The purpose of this paper is to discuss the Supply and Demand simulation from the student website. The idea is to identify two microeconomic and two macroeconomic principles present in the simulation and to explain why these principles are categorized as macro or microeconomic. The paper will also determine one shift of the supply curve and one shift of the demand curve from the simulation, as well as why these shifts happen. Their impact on the equilibrium price, on decision making, and on quantity will be also analyzed.
Then, it will refer to ways in which concepts about supply and demand can be applied in a real life-situation or in the workplace. The paper will also refer to ways in which concepts of micro and macroeconomics help in understanding factors that influence movements in supply and demand on the equilibrium price and quantity. Last, the paper will refer to how the price elasticity of demand has an impact on the consumer’s purchasing and on the pricing strategy of the company. Macro and Microeconomic Principles Two microeconomic concepts that are present in the simulation are: supply and demand.
The simulation talks about supply and demand or rental apartments from Atlantis. On the other hand, at macroeconomic level, we can talk about the changes in population trends when it comes to choosing to rent or not to rent apartments as well as factors that influence these changes. According to Colander (2010), the law of the demand says that quantity demanded increases as price falls, other things constant. On the other hand, the law of supply asserts that the quantity supplied decreases as price falls, other things constant.
The supply of two-bedroom apartments of the company has reached 2,000. It is required to decrease the monthly vacancy rate from 28% to at least 15% to increase the revenue of the company. That is why the rental rate needs to be decreased, so that demand increases and the vacancy rate decreases. Shifts of the Supply and Demand Curves The supply curve shifts right-ward as the number of apartments increase. However, the rental rate also increases as the supply increases. Leasing all the apartments (which are 2,500), will drive the rental rate to $1,500.
As the rental rate and the number of apartments supplied increases, the demand curve shifts downward. So, if the company increases the rental rate to $1,500 the demand for apartments will be lower. In order to reach equilibrium the company will have to lower the rental rate to $1,050. This is where the quantity demanded is equal with the quantity supplied. Relevance in Real World and at the Workplace Supply and demand concepts are all around us. Take for example a shoe factory. From a macroeconomic perspective everybody needs shoes. This type of product is a necessary and not a luxury product.
So, there will always be a higher demand of shoes. The company will always try to find the best price to sell the shoes so that the demand increases. The price of shoes is also determined by the production cost of the shoe since it needs to be higher than it. Producing the shoes does not only depend on the company itself but on other macroeconomic indicators. For example, if oil prices increase, the company will need to increase the price of the shoes since it would cost more to pay the suppliers for delivering the materials needed in the production process.
Also, as the law of supply says, when supply increases, the price increases. If the supply increases, this means that people are asking for more shoes, which allows the company to slightly increase the price. This is where the company needs to take advantage and sell more shoes since profits will be higher. Price Elasticity of Demand According to Colander (2010), the price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price.
As for this simulation, if the demand experiences a negative percentage change (if it decreases) the price of renting an apartment will also decrease. So, rental rate will decreases as the demand decreases. On the other hand, when the supply decreases or increases, the rental rate will remain constant. If the demand increases, the rental rate will be increased, since more people will want apartments (the company is able to increase the prices – the law of demand). Conclusion This paper has referred to various terms from the macroeconomic and microeconomic environment.
It has analyzed trends and also shifts of the supply and demand curve for a company that rents two-bedroom apartments in Atlantis. The paper has also referred to situation from the real world where microeconomic concepts can be applied. Last, it has talked about price elasticity of demand with respect to the company that rents apartments. The paper serves as an element of understanding supply and demand concepts when it comes to the microeconomic environment.
Colander, D. C. (2010). Economics (8th ed. ). New York, NY: McGraw-Hill.