ECO 401-ECONOMIC # Current Solved Assignment Spring | 2021
Pakistan is the 5th most populous country in the world, with 220 million citizens. Out of total population 36.38% lives in urban areas whereas 63.62% resides in rural areas. There is a huge demand for houses due to a 2.4% annual population growth rate as per census 2017. Further, Pakistan’s construction industry is suffering from a severe industry is suffering from a severe shortage of housing facilities, particularly for low and middle-income groups. Suppose the quantity demanded and quantity supplied functions for houses are given below
Qd =25000 – 2p
Qs = 10000 =1P
Where ‘p’ is the price in rupees of a housing unit, ‘Qd’ is quantity demanded for housing unit. Qs is quantity supplied for housing units
Solution Requirement No. 1
Calculate the market equilibrium level of price and quantity for a housing unit.
Qd = Qs Qd = 25000 – 2P
25000 – 2p = 10000 +1P = 25000 – 2(5000)
25000 – 10000 = 2P + 1P = 25000 – 10000
15000 = 3P Qd = 15000
15000/3 = 3P/3 Qs = 10000 + 1P
5000 = P = 10000 + 1(5000)
p = 5000 = 10000 + 5000
Qs = 15000
Solution No 2 :
Calculate price elasticity of demand using point elasticity method when the construction industry is in equilibrium and interpret the result.
Formulas for point Elasticity
=( Q / P ) * ( P / Q)
= -2 * (5000 / 15000)
= -2 * 0.3333
Solution Requirement No 3:
What kind of price rationing strategy should be implemented by government to provide renters with houses at affordable price? Also mention the impact of this strategy on equilibrium quantity demanded and equilibrium quantity supplied of houses?
In this case we have followed the “Price Floor Strategy” because this is supporting strategy.
- Increase Supply
- Decrease Price
- Increase Demand