Eco 415 Week 2 Individual Assignment
ECO 415
Basic Concepts Paper
Professor Anders
August 24, 2010
In today’s society, supply and demand is a concept that is fundamental to economics. Supply and demand foresees that the price level will move toward the point that equalizes quantities supplied and demanded. There is no talk about supply without the talk of demand, and vice versa. Supply is how much of something is available. Demand is how much of something people want. We deal with supply and demand in our everyday lives be it for leisure/pleasure or for business. Completing the student simulation of the supply and demand experience will assist our experience as students with recognizing the equilibrium of supply and demand …show more content…
as well as a balance.
How do changes in the business environment cause changes in supply and demand?
The company involved in this student simulation is called Good Life Property Management.
The results of this simulation are based upon the difference in the supply and demand chain within the management company. The simulation also entails how the management company copes with the change in the rental market as well as the economy. Changes in the business environment, such as layoffs, income, rental preferences, etc. cause changes in the supply and demand field because that is how they make their profits. If more renters are choosing Good Life Property to live in, then the demand goes up and therefore the supply for more units are on the rise. This also allows for the management company to charge market rate rent instead of offering specials. Since the demand would be so high, the management company realizes that renters are willing to pay market rent versus paying a special rent price which could ultimately cost the management company some profits. For example, Hal Morgan countered Susan Hearst decision on renting out each of the units that were available because of the cost of maintenance that will go up. Therefore the profit from renting out all of the units would not be good for the supply and demand idea because all of the profits would go on repairs etc. Hal Morgan also understood how higher prices could possibly keep renters away so he lowered the rental rate and rented out 600 less units to maximize …show more content…
profits.
Why is marginal analysis important when making business decisions? How is marginal analysis used to respond to shifts in supply and demand? Marginal analysis is a key concept in economic analysis. Marginal analysis balances the additional benefits from an action against additional cost. In this simulation, marginal analysis is important because Hal is constantly looking at cause and effect as well as supply and demand when it comes to renting out too many or too less units. He realized that renting out more apartments would increase maintenance cost. Therefore if more apartments were leased, the price of rent would have to rise to a whopping $1550 per month. If this were to happen, the demand on these apartments would decrease. Renters are somewhat willing to pay that rent price for a two bedroom versus a one bedroom based on the survey given to the people in Atlantis.
What fixed and variable costs does the operating company in the simulation have?
In economics, fixed costs are business expenses that are not dependent on the activities of the business.
They tend to be time-related, such as salaries or rents being paid per month. This is in contrast to variable costs, which are volume-related. Variable costs are expenses that change in proportion to the activity of a business. Based on the student simulation, Good Life Management’s fixed costs are buildings, equipment, rent, etc. The variable cost for Good Life includes utilities and wages. So in this instance the market rent would be the fixed cost because it stays the same. The variable cost would be an apartment given a special rent price which fluctuates with the supply and demand of the
organization.
Describe a market situation in which the operating company faces economic difficulties and the need to cut costs. What cost cutting strategies might the operating company use to remain profitable? What would be the benefits and drawbacks of each?
A market situation which caused company to face economic difficulties would be the decline in the economy. The company may want to cut costs by switching to a cheaper landscaping company. They can also cut cost by switching up certain amenities in the units that does not cost too much to up keep. They can start incorporating their utilities, such as water and lights, into the monthly rental fee. This way, a service fee as well as an administrative fee can be charged. The benefits would be more profits and the renter will feel like incorporating utilities fees would be easier and convenient.
In today’s society, the property management business is very competitive. Almost every rental property has incorporated a special rent price just to meet their quota on having so many units filled. There is almost no choice but to give the customer what he/she wants as far as price is concerned. When incorporating the supply and demand policy within a business, the customer’s preference and expectations determine the shift in supply and demand.
References http://www.socialstudiesforkids.com/articles/economics/supplyanddemand1.htm: Retrieved on August 24, 2010
University of Phoenix. (2010). Applying Supply and Demand Concepts. Retrieved August 21, 2010, from: https://ecampus.phoenix.edu Basic Concepts 1 Basic Concepts 2 Basic Concepts 3 Basic Concepts 4 Basic Concepts 5 Basic Concepts 6 Basic Concepts 7 Basic Concepts 8
Basic Concepts Paper
Professor Anders
August 24, 2010
In today’s society, supply and demand is a concept that is fundamental to economics. Supply and demand foresees that the price level will move toward the point that equalizes quantities supplied and demanded. There is no talk about supply without the talk of demand, and vice versa. Supply is how much of something is available. Demand is how much of something people want. We deal with supply and demand in our everyday lives be it for leisure/pleasure or for business. Completing the student simulation of the supply and demand experience will assist our experience as students with recognizing the equilibrium of supply and demand …show more content…
as well as a balance.
How do changes in the business environment cause changes in supply and demand?
The company involved in this student simulation is called Good Life Property Management.
The results of this simulation are based upon the difference in the supply and demand chain within the management company. The simulation also entails how the management company copes with the change in the rental market as well as the economy. Changes in the business environment, such as layoffs, income, rental preferences, etc. cause changes in the supply and demand field because that is how they make their profits. If more renters are choosing Good Life Property to live in, then the demand goes up and therefore the supply for more units are on the rise. This also allows for the management company to charge market rate rent instead of offering specials. Since the demand would be so high, the management company realizes that renters are willing to pay market rent versus paying a special rent price which could ultimately cost the management company some profits. For example, Hal Morgan countered Susan Hearst decision on renting out each of the units that were available because of the cost of maintenance that will go up. Therefore the profit from renting out all of the units would not be good for the supply and demand idea because all of the profits would go on repairs etc. Hal Morgan also understood how higher prices could possibly keep renters away so he lowered the rental rate and rented out 600 less units to maximize …show more content…
profits.
Why is marginal analysis important when making business decisions? How is marginal analysis used to respond to shifts in supply and demand? Marginal analysis is a key concept in economic analysis. Marginal analysis balances the additional benefits from an action against additional cost. In this simulation, marginal analysis is important because Hal is constantly looking at cause and effect as well as supply and demand when it comes to renting out too many or too less units. He realized that renting out more apartments would increase maintenance cost. Therefore if more apartments were leased, the price of rent would have to rise to a whopping $1550 per month. If this were to happen, the demand on these apartments would decrease. Renters are somewhat willing to pay that rent price for a two bedroom versus a one bedroom based on the survey given to the people in Atlantis.
What fixed and variable costs does the operating company in the simulation have?
In economics, fixed costs are business expenses that are not dependent on the activities of the business.
They tend to be time-related, such as salaries or rents being paid per month. This is in contrast to variable costs, which are volume-related. Variable costs are expenses that change in proportion to the activity of a business. Based on the student simulation, Good Life Management’s fixed costs are buildings, equipment, rent, etc. The variable cost for Good Life includes utilities and wages. So in this instance the market rent would be the fixed cost because it stays the same. The variable cost would be an apartment given a special rent price which fluctuates with the supply and demand of the
organization.
Describe a market situation in which the operating company faces economic difficulties and the need to cut costs. What cost cutting strategies might the operating company use to remain profitable? What would be the benefits and drawbacks of each?
A market situation which caused company to face economic difficulties would be the decline in the economy. The company may want to cut costs by switching to a cheaper landscaping company. They can also cut cost by switching up certain amenities in the units that does not cost too much to up keep. They can start incorporating their utilities, such as water and lights, into the monthly rental fee. This way, a service fee as well as an administrative fee can be charged. The benefits would be more profits and the renter will feel like incorporating utilities fees would be easier and convenient.
In today’s society, the property management business is very competitive. Almost every rental property has incorporated a special rent price just to meet their quota on having so many units filled. There is almost no choice but to give the customer what he/she wants as far as price is concerned. When incorporating the supply and demand policy within a business, the customer’s preference and expectations determine the shift in supply and demand.
References http://www.socialstudiesforkids.com/articles/economics/supplyanddemand1.htm: Retrieved on August 24, 2010
University of Phoenix. (2010). Applying Supply and Demand Concepts. Retrieved August 21, 2010, from: https://ecampus.phoenix.edu Basic Concepts 1 Basic Concepts 2 Basic Concepts 3 Basic Concepts 4 Basic Concepts 5 Basic Concepts 6 Basic Concepts 7 Basic Concepts 8