Use Supply and Demand to Evaluate Events

Use Supply and Demand to Evaluate Events

Before getting to discuss equilibrium of demand and supply, we must first take a good look at terms that are pertinent to this assignment. The tours include demand, supply, balance, and price ceilings. Demand is the extent to which a commodity or a service is required in the market by the buyers to accomplish their satisfaction towards it at a certain period. The demand in the market, accompanied by its price tag, broadly dictates the willingness to pay. A high price tag is imposed when a product or a service is in the highest demand. It becomes a big task to get that particular product quickly. In our case, the county council of Prescott assumed to have brought down the prices of the rental units would cause the demand to rise tremendously. This will bring about a scramble for rental units by the residents of the Prescott city council. This will be due to the continued demand for the rental units. In economics, it is evident that every consumer will require the best or the highest quality commodity or service at the lowest price. The city council of Prescott needs the price to be quiet, and thus all is contained in the paper. Demand is related to the supply of goods and services in the market. Demand has a connection with the collection since any time demand is high, supply is usually relatively low.

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On the other hand, supply represents what the market can offer buyers and sellers. To some point, the store in the market affects the demand so much. This is because whenever the market has a vast collection of goods and services offered to it, the order becomes very low. This lowers the price of the involved commodities. An increased supply of goods and services may bring about forgoing a particular interest, which is of higher cost, and considered a low one since the pool is very high. This is mainly witnessed when dealing with substitute commodities. In this context, it does not mean that rental units are of a higher count but the lowering of the price from the equilibrium price. (A.G.A., 1993- 2010)

Equilibrium is attained when demand equals the supply of the goods and services in the market. Since demand and supply depend on each other, there is no way through which they can be parallel. The point at which the two curves intersect is called the equilibrium. At this point of the market, we find the most appropriate state to make transactions since there is stability and no fluctuation of prices. Demonstrated in the demand/ supply curve at the equilibrium price of the quantity in the market. (A.G.A., 1993- 2010)

Price ceilings and price floors are government intervention tools to control the prices in the market. To start with, price ceilings are set by the government to allow for a limit on the cost of a particular good or service. This may be due to imposed subsidies or thought by the government that some commodities are sold unfairly to consumers. Since they operate in the market, an issue comes when they are set below the equilibrium price. This records an excess demand or surplus produce in the market. Shortage in supply is also brought about by the will excessively causing casualties to the producers. The consumers will be affected by queuing up for commodities, and the government’s rationing may also hit them. In our case, Prescott city council imposed price ceilings of the rental units at 16 is below the equilibrium price. Its impacts are perceived below on a broader view. (Marques, C. R., Martins, F., & Portugal, P. 2010)

The government imposes contrary price floors to control the low price of goods and services delivered than expected by the market. This government intervention helps the producers since they may be producing much but, on the other hand, not making good profits as scheduled by the government.

In assumption, for the city council of Prescott to implement the price ceilings on rental units, the unit price will be based on the number of bedrooms in the team. The demand function is Qd= 120 -4p, and the supply function is Q = 2p. In this case, p is the price, and q is the quantity demanded or supplied. The county council of Prescott imposed the price ceiling at 16, which is the maximum. There are many impacts brought up by the demand and the supply in creating a demand curve above. (A.G.A., 1993- 2010)

At equilibrium, the quantity demanded equals the quantity supplied. The equilibrium price and quantity solution is as shown below.

Q = 120 -4p      demand function

Q = 2p supply function

At equilibrium, Qd = Qs

120 – 4p = 2p

120 = 6p

P = 20

Q = 2p

Q = 40

Prescott city council imposing a price ceiling of p= 16 will translate into excess demand. As stated above, this will be the city’s intervention in improving the consumer’s life by making it cheaper and affordable. Below the equilibrium price, if a price ceiling is ordered, the residents of Prescott City will demand the rental units more than they did before since the equilibrium price was p = 20.

Are consumers of rental housing in Prescott well-served by this price ceiling policy? Provide a careful economic analysis in support of your claim.

The policy favors the consumers or residents of Prescott City since they can rent the houses at a lower price. My claim in support of this analysis is that when the price is set at a price below the equilibrium price, we get excess demand. Instead, if they are everyday goods, what is expected is scarce commodities and uncertainties due to demand. The policy of the Prescott city council well serves the consumers.

Suppose that the Council is concerned that landlords will allow the quality of their rental units to deteriorate following the imposition of the ceiling price. What can you infer about the level of quality that landlords provision if consumers are worse off following the imposition of the ceiling price? Provide a careful economic analysis in support of your claim.

A step taken against the property owner to improve their rental units will not work since, following economics, we find that each consumer demands a good or service at the lowest price and of high value. Since the rent is below the equilibrium price, property owners will supply less in improving the quality of the houses to the tenants’ bodies in Prescott City. This is because their rental units will not be able to motivate them since they are experiencing relatively meager returns (rent). (Marques, C. R., Martins, F., & Portugal, P. 2010)

Suppose now that the proposal before the City Council contemplates imposing a price ceiling on apartment rentals but not on house rentals. Would owners of rental houses in Manhattan be likely to support this proposal, or would they prefer the status quo (i.e., no price ceilings)? Provide the economic rationale for your answer. (In answering this question, you should ignore all supply-side considerations. In other words, assume that supply adjusts fully to accommodate demand).

Owners of rentals in Manhattan would not support the idea of a price ceiling on apartment rentals. When the house owners put the price ceilings under the equilibrium price, the income receivable will go down at a high rate. Imposing the price ceiling on the apartment means the rent will go down/below the equilibrium price, and hence tenants can easily afford it. This means that they will shift from low rentals to apartments. The owners of the house rentals will lose customers since they demand quality houses at a lower rent.

The proposal to increase the minimum wage in the U.S. below discussed the demand, supply, and imposing of price floors. As viewed in various articles about raising the real wage of the workers in the U.S., it is literary known that a mare worker in the United States of America gets a minimum wage of 7.25 dollars per hour or the California rate of 8 dollars per hour. It is relatively low since the living standards are high compared to the absolute minimum wage they get when working. If the workers have low incomes from their paychecks, the market will go down due to the low purchasing power they will have attained. The supply will remain the same as it has been in the market. If the government sets the floor of the minimum wage to be higher than the equilibrium minimum wage will affect the employers so much. This is because there will be excess supply when the minimum wage is set above the equilibrium. On the contrary, if it is placed below the balance, there will be an extra demand since the employers will have scarcity when it comes to employees because no one will be willing to work at a low wage. Price floors will cause excess supply and demand when put above and below equilibrium. (Marques, C. R., Martins, F., & Portugal, P. 2010)

Other Related Post: Liquidity Ratios

References

A.G.A. Gas Supply and Demand Committee. & American Gas Association. (1993). demand and supply outlook, 1993-2010: A A.G.A. Gas Supply and Demand Committee report. Arlington, Va: American Gas Association.

Ariga, K., Matsui, K., Watanabe, M., & Australia-Japan Research Centre. (2001). Hot and spicy: Ups and downs on Japanese supermarkets’ price floor and ceiling. Canberra: Australia-Japan Research Centre.

Marques, C. R., Martins, F., & Portugal, P. (2010). Price and wage formation in Portugal. Frankfurt am Main: European Central Bank.

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Week 2 – Assignment: Use Supply and Demand to Evaluate Events

Instructions

Assume that the City Council in Prescott, AZ, is considering implementing price ceilings on rental units based on the number of bedrooms in the team. The demand function for rental units (on a single bedroom equivalent basis) is given by Q.D. = 120 – 4P, and the supply function is provided by Q.S. = 2P, where P is price and Q is quantity. The Council is considering imposing a ceiling price on rental units of P_max = 16.

1. Using the given functions, draw corresponding demand and supply curves. Properly label the equilibrium price and quantity. Then show what will happen to equilibrium if the City Council imposes a price ceiling 16. (Numerous guides online demonstrate how to draw supply and demand curves; most are done in Excel, and then you can copy and paste the graph into your Word document where you will write answers to the following questions).
2. Are consumers of rental housing in Prescott well-served by this price ceiling policy? Provide a careful economic analysis in support of your claim.
3. Suppose that the Council is concerned that landlords will allow the quality of their rental units to deteriorate following the imposition of the ceiling price. What can you infer about the level of quality that landlords provision if consumers are worse off following the imposition of the ceiling price? Provide a careful economic analysis in support of your claim.
4. Suppose now that the proposal before the City Council contemplates imposing a price ceiling on apartment rentals but not on house rentals. Would owners of rental houses in Manhattan be likely to support this proposal, or would they prefer the status quo (i.e., no price ceilings)? Provide the economic rationale for your answer. (In answering this question, you should ignore all supply-side considerations. In other words, assume that supply adjusts fully to accommodate demand).

Next, find two recent scholarly articles concerning proposals to increase the minimum wage in the U.S. Using a supply, demand, and, in this case, price floor analysis similar to what you did for the rental unit price ceiling, write a 1-2 page analysis, based on sound economic principles, of the proposal.

Note: To create supply and demand curves, solve for equilibrium and discuss what happens if a regulated price is set that is not equal to the equilibrium price.

To create the demand curves you need for this assignment, produce an Excel file with a price column including prices from $1 to $30. Using the formulas, compute the quantity demanded for each cost and the quantity supplied for each expense. Finally, using the links above, create the graph.

Length: 3-5 pages, not including title page and references

Your response should demonstrate thoughtful consideration of the ideas and concepts presented in the course and provide new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing and current A.P.A. standards.