Principles of Microeconomics
December 17, 2015
In this simulation several scenario were presented. It was the student’s responsibility to use the information learned from assigned reading material to apply the learned concepts to make the correct decisions.
The housing market in Atlantis comprises of both detached homes and apartments. The simulation explains the supply and demand of 2 bedroom rental apartments in Atlantis. The three subjects demand curve, the supply curve, and equilibrium are explained. The impact of a price ceiling on quantity demanded and quantity supplied of two bedroom rental apartments are discussed. The closest substitute to a two ...view middle of the document...
A higher price for a product is an incentive to supply more. Therefore, as the rental rates increases, the number of apartments that Goodlife is willing to lease increases. This could be because the production cost, or the maintenance cost, increases for each additional unit of the product. The increasing maintenance cost means that each additional unit of the product would be supplied at a higher price. The supply curve is, therefore, upward sloping. As the rental rate is increased, the number of apartments supplied increases. For some suppliers a higher rental rate is an incentive to lease more apartments, however, a high rental rate also means lower quantity demanded of apartments.
The point at which quantity demanded equals quantity supplied is the equilibrium point. At equilibrium, the market is in a state of balance and there is no incentive for either suppliers or consumers to change their respective quantities. The rental rate corresponding to this point is called equilibrium rental rate, and the corresponding quantity is called equilibrium quantity.
At any rental rate above equilibrium, the quantity supplied is more than the quantity demanded and there is a surplus of apartments in the market. This means GoodLife would have supplied more apartments than potential tenants would be willing to pay for. For potential tenants to increase quantity demanded the rental rate has to decline, because quantity demanded increases only when price decreases. As the rental rate decreases, quantity supplied of apartments also decreases. There would be less incentive to supply at a lower price. The surplus becomes smaller and smaller as the rental rate decreases, leading to an increase in quantity demanded and a decrease in quantity supplied. This adjustment continues until equilibrium is attained.
At any rental rate below equilibrium, the quantity demanded is more than quantity supplied, leading to a shortage of apartments in the market. Potential tenants would be willing to pay for more apartments than Goodlife would be able to supply. To increase quantity supplied, the rental rate would have to increase, because more is supplied only at a higher price.
Lintech, Inc. has decided to set up office in Atlantis. The company has had a successful growth over the last three years Due to the company’s successful debut of the “Customer Relationship Management Solutions” as a result of this growth the company was able to expand into the city of Atlantis. The result of Lintech, Inc, expansion into this new area would bring an increase in population. An increase in rental rates was in response to the increase in demand. An increase in population increases the demand for rented apartments. But does not affect the supply of these apartments. At any given rental rate, more people demand rented apartments. The results is an increase in demand. Thus the demand curve shifts to the right.
The increase in demand means that quantity demanded is more than quantity...