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.
Requirement No.2: Calculate price elasticity of demand using point elasticity method when
the construction industry is in equilibrium and interpret the result.
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?
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ECO401 Assignment 1 Solution Spring 2021
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SOLUTION Assignment No. 1 (ECO401 - Economics) Spring 2021
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Assignment solution of ECO401 Spring 2021