Microeconomics and the Laws of Supply and Demand
In the world of business, flexibility is the key to success. Businesses must be able to change with the demands of the customer. Our economy is based off supply and demand of goods and services. As Colander states in our text, “Prices are the tool by which the market coordinates individuals’ desires and limits how much people demand. When goods become scarce, the market reduces the quantity people demand; as their prices go up, people buy fewer goods” (2013, pg. 77). In the simulation, Atlantis is portrayed as the perfect little city that is well maintained and provides everything for the local residents. More importantly, there are parks to use, residents have easy access to the highways, and crime rates are low offering a sense of security. GoodLife Management is the firm that manages a total of seven apartment complexes, which is the only firm that currently rents apartments in Atlantis. This management company has a total of 2,000 apartments that are two bedrooms. As it stands, the vacancy rate is at 28 percent, which is where the supply and demand curve comes into play in order to lower the vacancy rate as requested (University of Phoenix, 2014).
Microeconomic and Macroeconomic Principles
After reading through the simulation, there is talk of lowering the percentage of vacancy to 15 percent. This is done through the reduction in rent per apartment, which is an example of supply and demand, a microeconomic principle. By lowering the rent, GoodLife is also increasing their revenue for their properties because more people are able to afford the rent.
When Lintech arrived in town, it not only increased the population and jobs, it also increased the demand for housing which applied to both vacant apartments and renewal of leases. Macroeconomics within the simulation include the fact that the government was forced to step in and create a ceiling of $1550 for monthly rent on the two bedroom apartments specifically aimed at middle-income families. This ceiling was created solely for the purpose of allowing those families the financial flexibility to live in the city they work in. The Atlantis housing survey revealed some shocking information because some residents were considering renting Oakridge’s detached homes because the constant rise in price.
Shifts of Supply and Demand Curve
In the simulation, there are many different shifts of supply and demand. The supply curve shifts when the numbers of apartments increase. As soon as the rental rate and the number of apartments supplied increase, the demand curve shifts down. After year two of the simulation, Good Life is managing over 3,000 two bed-room apartments at a monthly rental rate of $1,150. The arrival of Lintech, Inc. has increased the population in Atlantis causing the demand curve to shift to the right, while the supply curve has not been affected because the number of apartments demanded is more than the number of apartments Good Life is willing to lease at the current rental rate. As the rental rate increases, quantity demanded decreases and quantity supplied increases, leading to a reduction in the shortage until the equilibrium is reached between the new demand curve and the original supply curve.
Affecting the Equilibrium Price, Quantity, and Decision Making
Supply and Demand curves express relationships between price and quantity. According to Basu, C. (2013) “Equilibrium exists when supply equals demand. The shape of these curves and the equilibrium price affect small and large businesses because revenues are a factor of price and quantity.” In the simulation, the equilibrium would be affected because of the surplus and shortages of apartments based on the increase or decrease in price and the influx of residents resulting in the new firm coming to the city. These factors not only affect the equilibrium price, but they also…