ASSIGNMENT # 1 ECO401

Requirement No.1
Calculate the market equilibrium level of price and quantity for a housing
unit.
Qd = 25000 2P
Qs = 10000 + 1P
SOLUTION:
As we know that:
Qs= Qd
10000+1P= 25000 2P
1P+ 2P= 2500010000
3P= 15000
P= 15000/3
P= 5000
Putting the value of P
Qd= 25000 2(5000)
Qd= 2500010000
Qd= 15000
Qs= 10000+1P
Qs= 10000+1(5000)
Qs= 15000
Hence equilibrium of P= 5000 is Qs= Qd =15000
Requirement No.2:
Calculate price elasticity of demand using point elasticity method when
the construction industry is in equilibrium and interpret the result.
Point elasticity= dQd/dp*P/Q
Qd=25000 2P
dQd/dP= 02(1)
dQd/dP=2
Point of elasticity=2 *5000/15000
=(2)/3
Point of elasticity=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 Stretegy”Because this is a supporting strategy:
Effect on supply
Effect on equilibrium price Effect on equilibrium Quantity demand
Increase supply Decrease price Increase demand