Microeconomics and the Laws of Supply and Demand Case

Microeconomics and the Laws of Supply and Demand

Tariana Junger

ECO/365

05/25/2015

Kevin McKinley

Microeconomics and the Laws of Supply and Demand

Introduction

The Supply and Demand simulation was about a business, Goodlife, which monopolized the apartment rental in a city, Atlantis. The simulation helped me to understand microeconomic and macroeconomic concepts. These concepts helped me to understand how the shifts in supply and demand effects the decision making process about how many apartments to supply at what rental price to even out the equilibrium.

Microeconomics

Two microeconomic concepts are the Law of Supply and the Law of Demand. These laws go over how people behave and allocate their resources. With the Law of Supply, the high price of something will increase the amount produced to make as much money as possible. If the price decreases, not as much is produced, so less is sold. In the Law of Demand, the lower the price, the higher the quantity of goods demanded. The decrease in rental cost caused a higher demand and a shorter supply.

Macroeconomics

Two macroeconomic concepts are price elasticity and price ceilings. In the simulation, price elasticity was very high. Price elasticity measures the responsiveness of quantity demanded which will change the price of something. As the price increased, in the simulation, demand decreased quickly. When the price decreased, the rental demand increased. Price ceilings are laws that prevent the cost of something from going higher than a certain amount. When the price ceiling was set at $1550, Goodlife could not charge more than $1550 a month for a two bedroom apartment. Because of the low rent, there was a higher demand and the supply didn’t meet the demand, which caused a shortage.

Shift in the Curve

The shift in the demand curve to the left causes lower demand in quantity. When consumers’ incomes increased, they had more money to spend on a place to live. They opted to live in detached homes instead of the apartments. This change caused the equilibrium to be imbalanced, prices lowered and demand lowered. With the shift to the left of the supply curve because of the price ceiling, the number of apartments available decreased. People were renting property that are less expensive and that are more desirable, so the equilibrium was off and the supply was low.