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ECO/365 Version 4
Principles of Microeconomics
Individual
Supply and
Demand Simulation
Complete the Supply and Demand Simulation located on the student website.
Write 700 - 1,050-word paper of no more than summarizing the content. Address the
following:
Identify two microeconomics and two macroeconomics principles or concepts from
the simulation. Explain why you have categorized these principles or concepts as
macroeconomic or microeconomic.
Identify at least one shift of the supply curve and one shift of the demand curve in
the simulation. What causes the shifts?
For each shift, analyze how it would affect the equilibrium price, quantity, and
decision making.
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?
How do the concepts of microeconomics help you understand the factors that affect
shifts in supply and demand on the equilibrium price and quantity?
Relating to the simulation, explain how the price elasticity of demand affects a
consumer’s purchasing and the firm’s pricing strategy.
Format your paper consistent with APA guidelines.
Supply and Demand Simulation
Supply and Demand is an economic model of price determination in a market and possibly
one of the most fundamental concepts of economics. It is the backbone of a market economy.
According to Colander, D. (2010) “Prices are the tool by which the market coordinates
individuals’ desires and limits how much people demand. When goods become scarce, the
market reduces the quantity people demand; as their prices go up, people buy fewer goods.”
Atlantis is a well maintained city that has everything to offer its residents; adequate parks, easy
access to highways, well maintained sidewalks and low crime rates. GoodLife Management is
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the property management firm that manages seven apartment complexes within Atlantis and is
the only firm to rent apartments. With over 2,000 two-bedroom apartments and only a 28%
vacancy rate, it is important to use the supply and demand curve to determine the equilibrium in
the market. It is also important to understand and differentiate between movements along and
shift of the demand and supply curves to determine how the equilibrium is re-established after
the shift in curves.
Microeconomic and Macroeconomic Principles
Some of the microeconomic principles present in the simulation include supply and demand.
The simulation mentions decreasing the rent amount in order to lower the percentage of vacancy
to 15% which would maximize revenue for GoodLife management firm. When Lintech arrived
in town, it not only increased the population and jobs, it also increased the demand for housing
which applied to both vacant apartments and renewal of leases.
Macroeconomics within the simulation include the fact that the government was forced to
step in and create a ceiling of $1550 for monthly rent on the two bedroom apartments
specifically aimed at middle-income families. This ceiling was created solely for the purpose of
allowing those families the financial flexibility to live in the city they work in. The Atlantis
housing survey revealed some shocking information because some residents were considering
renting Oakridge’s detached homes because the constant rise in price.
Shifts of Supply and Demand Curve
In the simulation, there are many different shifts of supply and demand. The supply curve
shifts when the numbers of apartments increase. As soon as the rental rate and the number of
apartments supplied increase, the demand curve shifts down. After year two of the simulation,
GoodLife is managing over 3,000 two bed-room apartments at a monthly rental rate of $1,150.
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The arrival of Lintech, Inc. has increased the population in Atlantis causing the demand curve to
shift to the right, while the supply curve has not been affected because the number of apartments
demanded is more than the number of apartments GoodLife is willing to lease at the current
rental rate. As the rental rate increases, quantity demanded decreases and quantity supplied
increases, leading to a reduction in the shortage until the equilibrium is reached between the new
demand curve and the original supply curve.
Affecting the Equilibrium Price, Quantity, and Decision Making
Supply and Demand curves express relationships between price and quantity. According to
Basu, C. (2013) “Equilibrium exists when supply equals demand. The shape of these curves and
the equilibrium price affect small and large businesses because revenues are a factor of price and
quantity.” In the simulation, the equilibrium would be affected because of the surplus and
shortages of apartments based on the increase or decrease in price and the influx of residents
resulting in the new firm coming to the city. These factors not only affect the equilibrium price,
but they also affect the quantity available and the decision making to whether or not it is
financially affordable to live inside the city or to travel outside where it has been affordable.
Applying the Simulation to a Workplace
The concept of Supply and Demand occurs every single day and I can easily relate the
different scenarios in the simulation to my specific occupation in the Marine Corps. My
occupation in the Marine Corps is a Supply Chief. I manage over 20 Marines in the office and
warehouse whose main priority is to ensure the customer (different sections and companies
within the Battalion) get what they need in a timely manner. We mainly deal with Class IX
repair parts so in a sense, our jobs are very important for the maintainers who must ensure the
vehicles and equipment remain in an operational state. Part of my responsibility is to also
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manage the budget which is divided between specific sections, for example, Motor
Transportation, Heavy Equipment, Airfield Operations, etc. I personally do not control the cost
per item, however I control the priority of demand based on the need and any current situations
at that time.
Factors that Affect Shifts in Supply and Demand
The concepts of microeconomics definitely help in the understanding of the factors that affect
shifts in supply and demand on the equilibrium price and quantity. Microeconomics studies the
behavior of individual households and firms in making decisions on the allocation of limited
resources. It applies to markets where goods or services are bought and sold which is something
we tend to see on a daily basis. There are many reasons and factors that affect the shifts in
supply and demand which include population, taste, price, growth and even inflation.
Price Elasticity of Demand Affect
The price elasticity of demand measures the rate of response of quantity demanded due to a
price change. According to NetMBA.com (2013) “An important aspect of a product’s demand
curve is how much the quantity demanded changes when the price changes.” In regards to the
simulation, if the demand for rentals decreases, the price of renting that apartment will also
decrease, however if and when the supply decreases or increases, the rental rate will remain the
same. If the demand increases, the rental rate will be increased because GoodLife understands
the concept of supply and demand and they will want to maximize on every opportunity possible
to make extra money.
In closing, Supply and Demand continues to be a very important part of our daily lives. It
comprises the fundamental concept on which our global economy stands and remains relevant to
every business. Companies that supply goods and services, such as the apartment buildings
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located in the city of Atlantis provide one side of the equation, while the individual or
individuals renting the apartments provide the other side.
References:
Basu, C. (2013). What Happens to the Equilibrium Price when Quantity of Supply & Demand
Shifts Upward? Retrived from http://smallbusiness.chron.com/happens-equilibrium-pricequantity-supply-demand-shifts-upward-36644.html
Colander, D. C. (2010).Economics (8th ed.). New York, NY: McGraw-Hill.
NetMBA.com. (2013). Price Elasticity of Demand. Retrieved from
http://www.netmba.com/econ/micro/demand/elasticity/price/
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