Running head: SUPPLY AND DEMAND SIMULATION PAPER

Supply and Demand Simulation Paper

ECO/365
November 24. 2014

Supply and Demand Simulation Paper

SUPPLY AND DEMAND SIMULATION PAPER

The simulation is about The Good Life which is the only property management
business of renting apartments in a well-maintained city named Atlantis; this means they possess
a monopoly in this market. Good Life currently runs seven apartment complexes, with 2.000
two-bedroom apartment and need to determine the monthly rental rate to ensure that more of
these apartments occupied and therefore maximized their revenue Supply and Demand
Simulation).
From this simulation, this paper will categorize two microeconomic and macroeconomic
principles and why were considered these principles or concepts as microeconomics or
macroeconomics. Also, this paper will identify at least one shift of the supply curve and one shift
of the demand curve following what causes these shifts and the supportive factors of the shift. I
will also share examples, related to my work and how it will help me to understand the factors
that affect shifts in supply and demand on the equilibrium price and quantity.
A basic principle of microeconomics is the theory of the firm. This principle examines
the efforts that the company makes to improve the profits (Colander, 2013). In the first scenario,
Good Life has 2,000 two-bed rooms apartment with a 28% vacancy rate. Susan recommends
bringing down that vacancy percentage to 15% and also she asked to increase profit.
To achieve these two goals, were necessary to reduce the rental rate, which gave us a
reduction of the vacancy rate to 15% and as a consequence of all these reductions, we obtained
an increase of $0.11 million on the revenue compared to the revenue we had when the vacancy
rate was 28%. The second scenario, Good Life has 2,500 two-bedroom apartments available on

SUPPLY AND DEMAND SIMULATION PAPER

a temporary month-to-month basis at the rate of $1,100. Susan suggests leasing out all 2,500
apartments.
The questions are: It is possible to do it? And, at what rental rate? To achieve this goal
were necessary to increase the rental rate not just to comply the goal, but also to compensate the
maintenance and other expenses that will regardless increase the rental rate. Therefore, we
increase rental rate to $1,550 to obtain vacancy rate 0%. Those two scenarios represent the
concept of microeconomics, because even when it involves a company, the impact and outcome
only affect the company directly and is always at a personal level. The two scenarios that had
external impacts on Good Life like Lintech Inc. which are moving into Atlantis, and also the
increase in residents in Atlantis are both models of macroeconomics, since those to variables not
only affected Good Life, but also affected the complete city of Atlantis (Supply and Demand
Simulation).
In reference to the first two scenarios, the first one represents greatest the demand curve.
There was a surplus in vacant apartments, so the rental rate decreased in order to increase the
number of units rented out. As the rental rate goes down, the vacancy rate goes down also. This
scenario demonstrates a demand curve that fluctuates downward. The second scenario shows the
supply curve flowing upwards in line for to the rental rate rise when maximum vacancy was
gotten. The shortage in the supply will always outcome in a price growth. (Colander, 2013)
Normally we talk about the law of supply and demand in our real lives, but in practice
these two concepts are not very clear. The law of demand refers to the relationship between price
and quantity demanded which means an increase in the price, causes a decrease in the quantity

SUPPLY AND DEMAND SIMULATION PAPER

demanded, and vice versa, the price reduction will increase the quantity demanded. The law of
supply refers to the relationship between price and quantity supplied which means an increase in
the price causes an increase in quantity supplied, and a decrease in price causes a reduction in the
quantity supplied (Colander, 2013). Few examples in real life can help to understand better the
concept, as is the case of the gas price that lately are falling because of changes in world supply
and world demand. The most important reason of those changes is that America has become in
the last few years an energy-producing motivating force, therefore demand has slowed because
since 2008 the U.S. has improved our domestic supply by an enormous 50 percent (Moore,
2014). Another reason for to love the oil and gas wealth is that Saudi Arabia is overwhelming the
world with oil that pushes the world price persistently lowers. The Arabs understand that shale
energy explosion is no short term trend. It could make energy cheaper for decades to come
(Moore, 2014).
Microeconomics has helped in general in the understanding of how supply and demand
affect equilibrium price and quantity. Every single business need to look at ways to increase its
production thus they can decrease their prices, that way can remain competitive. This situation
will control the equilibrium price of products by increasing the quantity of product available,
consequently permitting the company the capability to lower prices for its consumers.
Macroeconomics has helped me recognize the elements that changes in population in a
city as in the simulation have an unquestionable impact on supply, demand, and equilibrium
price and quantity affecting the whole city configuration of social amenities, water and
electricity, and community transportation services etc. Macroeconomics is used as the economy

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changes such as with inflation (Colander, 2010). Inflation would allow companies the escalation
on cost of their products and consequently to pass new equilibrium prices to their consumers.
This Inflation would create a change in quantity to be set as a supply need to be adjusted
to come across the decrease of demand in arrears of the economy effects on equilibrium price
and finance. Demand will increase or decrease based on the price of a product or service given
by a business (Colander, 2010).
Consumers have a trend to purchase products where price is convenient, and that is right
for their budget (Colander, 2010). Businesses have to offer discounts or incentives to their
consumers therefore customers will increase product or service demand (Colander, 2010).
Consumers practice pricing tactics to buy when prices are low. However, companies have
to modify prices toward increase demand when necessary. The same effect was on the
simulation. The price elasticity of demand is elastic which it means that it can change and in
return obtain a direct result (Colander, 2010).
In conclusion, the simulation gave us an insight to how price and quantity will affect
supply and demand in any industry. The supply and demand delivered an understanding of the
different economic concepts and allowed us to take decisions to obtain the best results.

SUPPLY AND DEMAND SIMULATION PAPER

References:
Colander, D. C. (2013). Microeconomics (Ninth ed.). (M.-G. H. Company, Ed.)
Moore, S. (2014, October 26). The True Reason Gas Prices Are Falling (Hint" it's not Because
os Green Energy). Retrieved from The Daily Signal:
http://dailysignal.com/2014/10/26/gas-prices-falling/
Supply and Demand Simulation