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Autor:   •  May 21, 2011  •  739 Words (3 Pages)  •  545 Views

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While being property manager of Good Life Management, my duties are receiving 30-day notices for upcoming vacancies in apartments, establishing new rental rates for them, and setting advertising schedules. I have to bring the vacancy rate down to less than 15 percent because this enables us to increase revenue. At a vacancy rate of 5 percent, revenue can be maximized.

When reducing the rental rate, more tenants are willing to rent the apartments and this leads to a lower vacancy rate. As the rental rate is lowered then revenue initially increases. At a rental rate of $ 950 per month there were tenants for $ 1,900 apartments. The revenue is maximized at $1.81 million. The supply curve for a product is an imaginary line at a point in time that tells us the quantities a supplier would provide at various prices of the product. The supply curve cannot be accessed by the decision maker. For any supplier, a higher price is an incentive to supply more, other things remaining constant. Therefore, as the rental rate increases, the number of apartments that Goodlife is willing to lease increases. This could be because the production cost, or in the case of Goodlife, the maintenance cost, increases for each additional unit of the product. This increasing maintenance cost means that each additional unit of the product would be supplied as a higher price. The supply curve is, therefore, upward sloping. As the rental rate is increased, the number of apartments supplied, increases.

The point at which quantity demanded equals quantity supplied is the equilibrium point. At equilibrium the market is in a state of balance and there is no incentive for either suppliers or consumers to change their respective quantities. The rental rate corresponding to this is called equilibrium rental rate, and the corresponding quantity is called equilibrium quantity. Quantity demanded increases only when price decreases, other things remaining constant. At any rental rate below equilibrium, the quantity demanded is more than the quantity supplied, leading to a shortage of apartments in the market.

An increase in demand means that quantity demanded is more than quantity supplied at the original equilibrium, and there is a temporary shortage in the market. At a price ceiling below equilibrium, the quantity supplied is less than the quantity demanded. In a non-price ceiling situation, the rental rate would increase to induce an increase in quantity supplied. Price ceilings can have both economic and social consequences. Price ceilings can also lead to discrimination is choosing tenants, for instance, on the basis of race, religion,


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