Free Essay About Laws Of Demand And Supply
American Public University
In this paper, I will analyze some specific cases about laws of demand and supply. Laws of demand and supply are two essential subjects in microeconomics. Demand and supply are two parties facing in a marketplace. Their relation determines a price in the market and this price is the name of the consensus in the marketplace. Anyone accepting the market price can buy or sell his or her products in this marketplace.
Law of demand is a derived function from the utility maximization behavior of the consumers in the market. The consumers, under a certain budget limit, try to maximize their utilities by buying products and services. As a result of the utility maximizing behavior of the consumer, he or she makes decisions on the quantity of services and products at certain price levels. By summing up all the consumers demands, we can derive the market demand. While the price is increasing, the quantity demanded from a product decreases, and this is called as the law of demand.
Law of supply is derived from the production or in another word the cost functions of the companies in the market. Each company tries to minimize its costs while maximize its profit. This way, the company can find the opportunity to sustain its system and develop itself. The supply function is derived from the marginal cost function of the company. Thus, the company can see how much relatively more burden will be loaded on the company by increasing the production quantity. The companies add a profit rate on the marginal cost. By summing up all the companies' supply, we can derive the market supply. While the prices are increasing, the companies would like to produce more, and this is called as the law of supply.
In the following chapters, I will answer the specific questions about laws of supply and demand.
Describe the actions are taken to lower the vacancy rate from 28% to 15%. Which curve(s) is acted upon in order to lower the rate? What is the economic "law" that explains such movement in this scenario? Be specific and provide reference(s). Assuming that an apartment is trying to drop the vacancy rate from 28% to 15%, the apartment management needs to increase the demand for the houses. The vacancy rate is an indicator for the demand for the houses in the apartment. Therefore, the answer to this question is to increase the demand. Increasing the demand requires decreasing the rent for the houses, considering that the number of the houses is fixed. This situation can be explained by the law of demand. While the rent goes down for the houses, the demand for the houses increases, and the vacancy rate drops. Explain why at the higher rental rate of $1550, the apartment management company is willing to supply more apartments. What economic law explains this relationship between quantity supplied and the price? What does this law state? Provide reference(s). The apartment management would like to supply more at a relatively higher price level because the apartment management can make a higher profit. Considering that the company is already supplying some apartments for the lower rents, an increase in the prices creates a good opportunity to increase the profits. This situation can be explained by law of supply. While the rent goes up, the management will be willing to find more renters.
What actions were taken to reach equilibrium? Define equilibrium in economics in regard to supply and demand. Provide reference(s). If the rent is increasing a lot, the apartment management would like to search for more renters. In this case, we might assume that the demand for the house is increased. That means the demand curve shifts to the right. In this case, the new equilibrium price will occur at a higher rent level.
Explain what happens to apartment prices when additional population moves into Atlantis. Which curve(s) is affected by the population increase? Where does it shift? Does any other curve shift? Why or why not?If relatively more people move to the area where the apartment is, and then the demand for housing increases. That means the demand curve shifts to the right. In this case, assuming that the number of apartments is fixed, and then the new rent level become higher than the past. The supply curve does not shift in the beginning. However, if the number of apartments is not enough for the population, and then some companies might build new apartments and the supply curve shifts to the right. Consumer incomes increase. What happens to the demand for apartments after the increase in incomes? If consumers have more money to spend, why don't more apartments get rented? Explain what happens to the demand curve for apartments. Where does the curve shift? What is the key factor that shifts the affected curve? Cite Colander's textbook to justify your answer.
If the income level of customers increases and if the customers are interested in renting these apartments, the demand curve shifts to the right. That means the housing provided in the apartments is a normal good for the customers, and when they get richer, they demand relatively more housing. However, if all the apartments have the same quality and same properties, and then the people might not be willing to change their apartments. However, if there are some relatively more luxurious apartments, and then the demand for the luxurious apartments increases and the demand for the other apartments decrease. Consequently, the increase or decrease in the apartments’ demand depends on the status of the apartments. If the apartments are normal goods, and then the demand for them increases. However, if some apartments are considered as bad housing, and then when the income increases, the demand for these apartments decreases. In Cycle 5, the apartment company converts some of the apartment units into detached homes, resulting in fewer apartment rental units. What happens to the price and quantity supplied of apartments, after this change? Which curve is affected that has the impact on the apartment rentals?
Converting the apartments into detached houses will decrease the number of housings, and the supply curve will shift to the left. Considering that the demand is not changing, because the supply curve is shifting to the left; therefore, the rent for the housing will increase. Elasticity of demand is a key concept in economics. Define elasticity of demand. Cite source(s). In a situation in which rental rates rise by 10% and rental revenue falls by 20%, what is the elasticity of demand? Is the demand considered elastic, inelastic or unit elastic? Explain why. Cite source(s). Elasticity of demand measures the reactions of the customers to the changes in income, price, and prices of other relevant services or goods.
When the revenue decreases by 20 percent while the rent is increasing by 10%, and then the elasticity of demand is (-20%)/(10%)=(-2). That means the customers are reacting to the increases in the rent strongly. Because the demand elasticity is over 1, and then we can say this demand is elastic. Because when the rent increases by 1%, the demand decreases by 2%. If the elasticity of demand for apartments is 2.5 and the apartment rental company increases the rental rate by 10%, by how many percents will apartment rental revenue decrease? If the elasticity of demand for apartments is .90 and the company, lowers the rental rate by 5%, by how many percents will apartment rentals increase? If the elasticity of demand for apartment rentals = 2, by how many percents will the quantity demanded fall, if the price is raised by 5%.When the demand elasticity is 2.5, and the rental rate increases by 10%, and then the revenue from the rentals decreases by 25 %. If the demand elasticity is .90, and the rental rate decreases by 5%, and then the revenue increases by 4.5. When the demand elasticity is 2 and the rental rate increases by 5%, and then the demand will decrease by 10%.
Demand and supply have different characteristics, and in microeconomics, and we analyze the changes in demand and supply separately. There might be an interaction between the suppliers and the demanders, and we can easily analyze them by using the demand and supply theorem. Also, elasticity is an important indicator for understanding the reactions of the demanders and the suppliers to the changes in income, price level, and the other relevant goods’ prices.