Eco 365 - Microeconomics and the Laws of Supply and Demand

Microeconomics and the Laws of Supply and Demand

Michael Bowman

ECO/365

November 23, 2015

        Gaminie Meepagala

Microeconomics and the Laws of Supply and Demand

 The Supply and Demand Simulation provides insight to some key concepts in economics as the user takes on the role of a property manager working for Goodlife, in the city of Atlantis, through an exploration of a variety of economic influences.  The simulation explores a variety of factors impacting both supply and demand and as a result of those two, equilibrium. The task is to adjust the rental rates to meet the demands of each of those factors and changes in an attempt to remain competitive. The purpose of this paper will be to examine the economic principles of the simulation to develop a clear understanding of the factors that affect shifts in supply, demand, and pricing.

Supply and Demand Simulation

The simulation begins with a description of a picturesque city with many attractive features that would attract potential customers for the property management company. Open spaces, parks, and well maintained as well as minimal traffic make Atlantis a popular destination. The current inventory of the company is apartments, but there are detached homes as well.  The simulation demonstrates how a movement across supply or demand curves can create significant changes within the economic model for a business.

A variety of scenarios is presented to attempt to reduce vacancy rate, increase revenue, The microeconomic principles exemplified would change in supply and demand and equilibrium since these only impacted the small apartment market in which Goodlife operates. The macroeconomic principles are price elasticity and price ceilings since they would have a broader impact regionally beyond the scope of Goodlife’s influence.

Close attention to the varying economic factors is required within the simulation to the organization operating at peak efficiency. The user has to navigate Goodlife through responses  to a variety of factors in an effort to generate the most revenue and profit.

Supply and Demand

The Law of Supply and Demand examine the behavior of individuals and the allocation of their resources. The changes to both the supply and demand are some of the most impactful factors in the pricing of most commodities and the apartments in the simulation are no different. The range of economic conditions dictates the moves on the part of Goodlife to hit their goals.

The law of demand tells us that if all factors are constant then as a price of a good or service increases, consumer demand for the good or service will decrease, and vice versa. ("Law Of Demand", 2015). Lowering the price, for instance, will increase the demand while reducing the supply. This would achieve higher revenue, but represent diminishing returns with a reduced margin per unit. These changes are visualized in the graph with the demand curve moving to the right and the supply curve moving to the left. A higher price would have the opposite effect assuming the number of apartments and population remained constant.