Goodlife Management: Simulation on the Laws of Supply and Demand

GoodLife Management: Simulation on the laws of Supply and Demand

Danielle Taliaferro

ECO 365

September 1, 2015

Robert Watson

GoodLife Management: Simulation on the laws of Supply and Demand

One of the most fundamental concepts of economics is Supply and Demand.  It is an economic model used in markets to determine price according to the current need by the associated demographic. According to Colander, D. (2010) “Prices are the tool by which the market coordinates individuals’ desires and limits how much people demand.  When goods become scarce, the market reduces the quantity people demand; as their prices go up, people buy fewer goods.”  GoodLife Management is a property management firm in the well maintained city of Atlantis. Offering easy access to highways, adequate parks, low crime rates, and well maintained sidewalks, this city is highly desirable to current and future residents.  GoodLife Management currently reports having over 2,000 two-bedroom apartments with only a 28% vacancy rate.  With these current figures it is important to consider the supply and demand curve in order to forecast the equilibrium in the market.  Moreover, the curve often shifts with demands so it is important to recognize these shifts in order to determine how the equilibrium is re-established.

Microeconomic and Macroeconomic Principles

In the simulation assigned there were microeconomic principles present such as Supply and Demand.  When completing the simulation it was discussed that in order to lower the percentage of vacancy to 15% the price of rent would need to be lowered.  In doing so, revenue would also be maximized for GoodLife Management.  There was an increase in the population of Atlantis after Lintech arrived.  Due to the arrival of this business more jobs became available which, in turn, drove up demand for housing.  This not only affected the vacancy rate for GoodLife Management, but also assisted with the renewal of leases as tenants were persuaded to stay in the area.

The simulation also included some macroeconomic principles as the government was soon to be involved.  A cap in rent was created in order to prevent price gouging of the apartments available.  That cap was set at $1,550 per month for the two-bedroom option.  This rate was specifically aimed at families that were considered a part of the middle class.  This provided these families some financial flexibility to be able to live in the city that they work. After a survey was conducted it was revealed that some residents began to consider renting in a neighboring complex, Oakridge.  Oakridge offered detached homes at a similar rate that was more stable than GoodLife.

Shifts of Supply and Demand Curve

Many shifts are present in the simulation that represent the principles of Supply and Demand.  A shift occurs as the number of apartments in inventory increases.  The demand curve will shift down as the rental rate and number of apartments available increases. When reaching the two year mark in the simulation it was noted that GoodLife was managing over 3,000 two-bedroom apartments at a monthly rate of $1,150.  An increase to the 2,000 apartments at the beginning of the simulation.  The arrival of Lintech, Inc. has forced a growth in the population of Atlantis thus causing a shift in the demand curve to the right.  The supply curve will not be effected due to the number of apartments currently being demanded in the market which is more than the number of apartments GoodLife is willing to rent at the current rate. As the rate of rent increases, quantity demanded will decrease and quantity supplied will also increase.  This will ultimately result in a reduction of the shortage until the equilibrium is reached between the new demand curve and the original supply curve.