Basic Concepts: Supply and Demand Simulation Essay Example

Various factors such as population growth, renter preferences, and price ceilings mandated by the local government resulted in changes in the supply and demand of apartments. In the first year, there was a 28 percent vacancy rate, revenue of 1.0 (per million), a surplus of 550, a quantity demanded of 1450, and a monthly rental rate of 1175. A suggestion provided by Susan Hearst was to reduce the vacancy rate to 15 percent, set the rental rate at 1050, increase demand to 1700, and decrease surplus to 300 (University of Phoenix).

The supply curve in the first year had a positive slope to the right based on the current rental rate and quantity supplied, while the demand curve had a negative slope to the left due to the current rental rate and quantity demanded. Choosing a specific rental rate causes changes in both quantity supplied and quantity demanded. As the rental rate increases, there is an increase in quantity supplied, while as it decreases, there is an increase in quantity demanded. However, a decrease in rental rate leads to a decrease in quantity supplied.

According to the University of Phoenix, Susan Hearst suggested achieving zero percent vacancy rate by the third year by setting the rental rate at 1050 and ensuring demand and supply were both at 2000. This resulted in an equilibrium between the demand and supply curve. In year five, there was an anticipated rise in demand when Lintech Inc. relocated to Atlantis. Consequently, Hal Morgan proposed raising rental rates to accommodate the surge in demand.

At lease renewal, rental and new lease rates rose, prompting Lintech to move to Atlantis. With a rental rate

of 1300 and no vacancy, demand and supply both increased to 2550 (University of Phoenix). Although supply was not immediately affected, the surge in population led to a shift in demand curve and a temporary market shortage. Consequently, the number of available apartments fell short of the increasing demand at the existing rental rate.

Goodlife's rental rate rise led to an upward shift in the supply curve and consequently, an increase in the amount supplied. The simulation emphasized the crucial role of analyzing the rental rate, demand, and supplied quantity of apartments. Hal Morgan advised against leasing all apartments at the current rate, given that maintenance costs also escalate with increasing demand. Thus, leasing at a higher rate would be more advantageous to the management firm.

Lowering the rental rate and vacancy rate can increase revenue by boosting demand. This, in turn, ensures maintenance costs are covered. When the rental rate decreases, demand increases leading to a lower vacancy rate and more quantity demanded at a lower price - other factors remaining constant.

When the rental rate decreases, revenue eventually increases and reaches its maximum when both the rental rate and demand are at their highest. To ensure all apartments are rented, a decrease in the rental rate is necessary. In year seven, Goodlife began to observe a decline in demand for two bedroom apartments as consumers opted to purchase homes instead of leasing an apartment. The decreasing demand was attributed to the rising incomes of the population. Consequently, Goodlife made the decision to convert apartments into condominiums and sell them.

As per the recommendation, rental rates were reduced to attract more tenants, leading to a decrease in

supply and shifting of the supply and demand curve towards the left. At the start of the seventh year, there were 3200 apartments with a rental rate of 1450 (University of Phoenix). By July of the same year, there were 1900 units in both demand and supply with no vacancy, and the rental rate increased to 1475 (University of Phoenix).

Due to a decrease in demand, the demand curve shifted left, resulting in a temporary surplus. This caused the rental rate to decline and a downward movement along the supply curve. Eventually, the surplus will diminish, and a new equilibrium will be reached between the original supply curve and the updated demand curve. Throughout the simulation, demand increased as the monthly rental rate declined.

The simulation indicated that the supply curve slopes upwards. At times, an increase in supply led to a decrease in rental rates, while lowering rental rates increased demand. Rental rates had to be raised to maintain equilibrium between quantity demanded and supplied. Marginal analysis is crucial to determining the benefit-cost balance when a firm considers expansion.

To ensure efficient operations, it is crucial to assess the marginal analysis while leasing more apartments, which in turn raises maintenance expenses. The rental rate drop boosts the quantity demanded but reduces quantity supplied. This trend continues until the desired equilibrium is achieved. However, when the rental rate falls below the equilibrium, the quantity demanded exceeds quantity supplied.

When it comes to potential tenants, they are willing to pay a higher price for apartments, which would increase the supply quantity and rental rate while leaving other factors unchanged. The state of equilibrium arises when the firm operates without

a shortage or surplus. Fiddling with the rental rate or supply is unwarranted in this case. This simulation aims at managing the supply and demand of two-bedroom apartments by a property management firm and ensuring the appropriate output levels.

The simulation provided an explanation of the factors that lead to changes in supply and demand and how those changes affect decisions. It covered key points such as supply and demand, equilibrium, shifts in supply and demand, and price ceilings. This knowledge can prove to be beneficial for companies looking to operate effectively. Additionally, the GoodLife Management simulation demonstrated the need for adjustments in response to market fluctuations. This included changes in rental rates, revenue, and vacancy rates, while also considering fixed and variable costs.

GoodLife gained valuable experience in adapting to changing consumer preferences, converting hundreds of apartments into condominiums and operating effectively in various situations over nine years. Meanwhile, the construction industry faced a marketing challenge stemming from economic difficulties that led to a decline in building projects, impacting numerous specialties including plumbing, concrete work, electricians, masonry, and framing. This resulted in financial struggles for many individuals and their employees.

The housing market was impacted by workers losing their jobs. The supply and demand of the market were affected, leading contractors to stop building new homes because there weren't enough affordable buyers. This resulted in many people having to downsize or lose their homes entirely. As a consequence, there was an increase in foreclosed homes which caused property prices to drop.

Houses were being listed for sale while the value of homes in appraisal was declining, creating a buyer's market where some could find affordable financing.

Financial institutions lowered interest rates in response to the shifting prices and due to a lack of new credit applications. These rates remain low today.