Applying Supply and Demand Concepts

Supply and Demand Simulation

The week two simulation “Applying Supply and Demand Concepts” places the student into a situation regarding the supply and demand for housing in the imaginary city of Atlantis, then has the student make decisions based off of the information provided. During the course of the simulation the tasks set before the student are to identify the causes of the supply and demand shifts explained in the simulation, identify the affect the shifts have upon the decision making process, list four key points from the weeks readings, apply those concepts to the students own work environment then summarize all the results of the simulation.

The first task presented to the student is to adjust the rental rates of the two-bedroom apartments to lower the vacancy rate to less than 15% while maximizing revenue. Taking this into account the best course of action was to adjust the monthly rent to $950 dollars per month; this action lowered the vacancy rate to a mere five percent and maximized revenue at $1.81 million for the year. It was noted in the simulation that there was still a surplus of 100 apartments and had the task been to lease all apartments, lowering the rent further would have been sufficient.

The second task presented in the simulation was to assess the possibility of leasing all the apartments at the current rate, and to find out the rate at which leasing all the apartments would cover maintenance costs and remain profitable to the company. The rate of $1550 per month was found to be the ideal rate to lease the apartments and still maintain a profit after the cost of maintenance for the complexes.

The third task presented to the student is to find the rental price for the apartments that will bring equilibrium between the quantity demanded and quantity supplied on the market. Equilibrium was found when the rental rate of $1050 was met, at this point the quantity demanded matched the quantity supplied and the apartment surplus was reduced to zero.

The fourth task to be completed was assigned after the introduction of a new company into the city of Atlantis. With this company came an expected increase in demand for two-bedroom apartments, but the supply would remain unaltered. In order to maintain market equilibrium the rental rates for the apartments should increased to $1400 in order to match the increase in demand.

The fifth and sixth tasks assigned in the simulation identified the growing desire of individuals living in Atlantis to buy detached homes. First the student was asked to identify the monthly rate that would need to be adopted in order to reestablish market equilibrium. The determination that there was a decrease in demand but not supply so the lowering of monthly rent to $1300 would reestablish the equilibrium. Six months later the continued decrease in demand for apartment living coupled with the conversion of many apartments into condominiums required additional evaluation to restore equilibrium. After careful consideration the decreases in demand and supply drive the rental rates of apartments to be changed to $1475 per month to reestablish equilibrium.

The seventh and final task presented to the student is after many years and the introduction of many new companies the city of Atlantis has become a thriving community for both residential and business interests. Due to this the government has decided to institute a ceiling on monthly rental rates of $1550. The student is asked to determine the number of rental units that should be made available to the public in order to keep Goodlife management viable in the area. The decision was made to supply 2275 units at a rate of $1550 per month. This decision doesn’t meet the quantity demanded of 3150 units and leaves an excess demand or shortage of 875 units.

A few of the key concepts used during the simulation are demand curve shift, supply curve shift, equilibrium and price ceilings. The demand