Macroeconomics focuses on the entire economy while micro economics studies the individual characteristics and peoples within the economy. Both the fourth and seventh scenarios in the simulation were examples of macroeconomics. They illustrated examples that display the economy as a whole. For example, the affected changes were caused by an increase in the population and a change in consumer demand. The first and second scenarios were examples of microeconomics as they illustrated actions and decisions of individuals and businesses. Whenever the managers created lower or higher price points for rentals they affected the supply and demand curves.
As the summary at the end of the simulation states, “the supply and demand curve is not static; various factors cause them to increase or decrease.” For instance, in the simulation there was a shift in the demand curve with changes in the rental rates for the apartments. The supply curve shifted downward as the demand shifted upward with the changes in lower rental rates. More specifically, when the rental rates lowered to $1050 consumers began demanding more apartments at that rate. The increase in demand led to lower vacancies and, thus, less supply
The equilibrium price is the price that allows the supply to meet the exact quantity of what is demanded. When there is shortage in the market it put pressure on the price and increases the price. When there is a surplus in the market it exerts a downward pressure on the price and decreases and decreases the price. Surplus and shortage determines the rate of equilibrium.
Applying what we learned
Working for a tea supplier for the Los Angeles County and Orange County, the lessons in the simulation really resonated with me. I started to think about the effects of pricing on our products and its effect on the supply and demand for our specific products. I began thinking about what factors are necessary to meet the demands of our clientele without compromising positive revenues. By analyzing our current conditions and creating accurate supply and demand curves for our products I realized that our company can set prices at equilibrium. In the context of microeconomics, individual and business decisions are what create shifts in supply and demand on the equilibrium price and quantity.
For example, when the managers for the apartments made decisions to have lower vacancies they had to lower the price on there month to month rentals. This increased the demand while lowering the supply thereby creating a price that is closer to equilibrium. In the context of macroeconomics, population changes or things like unemployment rates would change the supply and demand. For example, when the unemployment rate is high there would be less demand for higher priced rental rates. This would, therefore, increase the supply. In other words, there would be a surplus in vacant apartments. With a higher population rate there would be an increase in demand.
There is a direct relationship between the prices of a product set by a firm to how much it will be demanded by the consumers. The price elasticity refers to these changes in demand as the price is lowered or raised. Therefore, the most essential question firms must ask first when determining a price points is, “How many people will demand a certain product at what specific price?” This does not take into consideration the supply held by a firm since it makes no difference to what is demanded based on the price.
Colander, D. C. (2010). Economics (8th ed.). New York, NY: McGraw-Hill.
University of Phoenix. (2013). Economics for Business 1: Applying Supply and Demand Concepts. Retrieved on October 27, 2013.