Supply and demand simulation in the apartment rental market

Supply Demand

Supply and Demand Simulation

What causes the changes in supply and demand in the simulation?

Supply and demand changes are instigated in the simulation by changes in pricing. The rate charged per two bedroom apartment unit per month is both used in order to address issues of fluctuating demand and to respond to indices of too great or too low a supply on the market.

Price Ceiling

The use of a Price Ceiling such as occurs when Atlantis adopts rent control helps to temper costs of rental so as to address demand. This means that the demand increase will produce an increase in supply at a controlled rate.

d. How can you apply what you learned about the concepts of supply and demand from the simulation to your workplace?

The simulation sheds particular light on the idea of adjusting pricing structure according to apparent market demand. This is useful to any workplace. In my case, the notion that large-scale external changes in the marketplace might bring about the need to make internal decisions within an organization seem particularly applicable. The simulation describes a scenario in which a company called Lintech makes its new home in Atlantis, bringing with it a boom in residency. The importance for a company such as Goodlife of preempting this infusion by increasing both price and supply is tantamount to accommodating rising demand. This is a scenario which applies to any organizational decision-making scheme predicated by market behaviors.

e. Determine how price elasticity of demand affects the decision making of the consumer and of the organization.

Using the simulation in question, we can see that there is a direct relationship between the apparent market demand and the decisions made an organization. For GoodLife, for instance, the company imperative to reach a vacancy rate that tops out at 18% denotes that price adjustments must be made. Here, the ability to engage price elasticity according to market demand will produce and improvement in revenues for the company on the whole. Using the simulation provided, we can observe that with two-bedroom apartment building rentals going for $11.75 per month, the vacancy rate initiates at about 27.5% and brings in an annual revenue of roughly $1.7 million.

Price elasticity allows us to actually improve revenue by lowering rental prices to meet the market threshold. In this case, we can dip below the benchmark of 18% vacancy, reaching 17.5% by adjusting the monthly rental rate to $1,075.00. We find that this improves overall revenue to $1.77 million annually.

f. Summarize your results of the assessment

The assessment ultimately produces the finding that many changes in the marketplace may occur over time, such as through the infusion of greater demand as produced by the influx of Lintech's residency or through the increase of supply as resultant from OakRidge's growing place in the market. These changes will impact how an organization makes decisions and postures itself in the marketplace.