Supply and Demand Simulation ECO/365 Supply and Demand Simulation In the University of Phoenix simulation (2003), students are taken through the supply and demand of two-bedroom apartments in a city called Atlantis. The simulation itself is used as a tool to learn about the demand and supply curves as well as equilibrium. Other key learning points are the factors that affect supply and demand, the effect that a price ceiling has on the quantity demanded and the quantity supplied.
Throughout the simulation, students determine the rental rates or how many apartments are rented out for a given month. A microeconomic principle that stood out at the beginning of the simulation was the use of the word “monopoly”. The simulated management organization has a monopoly in the rental field within Atlantis. I considered it to be a microeconomic principle in that it was limited to a certain region. On a macroeconomic scale, it would not hold true because of the fact that there are numerous rental management organizations throughout the world.
The second microeconomic principle from the simulation was the scenario in which the student is to determine a monthly rental rate that will remove the imbalance between quantity demanded and quantity supplied at the rental rate of $1550 (University of Phoenix, 2003). I consider this to be a microeconomic concept because each industry or field has its own norm for quantity demanded which definitely affects how much is supplied. An example of this is that of exotic cars. There is a limited number of these vehicles in demand which results in the manufacturers of these cars to build only a limited amount.
A macroeconomic principle that showed through in the simulation was that for any product, more quantity is demanded at a lower price, other things remaining constant. To apply that to a microeconomic scale using the simulation as an example, when the rental rate was reduced, more individuals were willing to rent apartments which led to a lower vacancy rate. As the rental rate is lowered, revenue first increases, reached a maximum at a particular rate and quantity demanded, and decreases. The second macroeconomic principle from the simulation was the supply curve demonstration.
The student is tasked to identify correctly, the rental rate that the company would charge if it were to lease out all of the apartments. For any supplier, production costs normally increase for each additional unit of the product. In the case of the simulation, it was maintenance costs that were added for each unit rented out. This added cost meant that the rental rate had to increase as well. When the rental rate increased, the number of apartments that management was willing to lease out increased. This was a basic demonstration of how the supply curve works.
At one point within the simulation, there is a shift in the demand curve. This is because there was an increase in the population in the city. At any given rental rate, more people rented apartments. This resulted in an increase in demand but the supply remained the same. As a result, the demand curve shifted to the right. The new equilibrium price is now higher than before and the number of apartments demanded and supplied increases. The change in expectations of management caused the supply of two-bedroom apartments to decrease.
The expectation was that more individuals would prefer to live in a condo vice the two-bedroom apartment. It also eventually occurred and as a result, this factor caused the supply curve to shift to the left or decrease because there was not only a decrease in the demand for the two-bedroom but also a decrease in the supply. Since the shift in supply was greater than the shift in the demand, the price of rent increases. Had it been the other way around, the rental rate would have declined. Through this simulation, I was able to understand the affect of price ceilings.
In the case of the simulation, while tenants could only be charged up to a certain amount, they might be subjected to make up a portion of the difference by higher deposits in order to lease. Price ceilings could also lead to discrimination in the form of choosing tenants on the basis of race, socioeconomic status, etcetera because the number of units that are available far exceeds the number of units the company is able to rent out due to costs. References University of Phoenix. (2003). Applying supply and demand concepts [Multimedia]. Retrieved from University of Phoenix, ECO365 website.
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