Supply & Demand Simulation

Supply and Demand Simulation
October 24, 2012

While completing the Supply and Demand Simulation located on our student website, the simulation showed a variety of ways the supply and demand curve is changed in different situations.   An example of a shift in the supply curve during the simulation is when it is asking how many apartments need to be rented out and what the rental rate would need to be in order to maximize the profit, since it would not be profitable to lease out all apartments at the current rental rate.   The reason it would not be profitable is because the maintenance increases for each apartment, and GoodLife needs to insure they can cover the maintenance costs fi all apartments are rented out.   It would be better to lease out more apartments at a higher rental rate as long as the maintenance costs are covered.  
The simulation starts out with a rental rate of $750 per apartment, and only 1,700 apartments being rented out.   If you change the quantity of apartments supplied to 2,500 the rental rate would come up to $1,550, which would cover the maintenance costs while also maximizing profits.   The reason the rate increases is because maintenance cost means that each additional unit of the product would be supplied at a higher price.   The supply curve in this simulation is sloping upward.   As the rental rate increases, the supply increases.
As explained before, for each shift upward in quantity, the equilibrium price is also increasing to cover constant costs.   It is very important to find the balance between quantity demand and quantity supplied, which is the equilibrium price, so opposing forces (supply & demand) don’t cancel each other out.   “At any rental rate above equilibrium, the quantity supplied is more than the quantity demanded and there is a surplus of apartments in the market.   This means that GoodLife would supply more apartments than potential tenants would be willing to pay for.   For potential tenants to increase...