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= 25000-10000

3P= 15000

P= 15000/3

P= 5000

Putting the value of P

Qd= 25000- 2(5000)

Qd= 25000-10000

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= 0-2(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