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.

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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