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ECO401 Economics Assignment 01 spring 2021 Solution / Discussion Due Date: 11-05-2021

THE CASE:

 

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 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 units. ‘Qs’ is quantity supplied for housing units.

 

Requirement No.1: Calculate the market equilibrium level of price and quantity for a housing unit.

 

(Marks:3)

 

Requirement No.2:    Calculate price elasticity of demand using point elasticity method when

 

the construction industry is in equilibrium and interpret the result.

 

(Marks:4)

 

 

Now consider if government decides to cater this increasing demand of houses and wishes to intervene in rental market to provide renters with affordable houses.

 

 

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?

(Marks:3)

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ECO401 Economics Assignment 01 spring 2021 Solution

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ECO401_Assignment#01_Solution-Spring_2021

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SEMESTER SPRING 2021 ECONOMICS (ECO401) ASSIGNMENT# 1

Marks: 10 Due date:

May 11, 2021

Student ID

 

THE CASE:

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 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 units. ‘Qs’ is quantity supplied for housing units.

Requirement No.1: Calculate the market equilibrium level of price and quantity for a housing unit. (Marks:3)

 

Solution:

            We know that at equilibrium

            Quantity of supplied = Quantity of demanded

            Qs                    = Qd

            10000 + 1P      = 25000 – 2P

            1P + 2P            = 25000 – 10000

            3P                    = 15000

            P                      = 15000 / 3

            P                      = Rs. 5000

 

            Putting value “P” in any one functions

            Qs                    = 10000 + 1 (5000)

            Qs                    = 10000 + 5000

            Qs                    = 15000

            Qd                   = 25000 – 2 (5000)

            Qd                   = 25000 – 10000

            Qd                   = 15000

 

Answer

            P = Rs. 5000

            Qs = Qd = Q = 15000

 

 

Requirement No.2: Calculate price elasticity of demand using point elasticity method when the construction industry is in equilibrium and interpret the result. (Marks:4)

Solution:

Formula: Point elasticity =

Qd       = 25000 – 2P

            = 0 – 2(1)

            = - 2

Point elasticity            = - 2 x

Point elasticity = -2 / 3

Point elasticity = - 0.6666

 

 

           

 

Now consider if government decides to cater this increasing demand of houses and wishes to intervene in rental market to provide renters with affordable houses.

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? (Marks:3)

Answer

Price Floor Strategy because

 

Impact of Strategy on Equilibrium

Supply Increase

Price Decrease

Quantity Increase

 

ECO401 Assignment 1 Solution Spring 2021

ECO401 Assignment 1 Solution Spring 2021 || Economics || 100 % Correct Solution

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ECO401 Economics Assignment 01 spring 2021 Solution

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ECO401 Assignment 1 Solution Spring 2021 | ECO401 Assignment Solution 2021

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ECO401 Assignment no 1 Solution Spring 2021|ECO401|Virtual University|Advance Scholars

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1)
At Equlibrium Qd = Qs
U can get value of P. Put this value i n any equation u'll get value of Q
2)
PED =
% Δ Q / Q
————-
% Δ P / P

Assignment solution of ECO401 Spring 2021

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