlantis. The only other housing options for rentals are detached rental housing offered by Oak Ridge Builders (University of Phoenix, 2014). Both macroeconomic and microeconomic principles are explained using real life situations. Macroeconomics is focused on the movement and trends in the economy as a whole, while in microeconomics the focus is placed on factors that affect the decisions made by firms and individuals. These factors will often influence each other, such as the current level of unemployment in the economy as a whole will affect the supply of workers available for hire ("Monopolies - Economics", 2015). Demand curve, supply curve, equilibrium, and the impact of price ceilings were key concepts covered in the simulation. New businesses moving to Atlantis spurred growth in the city that affected the status of Goodlife’s monopoly and forced changes in the housing industry.
A monopoly exists when there is a single firm in an industry; it can change output to directly affect the market price. The simulation covers a 9 year period during which Lintech and new IT and Biomedical research companies began operations in Atlantis. Goodlife was able to control supply and price on 2 bedroom apartments while there was no other suppliers for apartments. New construction changed the economic landscape. Because monopolies have market power, they have decreasing marginal revenue (assuming that all units in the market are sold for the same price). When a monopoly produces an additional unit, it is increasing the quantity in the market and decreasing the market price (remember--monopolies have market power and competitive firms don't). The monopoly will gain the price the additional unit is sold for, but since there is a decreasing demand curve, the price of all the units in the market is reduced, and the monopolist will lose a fraction of revenue on every other unit. When computing a monopoly's marginal revenue, two things must be taken into account: Changes in consumer preference to detached
Macroeconomic principles covered in the simulation include price levels, employment, and economic growth. With new companies deciding to build facilities and operate in Atlantis, this affected the price levels of apartments to the extent that