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Supply And Demand

Essay by   •  February 6, 2013  •  722 Words (3 Pages)  •  1,595 Views

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Microeconomics addresses problems that face companies. This includes how much a company should charge for goods, how much of that good should be produced and how to compromise between revenue and costs to remain competitive. Microeconomics is defined as the branch of economics that analyzes the market behavior of individual consumers and firms in an attempt to understand the decision-making process of firms and households ("Microeconomics," 2013).

The first scenario in the simulation is a microeconomic issue because it directly relates to the company deciding to reduce the rental rates to increase occupancy or reduce the vacancy percentage. Supply and demand is the overall microeconomic problem in the simulation. Based on the definition of microeconomics the decisions to increase and/or lower the price of month to month rental properties based on preferences of the renters to live in other available areas because of the lower rental rates (substitution) directly impacts the supply and demand.

Macroeconomics is the study of the behavior of the overall country or economy. It is more focused on the trends and movement in the economy as a whole ("Macroeconomics," 2013). The major macroeconomic factors in the simulation were the price ceiling place on rental properties and the change in population or growth of Atlantis.

The population growth of the city created a shift in the demand curve of the rental properties. The larger number of people looking for places to live created a higher demand. When the consumer's changed their idea of the type of home they wished to reside in there was a shift to the supply curve causing an excess supply because the people wanted to live in single family homes or condominiums.

Equilibrium is a state of equality or balance in the demand and supply of the product. According to Colander (2010) equilibrium is a concept in which opposing dynamic forces cancel each other out (p. 95). In the simulation, it was demonstrated that when the prices were below the equilibrium the number of apartments demanded where higher than the number available causing a shortage in supply. This shortage caused the rental rate to increase which brought down the demand level to the equilibrium. The opposite would be true if prices were above the equilibrium.

The concepts of microeconomics help in understanding the various factors that can affect shifts in the supply and demand curve. The availability of properties, the types of properties available or desired, and the cost all impact the decision making of the consumer. Understanding what drives the shifts will better assist the firm in making informed decisions on input and output. An example of this would also be the new iPhone 5 being released just before the holiday. The desire of the public to have the newest innovation from Apple drove the demand higher than the supply. People willingly stood in line for hours to be get the

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