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Supply and Demand Essay

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Various factors, including fluctuations such as increases or decreases in prices, can cause a change in supply and demand as well. This paper will attempt to discuss different economic principles and factors and how they are affected by change. In the current situation, GoodLife Management manages seven rental properties in the city of Atlantis, and over the course of 7 years has to be flexible with its pricing due to changes in demand. Economics is literally defined as “the study of how human beings coordinate their wants and desires, given the decision-making mechanisms, social customs, and political realities of society” (Colander, D.

C., 2010). Simply put, economics focuses on three things: 1) what, and how much, to produce; 2) how to produce it; and 3) who to produce it for. Microeconomics is the study of individual choice, and how that choice is influenced by economic forces; while macroeconomics is the study of the economy as a whole (Colander, D.C., 2010).

When looking to microeconomic principles, scarcity is the first that comes to mind.

The more scarce a service or product, the more the supplier will be able to charge for it. In the situation at hand, when the influx of employees began coming to Atlantis, GoodLife was able to raise the prices of their apartments. Consumers had the choice of whether to rent the apartment for the price given, or go to a neighboring town, where the price might not be as high. A rise in the population of Atlantis led to a greater demand for housing. This in turn contributed to the rise in rental prices. Next would be opportunity costs, which is the “benefit that you might have gained from choosing the next-best alternative” (Colander, D.C., 2010). Again, this comes down to consumer choices. If someone could live in a neighboring town and pay less rent, they would have a longer commute; whereas if they lived in Atlantis in the GoodLife apartments, they would pay more for rent, but have more time to spend with family due to the lack of commute.

On the other hand, macroeconomic principles include the invisible hand, and economic forces. Economic forces are a reaction to scarcity. The economic reaction of GoodLife could be one of two – it could lower prices to entice consumers to rent its apartments instead of going to neighboring communities. If consumers were, indeed, paying the price for apartments and there were not many left, GoodLife could also raise the price of those apartments because there are not as many to choose from. Invisible hand is the principle that “gives more power to the supplier of something that is in short supply” (Colander, D.C., 2010). If there are not many apartments left to rent because the majority of them are all rented, and there are more interested consumers than apartments, the invisible hand says that GoodLife can raise the price and get a higher premium for those apartments because of the demand.

A shift in the demand curve in this simulation is when GoodLife needed to have a 15% vacancy rate. In order to do this, it lowered apartment rental prices, thereby increasing the demand for the apartments. A shift in the supply curve occurred when GoodLife raised the prices of their apartments to $1,550 per month in order to cover maintenance fees for all apartments. They were able to supply more apartments at this rate. Housing prices in my area have continued to drop because there is a large supply, however there is not currently a demand. Until consumers begin purchasing houses again at a fairly consistent rate, the prices will continue to stay low.

Once people begin consistently purchasing homes again, the prices will begin to rise back up. The price elasticity of demand for goods and commodities determines a consumer’s behavior in the event of a price change. Products which are price elastic will experience dramatic movements in demand in response to price changes. If prices are lowered, consumers will demand more of the product; however, if prices increase, consumer demands for the product will be lower. Suppliers who supply goods that are price elastic will deliver fewer units to the market when prices fall, and more if prices rise.

References:
Colander, D. C. (2010). Economics (8th ed.). New York, NY: McGraw-Hill. Investopedia (n.d.) Economics Basics: Demand and Supply. Retrieved from Investopedia.com, http://www.investopedia.com/university/economics/economics3.asp#axzz1x3HdbLol

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