Essay on Application of the Laws of Supply and Demand
The law of supply and demand are fundamental concepts in economics. It is the basis for most economic principles. It explains the relationship between the behaviors of buyers and sellers of a product in a market, and how that relationship affects the product’s price. In simple terms, the law of demand states that buyers buy less of a product when its prices go up because it impedes on their ability to purchase other necessities (Rice University, 2012, chap. 3.1). Meanwhile, the law of supply states that producers supply or produce more of a product that has a higher price because that increases revenues (Rice University, 2012, chap. 3.1). Price is the primary factor that affects the movement of the supply and demand curve, however other factors affect the shifts in the curve. In the succeeding custom essay, the author shall demonstrate how factors such as microeconomics versus macroeconomics, equilibrium pricing, and price elasticity impact the laws of supply and demand through Goodlife Management’s and its property manager’s decisions.
The simulation involves different scenarios wherein the student, acting as the property manager for Goodlife Management, must apply the theories of law and demand to successfully manage seven apartment complexes in the city of Atlantis.
In the first scenario, the property manager is asked to reduce the vacancy rate from 28% to 15%, then again to 0%. To achieve this, the property manager must increase demand for the apartments. The property manager stimulated the demand for the apartments by reducing the rental rate, thereby making it more attractive for the people in Atlantis City. This is an example of microeconomics at work. Since microeconomics is the study of the impact of individuals’ choices, the property manager’s decision to reduce the rental rate is within the scope of microeconomics. With this decision, the demand for the apartments is expected to go up. Following the increase in demand for the apartments, the equilibrium price would slightly move to the right as the demand curve moves to the right and the supply curve stays the same. Such a shift in the demand curve would cause the equilibrium price to go up, meaning an increase in rental rates. However, since the supply of apartments would stay the same, and his goal is to reduce the vacancy rate as opposed to increasing revenue, he/she would be encouraged to follow through with the decision to reduce the rental rate. Furthermore, since the increase in demand was stimulated by a reduction in the rental rates, it is highly likely that an increase in the rental rates would lead to a fall in the demand once again (Saylor Academy, 2016, chap. 6). This is another example of microeconomics as the property manager’s decision regarding the price of the product is the sole factor that changes and affects demand.
Two examples of macroeconomics are when Goodlife Management experienced a decrease in demand for apartments caused by an increase in businesses, construction, congestion, and lack of affordable housing, which led the city council to enforce a ceiling rental amount on all two-bedroom apartments. These macroeconomic factors may have reduced the rental rates, but it could not prevent Goodlife Management’s response, which is to cause a shift in the demand by converting some of the apartments into condominiums. Goodlife Management’s move would allow them to attract a wider demographic of tenants, and consequently, increase the rental rate. The decisions made by Goodlife Management, along with the external factors, drove the equilibrium price higher. Following the law of supply, Goodlife Management has the incentive to maintain higher rental rates as their revenue would definitely be higher as the vacancy rate goes down. Goodlife Management’s move is another example of macroeconomics that affected both supply and demand. By converting the apartments into condominiums, the company reduced the number of available 2-bedroom apartments while increasing the supply of condominiums. With a low supply of apartments, rental rates are likely to go up, if only to meet the ceiling rental amount.
As was demonstrated in the written assignment simulation involving the apartment complexes of Goodlife Management in Atlantis City, microeconomics and macroeconomics do not just impact the prices of goods, but they also affect each other. Each individual’s or corporation’s decision affects macroeconomics, while macroeconomics also affects individual decisions.
Rice University. “Demand, Supply, and Equilibrium in Markets For Goods And Services.” In Principles Of Economics. OpenStax, 2016. https://opentextbc.ca/principlesofeconomics/chapter/3-1-demand-supply-and-equilibrium-in-markets-for-goods-and-services/
Saylor Academy. Principles of Microeconomics (Saylor Academy, 2012). https://saylordotorg.github.io/text_principles-of-microeconomics-v2.0/s09-markets-maximizers-and-efficie.html