Microeconomics and the Law of Supply and Demand

Topics: Supply and demand, Renting, Microeconomics Pages: 5 (936 words) Published: June 15, 2015
Microeconomics and the Law of Supply and Demand
Thomas Smiley
ECO 365
May 31st, 2015
Alexander Heil

During the simulation of Goodlife Inc. I was able to see how the effects of a lower rent verses a higher rent had on the vacancy percentage. In our simulation the town of Atlantis had only one rental agency with apartments available. There were single family homes available too but the need for renting was with apartments. I got to see how the supply and demand worked with this rental property simulation. The town of Atlantis saw a rise in population which led to a higher demand for vacant units. This caused Goodlife to raise its rent to meet the growing demand for its available units. But as the demand for renting the units fell so did the demand. This meant Goodlife had to lower its rental price to meet the lesser demand for renting. This is a good example of microeconomics.

When I looked at the simulation for examples of macroeconomics I found it when the government stepped in to put a cap on the rent amount. In the simulation there was a survey that showed individuals were living outside of Atlantis rather than renting a place in the city limits where they work. As many of us do currently in our own lives we usually can’t afford to live in the city or area where the best jobs are. I am a prime example, I commute 50 miles one way to work as it’s where the best salary is. I live in an area where housing and rents are affordable and the overall cost of living is cheaper too. In the simulation, the government put a cap of $1550 for the monthly rent of a two bedroom apartment. This was meant to allow middle class families and individuals the opportunity to live where they work. Because of the rent cap, Goodlife didn’t rent out every apartment available as profits would not be able to keep up with the maintenance cost of having every unit rented.

When we look at what a shift in supply and demand curve we see that clearly when Lintech Inc. moved into Atlantis creating more jobs. As soon as Lintech did this it increased the population of Atlantis which was the shift in the supply curve. This was a negative impact for Goodlife as there was more population needing apartments and not enough two bedroom apartments available. The demand curve now goes up because of the population growth and need for more apartments.

With Lintech moving into the city and the population now increasing the demand it means that the quantity demand is now more than quantity supplied at the original equilibrium. This also caused a temporary shortage in the market of two bedrooms apartments in Atlantis. Rental rates went up due to the higher demand. Also quantity demand decreased and quantity supplied increases which leads to a reduction of apartments or shortage of apartments. To get to the new equilibrium the adjustment needs to get between the new demand curve and the original supply curve. When the new equilibrium is reached the rental rates are now higher than they were before. This also means that the number of apartments that are demanded and the supply of apartments has also increased.

I can apply this supply and demand to my workplace job. When I have a customer that wants to ship more packages with us on a new daily bases I have to look at the new demand. Before their demand for shipping more I didn’t need extra couriers and trucks to handle the day’s deliveries. Now with the new demand I have to get my supply of couriers and trucks at the last minute. This causes me to have to spend more money to rent more vans and hire more employees. Overall my cost go up with the demand of more shipping packages, but so does my profit as I am able to use more supplies to handle the new demand.

To better understand how the concept of microeconomics helps me understand the factors that affect shifts in supply and demand on the equilibrium price and quantity I...
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