Laws of Supply and Demand

Your author has been given the responsibility of completing the demand and supply simulation and then discussing his thoughts on several questions presented before him. These questions deal heavily on microeconomics and macroeconomics with regards to managing approximately 3000 two bedroom apartments and their rentals. Your author will now address the questions as they were presented before him. Identify two microeconomics and two macroeconomics principles or concepts from the simulation. To begin, your author feels compelled to first give a brief description of what macroeconomics and microeconomics entails. Macroeconomics is simply a part of economics that focuses on big scale economic factors on city, state or country levels. These factors can range from interest rates to national productivity.

Two concepts from the simulation that were founded as macroeconomics are the price cap of $1550 imposed by the Government in year nine and the internal decision to get the vacancy rate down to 15% in year one. Microeconomics is mostly concerned with small scale factors that effects an individual’s decisions. These decisions can range from where to live or what products to buy based on the individuals financial situation. Two concepts from the simulation that were chosen as microeconomics by your author are as follows. The first is the entry of Lintech and increased population of Atlantis that followed Lintech for occupational purposes.

The second is the increased incomes of individuals working for Lintech and their desire to purchase detached homes as opposed to renting apartments. Explain why you have categorized these principles or concepts as microeconomics or macroeconomics. The price cap of $1550 imposed by the Government and the decision to get vacancy rates down to 15% are both large scale factors. Vacancies reduced to 15% on all two bedroom apartments in a city monopolized by one entity in charge of all two bedroom apartment rentals will have a large impact on the economics of Atlantis and is therefore macroeconomics. Any action imposed by Government will have large scale affects and is therefore macroeconomics.

Individuals deciding to follow an occupational resource to another location in order to secure said occupation and then residing in this location is microeconomics. This is a decision made on an individual bases. Likewise, these same individuals receiving increased pay from their new occupation and then choosing detached homes over two bedroom apartments as their residence is also an individual choice and microeconomics. Identify at least one shift of the supply curve and one shift of the demand curve in the simulation. One shift in the supply curve is from the Government imposing the $1550 cap of two bedroom apartment rentals in Atlantis. One shift in the demand curve is GoodLife choosing to sell 400 rentals as condominiums and then choosing to convert even more rentals to condiminiums.

What causes the shifts? The shift in the supply curve was caused by the Government imposing the $1550 rental cap and GoodLife deciding they could not make a profit by renting all their apartments at that capped price, thus the supply of their apartments was decreased in order for their apartment rentals to remain viable to the company. The shift in the demand curve was caused when GoodLife decided to convert 400 plus apartments into condominiums for sale. By decreasing the number of apartments available for sale, demand was increased. For each shift, analyze how it would affect the equilibrium price, quantity, and decision making. The shift in the supply curve caused by the Governmental imposed $1550 rental cap caused decisions to be made on the basis of profitability regarding renting units at a maximum of $1550.

The decision made by GoodLife was that they could not rent all their apartments at this price and still sustain viable profits. Supply was then shortened on available apartments for rent. The equilibrium price stayed unchanged as the quantity of apartments for lease dropped from 3,150 to 2,275 and demand stayed consistent since 875 apartments were now not being rented with the price cap. The shift in the demand curve was caused when GoodLife decided to convert 400 plus apartments into condominiums for sale. This decision was made because many people were choosing to purchase detached homes instead of renting GoodLife apartments. GoodLife believed that by shortening their supply of apartments and also reducing the monthly rental rate of their apartments that demand of their apartments would increase.

In total GoodLife shortened their quantity of rentable apartments from 3,150 to 2,050, leaving 1,100 apartments for sale as condominiums or otherwise not available. The equilibrium quantity is less than before the shift but the equilibrium price is more than before the shift. How may you apply what you learned about supply and demand from the simulation to your workplace or your understanding of a real-world product with which you are familiar? Your author now realizes that despite how good an item is by user reviews, it is a wise decision to wait a few months or even year after the product has been released to purchase. This new knowledge will be good to use in future car purchasing decisions. When a new sports car model arrives, the demand will likely be high and therefore the price will remain high. After six months to a year other sports car may arrive that have newer technologies and the demand of the sports car may go down.

The car company may continue their current production numbers of the sports car and decrease pricing in order to meet demands, or they may reduce production numbers in order to keep demand high and maintain their current pricing. If the company decides to leave their production numbers unchanged and decrease pricing then this is when your author would purchase the sports car. How do the concepts of microeconomics help you understand the factors that affect shifts in supply and demand on equilibrium price and quantity? Microeconomics paints a small picture on an individual basis that shows why one person or a large group of people make economic decisions. These individual decisions, when grouped together can have large impacts on supply and demand.

How do the concepts of macroeconomics help you understand the factors that affect shifts in supply and demand on the equilibrium price and quantity? Macroeconomics shows why economic decisions are made in city, state and country levels. Governmental economic decisions are based off of microeconomics of individuals and grouped together in populations. These statistics can range from the unemployment rate to average economic spending of households. This data is then used for such macroeconomic decisions as adjusting interest rates or placing caps on financial transactions. Explain how the price elasticity of demand affects a consumer’s purchasing and the firm’s pricing strategy as it relates to the simulation. As your author previously stated about purchasing the sports car, the price elasticity of demand is always changing.

As related to the simulation, consumers whom moved to Atlantis and received better pay from their new job at Lintech were in a position where they did not desire an apartment but wished to purchase a detached home. Only when GoodLife reduced the monthly rental rate on their apartments were they able to increase demand on their apartments and bring back consumers. In closing your author did not look forward to doing this demand and supply simulation, however after doing the simulation seven times in order to have an understanding for writing this paper, your author did admittedly learn quite a bit. Macroeconomics and microeconomics seemingly go hand and hand as microeconomics are needed in order to apply the overall macroeconomics of a large entity.

References
Rodrigo, G. C. (n.d.). Micro and Macro: The Economic Divide. Retrieved from http://www.imf.org/external/pubs/ft/fandd/basics/bigsmall.htm