Microeconomics and the Laws of Supply and Demand

Topics: Supply and demand, Economics, Microeconomics Pages: 5 (815 words) Published: July 20, 2015


Microeconomics and the Laws of Supply and Demand
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ECO/365
July 6, 2015
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Microeconomics and the Laws of Supply and Demand
The simulation showed how a shift in the supply curve or the demand curve can lead to significant changes to the economic standing of the business. When the demand curve shifts downward or to the left it showed a decrease in demand from renters thus yielding less apartments rented. This happened when the new company who moved into the area had a higher focus in ownership rather than renting, this forced the management company to have to lower prices to compensate for the decrease in demand. This shift cause the equilibrium price to be reduced due to the lower demand, however supply and quantity remained constant. Supply and Demand Curve Shifts

When the supply curve shifts up or to the right it indicates an increase in the number of apartments available for rent. This situation occurs when the management company expanded its buildings to make room for more units. If we assumed that the demand remained, the thing to do would be to lower the rental costs to increase occupancy, this was done twice during the simulation once when Susan suggested that vacancy rate be lowered to 15% and once again when she suggested it be lowered to zero. This could have led to increase in profits should there have been sufficient demand to achieve full occupancy rate for all the apartments being provided.

The management company must base its decisions of whether to rise or lower rent prices based on the areas economic factors. If the demand is not there to achieve zero vacancy or a low vacancy rate then the obvious solution is to lower the price to align with the microeconomics factor of supply and demand. As time progresses the company must be able to quickly and effectively react to the ever-changing economic conditions in order to run efficiently.

Macroeconomic factors cause shifts in supply and demand that have adverse reactions in the equilibrium of price and quantity. Such things as price ceilings, which limit the amount of rent a company can charge, causes the management company to not be able to obtain the highest rent possible should there be the demand for the apartments they have available. This causes a ripple effect when it comes to price elasticity, because when a price ceiling is applied it is nearly impossible to measure the impact that price elasticity has on the market.

Microeconomic factors also play a major role when it comes to equilibrium price and quantity. Changes to supply and demand are the biggest influencer in the determination of price. Throughout the simulation there were multiple instances where changes to the supply and demand curves affected the price the management company could charge. The non-static economic conditions of the area forced the company to have to consistently rise and lower prices to try and achieve equilibrium, while still maximizing profits. Price Elasticity

Price elasticity throughout simulation was very high, which measures the responsiveness of the quantity demanded to a change in price of a good or service. When goods and services have many substitutes they also have many variations in price, when the consumer is given all these options they tend to choose the lower priced options, when the opposite occurs the consumer is inclined to pay a premium, this reduces price elasticity.

While the ins and outs of economics are still new to me, the microeconomic example in this simulations have helped me get a better understanding of how consumers come up with their buying decisions, it will also allow me to better identify situations that can cause a product or service to not be selling. By being able to recognize the effects of supply and demand it can help me optimize the performance of my new business and maximize profitability. While the macroeconomic examples will help me to better project possible...
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