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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

#ECO401 #AssignmentNo1 #spring2021
ECO401 Assignment No 1 spring 2021 | eco401 assignment 1 solution

ECO401 Economics Assignment 01 spring 2021 Solution

One more idea solution file ECO401 assignment#01 solution spring 2021

ECO401_Assignment%2301_Solution-Spring_2021.docx

ECO401

Assignment No 1 Solution

Spring 2021 by

MC180201254

Case:

Pakistan is the fifth most popular country in the World, with 220 Million citizens. Out of total population, 36.38% lived in urban areas where as 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 storage 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= 10,000+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.

Calculate the market equilibrium level of price and quantity of a housing unit.

Solution:

Qd = Qs

25,000 – 2P = 10,000 – 1P

25,000 – 10,000 = 2P + 1P

15,000 =  3P

15,000 / 3 = 3P / 3

5000  = P

Qd = 25000 – 2P

Qd = 25000 – 2 (5000)

Qd = 25000 – 10,000

Qd = 15000

Qs = 10,000 + 1P

Qs =  10,000 + 1(5000)

Qs = 10,000 + 5000

Qs = 15000

Requirement No 2:

Calculate price elasticity of demand  using point elasticity method when the construction industry is in equilibrium and interpret the results.

Solution: Formula of Point Elasticity:

Putting Values in Formula:

-2* (5000 / 15,000)

-2 * 0.3333

-0.6666

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?

Solution:

For the

given case we have followed the  “Price Floor Strategy” Because this is supporting strategy.

Increase Supply

Decrease Price

Increase Demand

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

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)

Price Floor Strategy because

Impact of Strategy on Equilibrium

Supply Increase

Price Decrease

Quantity Increase

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