Eco 365 - Microeconomics and the Laws of Supply and Demand

Microeconomics and the Laws of Supply and Demand

Dawn Dunbar

ECO/365

September 28, 2015

Michael Blakley

Microeconomics and the Laws of Supply and Demand

Supply and demand are a part of everyday life. One may not realize that it is a factor in every decision they make. Many businesses use the law of supply and demand to determine at what price they need to set their product to make the most profit. As in the simulation on supply and demand concepts you are asked to answer many different scenarios based on different factors.

Summary of simulation

In the simulation you are asked to answer questions about what effect price may have on supply and demand. In the first scenario you are asked to reduce the vacancy rate. To be able to reduce the vacancy rate you need to lower the price of the apartments to increase the demand for them at a certain price. A reduction in price has a direct correlation to an increase in demand when there is no change in any other factors (University of Phoenix, 2015).

In this simulation you are also asked what a effect there would be when a new business moves into town and the population would increase. The increase in population is macroeconomic factor. I have come to this conclusion because an increase in population effects the economy of the town as a whole. It also shifts the demand curve to the right, which means that there is an increase in demand for apartments (University of Phoenix, 2015).

The demand curve is shifted to the right because of the increased demand for apartments without regard to price. If there was just an increase in demand due to price it would just move along the demand curve. A shift occurs when there is an increase or decrease in demand when price is not a factor (Colander, 2013). In the simulation the shift was to the right which had no change in supply but an increase in the price of the apartments

Another macroeconomic factor that was encountered in the simulation was the setting of a price ceiling by the city government. This is macro because it has nothing to do with individual desires but the economy as a whole (Colander, 2013). The effect of the price ceiling below equilibrium created an excess in demand and a shortage in supply.

There were also two microeconomic scenarios. One of them being a change in preference from apartments to single family homes (University of Phoenix, 2015). A change in a person’s preference is a micro factor because it has to do with the individual’s decisions and their wants. If a person decides they want a single family home over an apartment it will create a shift in the demand curve to the left. The supply is not affected by this preference though.