Two microeconomic and macroeconomic principles
The simulation concerns a supply and demand for two-bedroom rental apartments in Atlantis. Several factors affect the demand and supply of two-bedroom apartments leading to a shift in both the demand and supply curves. One of the microeconomic principles in this simulation is the law of increasing opportunity cost because it states that the production of an additional unit of a product increases the cost of production. It, therefore, means that increasing the number of two-bedroom apartments will increase production costs. Another principle is that an increase in the price of a product leads to a decrease in demand for the product. Low rental rates attract more clients but an increase in the rental rates leads to a decrease in the number of clients willing to rent the apartments (Colander, 2010).
On the other hand, macroeconomic principles in this simulation include the principle of specialization. Specialization makes the economy to be more efficient and so in this case Goodlife firm that has specialized in renting apartments in Atlantis is very efficient and effective because it does not deal with any other business. Another macroeconomic principle is the principle of demand and supply.
High demand for two-bedroom apartments calls for an increase in supply. Demand and supply curves may either shift inwards or outwards depending on the market changes. Macroeconomic principles examine the economy as a whole, unlike microeconomic principles which only focus on a single market. Supply and demand may either be affected by internal or external factors (Colander, 2010).
Shifts in demand and supply curves and effects on equilibrium price and quantity
The demand curve shifted outward because of the increase in population that led to an increase in demand of the rental departments but it did not affect supply. The supply curve shifted inward (to the left) because of a change of preference that made the company change some of the two-bedroom apartments into condominiums. This led to a decrease in supply creating a shortage for the two-bedroom apartments. Supply had also been reduced in anticipation of an increase in demand.
Shift outward of the demand curve means that the quantity demanded exceeds the quantity supplied at the original equilibrium, the number of apartments that GoodLife was willing to lease was less than the number of apartments needed and so there was a shortage. The decision-makers have to increase rental rates and increase supply to counter the shortage.
Importance of understanding supply and demand
The Inward shift of the supply curve led to a temporary shortage at the original equilibrium given that the quantity supplied was less than the quantity supplied at that particular rental rate was less than the quantity demanded. The number of apartments that GoodLife was willing to lease was less than the potential tenants who were willing to pay. The only solution to this problem is to increase the rental rates to counter the pressure of high demand.
The knowledge of demand and supply is very important in understanding the market and I plan to use the knowledge I have gained from this simulation in marketing products of my organization. In real life, if one is marketing a product like Coke it is important to prepare the demand and supply curve of the market to set a favorable price and avoid the overproduction of underproduction (Colander, 2010).
Importance of understanding microeconomic and macroeconomic concepts
Microeconomics theory has taught me that different make decisions to maximize utilization of the limited resources and increase profits. The microeconomics concepts through this simulation have demonstrated that change in either price or quantity leads to change in the equilibrium price and quantity as well and leads to shifts in the demand and supply curves. All decisions that organizations make must be based on the nature of prevailing demand and supply curves in the market. For example, if there is a shortage of certain products then the organization must organize on how to increase the unit price as well as the supply of the product (Colander, 2010).
The macroeconomic concepts have helped me understand shifts in demand and supply and on equilibrium price and quantity from a wider perspective and not to just confine my mind to a single firm or industry. Incentives, for instance, a reduction of levy on imports helps in reducing the price of goods thereby increasing both supply and demand. This concept applies to all businesses whether it is selling goods or offering services.
Macroeconomics helps one to understand the economy by focusing on decision-making, behavior, structure, and performance of the economy as a whole instead of just focusing on individual markets. With such knowledge, one can clearly know how factors such as inflation rates, unemployment rates, national and international trade interrelate (Colander, 2010).
Price elasticity in relation to the simulation
An increase in the rental rates of the apartment leads to a decrease in demand while a decrease in rental rates leads to an increase in demand. GoodLife sets the price or the rates of the apartments to be leased depending on the number of vacant two-bedroom apartments. If all other factors remain constant, price is always inversely proportional to demand. When prices increase, customer’s purchasing power decreases leading to a decrease in demand because most people would not afford to pay high rental rates. Such customers may result to shift to other apartments with affordable rental rates.
Colander, D. C. (2010). Economics (8th ed.). New York, NY: McGraw-Hill.