Supply and Demand is a phrase that every one hears in one way or another, Supply and demand phrase according to Colander, (2010) is the most used phrase by economist and the reason is because the phrase provides a good “off-the-cuff” answer for many question that have to do with economy. Example why are interest rates to Low? Because supply and demand. Why is Gasoline so high? supply and demand. This paper will speak about a simulation found on University of Phoenix student website, simulation named “Applying Supply and Demand Concepts” This paper will speak about macroeconomics and microeconomics principles, Paper will also refer to shift of the supply curve and shift of the demand curve. Also how the how concepts of Microeconomics and Macroeconomics help understand the factors that affect shifts in supply and demand on the equilibrium price and quantity, and last how the price elasticity of demand affects a consumer’s purchasing and the firm’s pricing strategy.
Microeconomics and Macroeconomic Principles
According to Colander (2010) Microeconomics is define as “the study of individual choice, and how that choice is influenced by economic forces.” With this in mind, principles present on the “Applying Supply and Demand Concepts” simulation are Rental unit Prices and Rental units supply. According to Colander (2010) Macroeconomics is defines “is the study of the economy as a whole.” With this in mind one can say that macroeconomics principles on this simulation are population trends that lead people to choose to rent or not rest and factors that lead people to make this type of choices.
According to Colander (2010), states that Demand can be defined as “Quantity demanded rises as price falls, other things constant. Or alternatively: Quantity demanded falls as price rises, other things constant.” And on the other hand Supply can be defined as “Quantity supplied rises as price rises, other things constant. Or alternatively: Quantity supplied falls as price falls, other things constant.” (Colander, 2010) On the simulation supply of two bedrooms apartment has reach 2,000 and according to the analyst, company need to decrease vacancy rates to 15% in order to increase revenue. By decreasing rent demand will increase vacancy will decrease and revenue will increase.
Shifts of the Supply and Demand Curves
As the supply of apartment increases the supply curve shifts towards the right as direct result of apartment supply increase rental rate also increases. Total of apartment supply is 2,500 and by leasing all of the apartment rental rate will be driven to $1,500. Because demand curve shift downwards when rent rate and apartment supply increases, by increasing rent rate to $1,500 demand will lower and in order to accomplish equilibrium, company would need to lower rental rate to $1,050. This is where the supply and demand reaches equilibrium.
Relevance in Real World and at the Workplace
Supply and demand is a famous phrase as previously mention and one don’t realize that this phrase or concept applies to one personal life in a lot of ways. For example I work for a bank and we sell services to customer in the form of banking, saving or investment products. From a Macroeconomic prospective all of us a one point need to have a bank account of in order to accomplish many financial needs, it is because of these need that there is always demand for banking products. It is based on this demand that interest rates for savings accounts varies based on the demand the supply (interest rates) varies. From a microeconomics prospective if outside indicators like market condition or unemployment rate changes rates for saving account will also change.
It is based on those factors that sometimes people decides to stop saving and bank will to increase saving rates but bank can only do it to a certain point because increasing saving rates to much will mean that lending money will have a higher rate. There is got to be balance. Understanding the concepts of macroeconomics and microeconomics help understand factor that affects shifts in supply and demand because now one can see with clarity what are the categories and what those categories are, the ones influence supply and demand and how this same factor may bring equilibrium.
Price Elasticity of Demand
According to Colander (2010), the price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. As for this simulation, if the demand experiences a negative percentage change (if it decreases) the price of renting an apartment will also decrease. So, rental rate will decreases as the demand decreases. On the other hand, when the supply decreases or increases, the rental rate will remain constant. If the demand increases, the rental rate will be increased, since more people will want apartments (the company is able to increase the prices – the law of demand). According to Colander (2010) Price Elasticity of Demand can be defined as “the percentage change in quantity demanded divided by the percentage change in price:
This paper has referred to various terms from the macroeconomic and microeconomic environment. It has analyzed trends and also shifts of the supply and demand curve for a company that rents two-bedroom apartments in Atlantis. The paper has also referred to situation from the real world where microeconomic concepts can be applied. Last, it has talked about price elasticity of demand with respect to the company that rents apartments. The paper serves as an element of understanding supply and demand concepts when it comes to the microeconomic environment.
Colander, D. C. (2010). Economics (8th ed.). New York, NY: McGraw-Hill. University of Phoenix. (). Applying Supply and Demand Concepts [Multimedia]. Retrieved from University of Phoenix, ECO/265 – Principles of Microeconomics website.