Supply and Demand Simulation: Project Atlantis

Supply and demand simulation: Project Atlantis

The supply and demand simulation was a simulation of GoodLife Management, a property management firm controlling all of the seven apartment complexes in the city of Atlantis. For the 9 year period in the simulation the housing market had many ups and downs because of businesses moving into the area bringing an increased amount of jobs, the change in consumer preferences and company expectations, and the policy changes induced from the government.

What causes changes in supply and demand in the simulation?

In year one GoodLife Management wanted to fill the apartments with a less than 15 percent vacancy rate while gaining the most possible revenue. They did this by lowering prices to $950 rent per month on their apartments. The lower price increased demand for the apartments and GoodLife filled 1900 apartments with a surplus of only 100 apartments leaving a vacancy of only 5 percent.

Lintech Inc. and other companies came into Atlantis and increased the population in the city. When the new companies moved in it created a increase in demand, shifting the curve to the right, this gave GoodLife the incentive to rent out more apartments because a higher equilibrium price is accomplished.

During year 7 consumers preferred detached homes to apartments so it provided a shift to the left in the demand curve and created a surplus in apartments and GoodLife had to lower their rental rates to keep up with the competition. The shift in demand moved the supply down to reach another equilibrium at 2,250 apartments rented at $1300 per month. Midway through year 7 GoodLife converted several hundred apartments into condos for sale to keep up with the market demands and consumer change in preference. This caused a shift in both the supply and demand curves because consumers preferred detached homes and the company expected condos to be the best substitute for those detached homes. In July of year 7 1,900 apartments were rented out at $1,475 per month and equilibrium was achieved.

Throughout year 9 Atlantis was transformed. More companies were coming in and bringing more people and more income. The local government put a price ceiling of $1,550 per month on the apartment. Demand increased causing a shortage in apartments for rent because GoodLife was not willing to provide as many apartments as demanded at or below the price ceiling. GoodLife provided 2,275 apartments at the price ceiling of $1,550 per month with consumer demand of 3,150 apartments creating a shortage of 875 apartments.

How do shifts in supply and demand affect your decision making?

When consumer demand for apartments increased (shift to the right) it creates a shortage at the original price so price increases to level out demand to an equilibrium quantity and a new equilibrium price. As consumer preferences change and demand is reduced (shift to the left) it creates a surplus in apartments and GoodLife lowers their rental rate creating a move down on the supply curve to a new equilibrium quantity and price. As consumer preferences and supplier expectations changed both curves shifted to the left and supply and demand were less. This created an entirely new equilibrium price and quantity for the GoodLife. When more companies came to Atlantis and the government put a price ceiling into effect the demand increased, but GoodLife was only willing to increase supply up to a certain point at the price ceiling since equilibrium price and quantity was above it. This created a shortage of apartments with no alternatives.

List four key points from the reading assignments that were emphasized in the simulation.

The four main concepts from the reading assignments that were emphasized in the simulation were: demand and supply, equilibrium, shifts in demand and supply, and the effect of a price ceiling. Demand and supply change and shift constantly because of so many outlying forces. These include forces such as population changes, preference and expectation changes, and governmental influence. As all of these changes occur GoodLife moves to reach the equilibrium price and quantity so that they can maximize their revenue. When a price ceiling occurs it keeps prices down so that consumers are protected from high pricing, but it creates problems also. Price ceilings create shortages because the consumer demands more apartments than