Supply and Demand Simulation

Supply and Demand Simulation

The simulation “Applying Supply and Demand Concepts” deals with the supply and demand curves affected by different situations that happened with Goodlife's two bedroom apartments in the city of Atlantis. The simulation called for decisions to be made based on what was happening in the community of Atlantis and what Goodlife was trying to achieve economically as a result of the changes within the community. This paper will summarize each of the concepts found in the various scenarios and explain what caused the changes in supply and demand, how the changes in supply and demand ultimately affected the decisions that were made and relate the concepts of supply and demand to Aflac's Software Testing Services department.

During the first year of Goodlife's existence in Atlantis, the company wanted to see what monthly rental rate would have to be charged to ensure that the maximum revenue was received for the 2,000 apartments that were available. It was determined that to receive the maximum revenue of $1.81 million, each apartment would have to be rented at a monthly rental rate of $950. At this monthly rate, which was lower than the original $1300, 1,900 apartments were in demand to be rented leaving a surplus of 100 apartments. This shows that the lower the price placed on a good, the demand for the good increases. With this concept in place to rent out all of the apartments that Goodlife owns, the price for the apartments would have to be lowered even more to increase the demand for them. Although this seems like a very good concept for the consumers, the suppliers see differently. At lower prices, suppliers tend not to want to provide a high number of what they have to offer because of the cost of maintaining each apartment unit. The cost of maintaining the apartments does not decrease thus renting each apartment at at a lower rate does not provide a profit to the supplier ultimately making the supplier limit the amount of good to be available to be rented at the lower rate. The demand and supply curves go in opposite directions, the lower the price of a good the higher the demand for it meaning that the demand curve is always downward sloping while the lower the prices is for a good the less of it a supplier wants to provide meaning that the supply curve is always upward sloping.

During the second year of Goodlife's existence in Atlantis the number of two bedroom apartments that were managed by the company increased to 3,000 units. Along with this increase in units, a new company moved into the city which caused an increase in the population. With this increase in population a change in the demand for apartments increased. Because of this increase in demand, Goodlife's response was to increase the monthly rental rate. To determine what the new rate would be, Goodlife had to determine what the equilibrium point would be for what they were willing to supply or rent out and the amount that each unit would rent for. Finding the equilibrium point will ensure that there is a balance in the demand and supply for the apartments. The importance of finding the equilibrium point is because if the rental rate is above the equilibrium point then the supply would be more than the demand and if the rental rate falls below the equilibrium point then the demand would be more than the supply. There are various factors that can affect the equilibrium of supply and demand of any given good. With Goodlife, the increase in salary resulted in an increase of more of the workers wanting to purchase homes as opposed to renting apartments. The shift in housing preference resulted in a decrease in demand and a surplus in supply. To offset this change, Goodlife had make a change in the rental price of their two bedroom apartments to accommodate the change thus a new equilibrium point had to be determined. Finding the equilibrium point in supply and demand ensures that there is not a shortage or surplus in either direction.

Two more years into the simulation, Atlantis experienced and increase in population and businesses coming into the city which caused increases in population and demand