Supply and Demand Simulation - Paper

Topics: Supply and demand, Renting, Apartment Pages: 6 (1560 words) Published: May 1, 2010
The city of Atlantis is a small city with plenty of parks, sidewalks and minimum traffic. Housing consists mostly of detached homes and apartments. The following is a brief description of the simulation that takes a person thru supple & demand of two bedroom units. Having to determine the monthly rate of the two bedroom units or the quantity needed at the monthy rate. As property manager of Gold Life Management, there are seven complexes that need to be managed. As we are the only firm that rents units, the responsibilities include receiving 30 day notices, establishing rental rates and setting advertising schedules. There are currently 2000 apartments that are month to month rental rates, with 28% leased.

Based on the first step of the simulation at a rental rate of $1000 per month, there were tenents for 1800 apartments, leading to a vacancy rate of 10% and a surplus of 200 apartments. The revenue for this is 1.80 million which is below the maximum possible. I was able to correctly identify the rental rate that we would need to charge to lease out all the apartments. The supply curve is at an upward slope, As we increased the rental rate, the number of apartments supplied increased. If we were to lease out all the 2500 apartments, the appropriate rate would be 1550

It has been two years and Good Life now manages 3000 two bedroom apartments and we were able to correctly identify the impact of increased population on the demand for two bedroom apartments on temporary, month – to – month lease. We were not able to identify the impact of the supply of these apartments correctly. An increase in population increases the demand for rented apartments, but does not affect the supply of these apartments. At any given rental rate, more people demand rented apartments. This results in an increase in demand. Thus, the demand curve shifts to the right. The increase in demand means that quantity demanded is more than quantity supplied at the original equilibrium, and there is a temporary shortage in the market. The number of apartments demanded is more than the number of apartments Good Life is willing to lease at the rental rate. This causes the rental rate to increase. There is an upward movement along the supply curve. As the rental rate increases, quantity demanded decreases and quantity supplied increases, leading to a reduction in the shortage. This adjustment continues until equalibrium is reached between the new demand curve and the original supply curve. At the new equlibrium, the rental rate is higher than before, and the number of apartments demanded and supplied has increased.

The Atlantic Housing Survey has provided statistics on the demand for two bedroom apartments and we were able to identify the appropriate rental rate at which there is no imbalance between quantity demanded and quantity supplied. The point at which quantity demanded equals quantity supplied is the equalibrium point. At equlibruim, the market is in a state of balance and there is no incentive for either suppliers or consumers to change their respective quantities. The rental rate corresponding to this point is called equalibrium quantity. At any rental rate above equlibrium, the quality supplied is more than the quantity demanded and there is a surplus of apartments in the market. This means that Good Life would supply more apartments than potential tenants would be willing to pay for. For potential tenants to increase their quantity demanded, the rental rate has to decline, because quantity demanded increases only when price decreases, other things remain constant.

Good Life now has 3200 two bedroom apartments available for lease and we were able to correctly indentify the impact of a change in preferences on the demand for and supply of two bedroom rented apartments. We also identified the appropriate equalibrium rental rate. A change in preferences toward purchasing detached homes reduces the demand for two...

References: University of Phoenix (2008). Economics for Business 1. Applying Supply and Demand Concepts, Retrieved April 26, 2010 from University of Phoenix ECO365 Principles of Microeconomics week 2 assignment simulation Web site
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