Supply and Demand Simulation Paper

The cause of aggregate supply and aggregate demand in the simulation could be conclusive due to the volume of apartment rental services available in Atlantis’ economy at a given overall price level. The rising prices of apartments in comparison due to

a monopolized market in Atlantis’ suggests for Goodlife Management to expand their services to meet a higher level of aggregate demand. They are the only management company in Atlantis that are renting apartment, except for Oakridge Builders who were rent detached homes, and most of the residents in Atlantis probably could not afford to rent homes. An increase in demand of affordable apartments should lead to an expansion of aggregate supply in the economy. However, aggregate supply could also be determined by the supply performance available based on the current economy, therefore, reflecting the productivity of the economy and the cost of frequent available apartments.

Due to the overall increase of apartments, and eventually condominiums’ services provided by Goodlife Management in a span of nine years, helped shift the aggregate demands. Oakridge Builders started making their properties slightly affordable, which sparked a competition in the housing market, and shifted the demands slightly over to detached homes and decreased the rental properties of Goodlife Managements.

This aggregated shift during the rental period forced Goodlife Management in turning some of their two bedroom apartments into condominiums to compete in the market. The competitive market of supply and demand forced Goodlife Management in their decision-making to adjust to the rising market by lowering some of their apartments to bring in more tenants. Goodlife Management had to adjust because they had a surplus of available apartments that were not occupied, and their rent was high, which affected the demands of apartments being rented due to their rising prices.

The four key points that the reading and simulation highlighted were aggregate supply, aggregate demand, supply curve, and equilibrium. The fisrt two has already been explained in paragraphs one and two. The last two are supply curve and equilibrium, which will be explained accordingly. According to Investopedia, a Forbes Media Company, supply curve is basically a graph showing the hypothetical supply of a product or service that would be available at different price points (Investopedia, 2008, p.1), which can cause an upward slope, since higher prices gives businesses an incentive to supply more in the hope of making greater revenues (Investopedia, 2008, p.3). Equilibrium or economic equilibrium according Jess Benhabib of the Princeton University Press, is simply a state of the world where economic forces are balanced and in the absence of outside influences the values of economic variables will not fluctuate (2007, p.488).

The impact of aggregate supply and demand changes can influences an automotive industry severely. The balance in the automotive market can maintain at the same level as long as outside influences such as gas prices and consumer spending are eliminated in the automotive market equation. However, if these forces are implemented in the economical equation, then the market prices will rise due to consumer spending because it reflects a growing economy, or the market prices will fall due to increase of gas prices. An example is the severe price drops in Sport Utility Vehicles (SUV’s) within the last eight years. In the nineties, the demand for (SUV’s) were high, which caused the prices of (SUV’s) to be in the $40,000 range, now (SUV’s) are in $20,000 to $30,000 range, which is about a $10,000 difference a decade ago. The outside influence of gas, emissions, and global warming forced automobile manufacturers to start building mid-size and emission efficient (SUV’s) and made it affordable to the public.

Cost of SUV Illustration:

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0Yrs ’90 ’95 ’00 ’05 ’10

In summary, according to the simulation process, the demand curve is sloping downward, which causes the quantity demand to increase as the price decreases. The suggestion was for Goodlife Management to reduce its rental rates, in turn increasing its demands for apartment rentals. In retrospect, the supply curve is upward sloping, and quantity supplied increases as the price decreases. An increase in rental rates would cause Goodlife Management to lease out more apartments. Quantity demands balances out quantity supplies only at the equilibrium point. However, when prices are below equilibrium, the quantity demands exceeds the quantity supplies, which in turn causes a shortage in the housing market. In opposition, when prices are above equilibrium, quantity supplies surpass the quantity demands, which cause a surplus in the market. Adjustments in the market will only level off when equilibrium is properly attained.

References
Benhabib, J. (2007). Princeton University Press: Cyles and chaos in economic equilibrium. Retrieved February 3, 2008, from http://press.princeton.edu/titles/4958.html.
Investopedia. (2008). Investopedia: Economics basics of supply and demand. Retrieved February 3, 2008, from http://www.investopedia.com/university/economics/economics3.asp

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