Supply and Demand of Rental Apartments

Topics: Supply and demand, Inverse demand function, Microeconomics Pages: 4 (1054 words) Published: December 6, 2010
Supply and Demand of Rental Apartments Simulation

Veronica L. Powell

University of Phoenix

ECO / 365

Liliana Fargo

November 10, 2009

Supply and Demand of Rental Apartments Simulation

GoodLife Management is a management firm that manages seven apartment complexes in Atlantis. GoodLife is the only firm that rents apartments in Atlantis and has subsequently created a monopoly within the market. The closest substitutes are rental detached homes which are provided by Oakridge Builders. GoodLife has offices across the United States. The responsibilities of the Property Manager includes receiving 30day notices for upcoming apartments, establishing new rental rates for the apartments, and setting advertising schedules. The purpose of this paper is to discuss what causes the changes in supply and demand, explain how shifts in supply and demand affect decision making, list four key points, and applies what was learned about the concepts to St. Bernard Hospital.

In the first section of the scenario there were two issues observed. First observation was the demand curve with the current rental rate and the quantity demanded. The second observation was the change in the quantity demanded and the vacancy rate when there is a particular rental rate. The decision to be made was the monthly rental rate for two-bedroom rental apartments on temporary leases. The Property Manager needed to bring the vacancy rate from 28 percent to 15 percent and to maximize the revenue. To start, the vacancy rate was at 40 percent, revenue was 1.56 (in millions), surplus 800, quantity demanded 1,200 and rental rate $1,300. The vacancy rate down to 15 percent, the following changed: revenue was 1.79 (in millions), surplus 300, quantity demanded 1,700 and rental rate $1,050. Although the appropriate rental rate was selected to reduce the vacancy rate, the revenue was not maximized. In the end the revenue could have been increased by lowering both the rental and...

References: Colander, D.C. (2008). Economics, 7th ed. Burr Ridge, IL: The McGraw-Hill Companies
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