The apartment management company prices to cover costs. However, if there is scarcity in the market, the company can earn superior rents, leading to higher profit. The interest is related to the cost of doing business, if the landlord has leveraged in order to acquire the property. d. In my workplace, supply and demand work much the same as in the simulation, albeit with different demand and supplier drivers. We see our markets fluctuate, and prices respond. If something is not popular, we must discount it in order to sell it. I have to think that if a product is very popular or scarce, we could increase the price, although we usually do not. The principles covered in the simulation are seen in my workplace every day. In the medical imaging business, prices are stable day over day, but in the long run these changes do take place. Products that are not that popular -- and therefore are not that profitable -- stop being produced. Thus, supply declines. If there is a new innovation, we will adopt it too, thereby increasing supply.

e. Price elasticity of demand affects the consumer's decision making. I used the example of gasoline, now compare it to demand for pink flamingos....

Everybody needs gasoline, nobody needs pink plastic flamingos. Thus, these two products have very different elasticities of demand. If gas goes up a dollar a gallon, people might complain but few would change their driving habits. Demand would shrink only a little bit. If plastic flamingos has a similar 25% increase in price, consumers would just stop buying the things. Thus, price elasticity is important to understand because it is one of the most significant demand drivers. The organization, naturally, will respond to what the consumers are doing. Thus, if a product has low price elasticity of demand, the company might simply charge more and take more profits. If the product has high price elasticity of demand, the company is more likely to work hard to controlling the costs, so that the price can be maintaining. In either case, however, the company would seek to find the price at which profit is maximized.
f. The following is a compilation of the results of the simulation:

Year

1

5

Jan 7

Jul 7

9

Quantity Demanded

1900

1900

Monthly Rent