Following the American Psychological Association’s Guidelines
Microeconomics and Macroeconomics Concepts
GoodLife’ supply curve given in the first page is a microeconomic concept. It shows the quantities can be supplied for the given prices, or in another word, this company’s supply curve exhibits how the company reacts to the prices by changing the quantity supplied. When the company rents out all the apartment, the company ask a price level of 1500 $ for an apartment.
Price ceiling policy is a macroeconomic concept, because government makes a policy decision and this decision affects all market players in economy. A price ceiling means an excessive demand in market, because GoodLife and other renting companies cannot charge higher than the price given by government and if they cannot do this, they will not be willing to supply more. At the lower level of price (lower than equilibrium price) there will exist higher demand and this demand cannot be satisfied with the amount supplied.
Shifts in Supply and Demand
Demand and supply shift depending on some changes in some variable other than price in market. Demand shifts right if something happens causing that a higher level of demand occurs at same price level and vice versa. The same thing holds for supply.
In the simulation, we see that when the population of the city increases, then people need a place to stay. Thus some of them will want to rent a house and some of them will want to buy a house. That means while the number of the houses for rent is same, the demand for them will increase which means a shift of demand to the right. In another word, for the same quantity of houses, people will accept to pay higher rents.
In the simulation, the supply shifts to the left because GoodLife decides to convert some of their rental houses into condominium houses for sale. That means the amount of houses will be less in the market and people will be competing these houses. Thus, the supply will be lower at the same price levels, and the owners of the houses might ask higher prices because of less houses in the country.
How Shifts Affect Supply Demand and Prices
While supply stays same and demand increases then prices goes up or vice versa. While demand stays same and supply increases, then prices goes down or vice versa. While both demand and supply increases, price might go up or down depending on the quantity of the changes in both or vice versa. While demand goes up and supply goes down, then prices goes higher. While supply goes up and demand goes down, then prices goes down.
How Apply Theory to Real Life
Demand and supply theory is a very basic economical theory, even though it is basic, it has a power to explaing many things in life. We can understand how the markets of goods and services work. Furthermore, even it is possible to understand how human relations work. For example, when a girl desired (demanded) by many men, then she might ask higher requests from the men she is willing to date (We cannot say it is always true, but we probably can say it is true in general). The same thing holds for men also, a handsome guy can request more things from girls. If there are many girls in a society, then being a girl in this community becomes less valuable, while there is a few girls in community, being girl becomes more valuable. Consider Robinson Crueso story, there are two men in the whole island, and when the first time they see a girl, there might be a possible fighting between men. Finally scarcity generally makes a product or a service more valuable. However, it is not true all the time, for example a disabled donkey is not a desired thing for many villagers. (One might say that, animal lovers would love to take care of this donkey, however, villagers think economically and they do not think it is something valuable).
Demand is another important thing, if something is more desired by more people, it becomes very valuable. For example, if many people wants to hire one very talented cooking chef, then he or she might request very high wage for his or her service.
How Microeconomics Helps Understand Real World Transactions
Many people assume that theoretical information does not help us much in our real lives, however, many theories might give the best explanations for some situations in the life.
Microeconomics theory is one of the most confusing ones for many people, and they think it is not so useful. However, it help us understand real world. Have you ever thought why you buy tomatos more expensive in the city centers while it is much cheaper in rural areas. Also the rents in New York is much higher than the rents in New Mexico. Another thing, you can be very valuable worker if you have some essential talents than other workers, because supply of your kind workers is very few.
In many aspects of life, we can understand many relations by using the methods and the theories in microeconomics. However, of course it is not possible to understand everything this way, because definition of science says that science alwayscan develop.
How Macroeconomics Helps Understand Real World
Macroeconomics is a subdiscipline in economics. Macroeconomics deals with aggregate values of economical variables. For example, national level of income (GDP or GNP), inflation, exchange rates, government expenditures, consumption and investment expenditures etc. are included in macroeconomics.
We can use macroeconomics to have a better comprehension of national economy level changes such as exchange rate changes, national wage policies, interest rates changes, etc. By following macroeconomic variable, we can make better investment decisions.
Elasticity and Pricing Strategies
Elasticities are very important in demand and supply theory. Elasticity means sensitivity of something. For example let us consider price elasticity of demand: it means how much a consumer is sensitive to prices. Let us assume that he is very sensitive or in another word he is very stingy. In this case, this consumer will decrease the amount of the product he consumes in a large amount even when a small price increase occurs and vice versa. If another consumer does not care the prices much, than changes in prices will not change much how much he consumes from this product.
In another word, if a group of people are more in need of a product, they might be accepting higher prices for this product and their price elasticity of demand will lower (they will be less sensitive to prices) or vice versa. If they do not need a product and then they might not want to buy this product even if a little price increase occurs (their price elasticity is much higher).
So if we know the price elasticity of people for a product, we can create a pricing strategy accordingly. If the price elasticity is high, then we should keep the prices lower to make more money. If the price elasticity is lower, that means people are more addicted to this product, thus we can charge higher prices to people and they pay it. For example, think addictive things like drugs. One drugger can accept to pay very high prices because he is addicted and his price elasticity of demand is very low. Sometimes they might do very bad things (means very high prices for people such as getting jailed, injured or even die) to get some drugs.
Reference
Phoenix University Online Centre. (n.d.). Supply and Demand. Retrieved from https://ecampus.phoenix.edu/secure/aapd/vendors/tata/UBAMsims/economics1/economics1_supply_demand_simulation.html.
