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# [Solved] ECO401 Assignment 1 Solution Spring 2021

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ECO401 Assignment 1 Solution Spring 2021

ECO401 assignment 1 solution idea:

ECO401

Assignment No 1 Solution

Spring 2021

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

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