Supply And Demand
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Supply and Demand of Rental Properties in Atlantis
GoodLife Management is a company that is located in Atlantis (fictitious town). This company rents two-bedroom apartments on a month-to-month basis to the people living in Atlantis. In the simulation, it identifies the change in supply and demand of GoodLife’s rentals which are GoodLife’s management direction, population changes, implementation of price ceilings, and changes in consumer’s preferences. Several key points were mentioned in the simulation such as the demand and supply curve, equilibrium, and the impact of price ceiling. This paper will discuss the key points mentioned above and summarize the results of the simulation (University of Phoenix, 2008).
The first section of the simulation begins with the vacancy rate of two-bedroom apartments on temporary and month-to-month lease in Atlantis which is currently at 28%. The requirement in this section is to decrease the vacancy rate to 15% while maximizing revenue (University of Phoenix, 2008). The rental rate must be decreased to stimulate an increase in demand which employed Law of Demand application. Colander (2004) defines Law of Demand as “Quantity demanded rises as price falls, other things constant (p. 91, chap. 4).” The rentals for each apartment were decreased to $950 at which 1,900 apartments were demanded and thus leaving the surplus of 100. This maximizes the revenue to $1.81 million and the vacancy rate to result at 5% (University of Phoenix, 2008).
The second section of the simulation explored the impact of leasing out 2,500 apartments which employed the Law of Supply application. Colander (2004) defines Law of Supply
as “Quantity supplied rises as price raises, other things constant (p. 97, chap 4).” The 2,500 apartment’s rental rate will increase in order to be leased. In this scenario, the adjusted rental rate becomes $1, 550 per month for an apartment (University of Phoenix, 2008).
The third section of the simulation discussed the persisting imbalance between quantity
demanded and quantity supplied at the prevailing rental rate. The concept that was use is
equilibrium. Colander (2004) defines equilibrium as “A concept in which opposing dynamic forces cancel each other out (p. 103, chap. 4).” In order words, this point is reached when the upward and downward pressure on a price offset one another. The rental rate was decreased to $1, 050 in order to reach the equilibrium and both quantity demanded and quantity supplied is at 2000 units (University of Phoenix, 2008).
The fourth section of the simulation shows the impact of a new employer moved in at Atlantis and the growth in population. The demand curve in this section will be increased because the greater population will require housing and the supply curve will remain as unchanged because there was no change on the amount of available apartments. To reach the new equilibrium, the rental rate increased to $1,400 per month in which the quantity demanded and the quantity supplied is at 2,350 units.
The fifth section of the simulation discussed the change in consumer preference towards detached homes rather than apartments. This resulted in a decrease to demand at which the demand curve shifted to the left. The equilibrium point was adjusted to reflect the increase in supply; therefore, the only change made in this scenario was demand. Rental rate was decreased to $1,300 in order to reach the equilibrium and thus the quantity demanded and quantity supplied is at 2,250 units (University of Phoenix, 2008).
The sixth section of the simulation discussed the reducing of demand and supply due to the converting of some apartments into condominiums. Both, quantity demanded and quantity supplied were decrease which shifts the demand and supply curve to the left. The rental rate was increased to $1,472 to reach the equilibrium in which both quantity demanded and quantity