The Case:In recent years, the real estate market in Pakistan has faced significant challenges, leadingto a noticeable decline. Several factors have contributed to this downturn, includingeconomic instability, political uncertainty, changes in government policies, a decrease inconsumers’ income, and the impact of the COVID-19 pandemic. These factors havecollectively led to decreased demand for properties, a slowdown in construction activity,and a decrease in property prices. Suppose the demand and supply equations ofresidential property of a newly established housing society are as follows:The demand for residential property:Qd=700,000−5PThe supply of residential property:Qs=100,000+11PWhere:Qd = Quantity demanded of residential property (number of plots)P = Price per Marla (in Pakistani Rupees)Qs = Quantity supplied of residential property (number of plots)Requirements:I. Using demand and supply equations, calculate the equilibrium price and quantityof residential property of a newly established housing society.II. Graphically illustrate the impact of an increase in consumers’ income on thedemand curve, equilibrium price, and equilibrium quantity of residential property.III. Only for this part, consider the hypothetical data of quantity supplied ofresidential property of a newly established housing society at given market pricesin the table below:Price ofresidentialproperty perMarla (inrupees)Quantitysupplied(number ofresidentialplots)35,000 95,00040,000 105,000Using the data in the table, calculate the price elasticity of supply of residential propertywhen the price increases from Rs. 35,000 to Rs. 40,000. Also, interpret the result.(Marks = 3+2+5)I MPORTANT:24 hours extra / grace period after the due date is usually available to overcomeuploading difficulties. This extra time should only be used to meet theemergencies and above mentioned due dates should always be treated as finalto avoid any inconvenience.OTHER IMPORTANT I NSTRUCTIONS:D EADLINE : Make sure to upload the solution file before the due date on VULMS. Any submission made via email after the due date will not be accepted.FORMATTING GUIDELINES :
Question
The Case:In recent years, the real estate market in Pakistan has faced significant challenges, leadingto a noticeable decline. Several factors have contributed to this downturn, includingeconomic instability, political uncertainty, changes in government policies, a decrease inconsumers’ income, and the impact of the COVID-19 pandemic. These factors havecollectively led to decreased demand for properties, a slowdown in construction activity,and a decrease in property prices. Suppose the demand and supply equations ofresidential property of a newly established housing society are as follows:The demand for residential property:Qd=700,000−5PThe supply of residential property:Qs=100,000+11PWhere:Qd = Quantity demanded of residential property (number of plots)P = Price per Marla (in Pakistani Rupees)Qs = Quantity supplied of residential property (number of plots)Requirements:I. Using demand and supply equations, calculate the equilibrium price and quantityof residential property of a newly established housing society.II. Graphically illustrate the impact of an increase in consumers’ income on thedemand curve, equilibrium price, and equilibrium quantity of residential property.III. Only for this part, consider the hypothetical data of quantity supplied ofresidential property of a newly established housing society at given market pricesin the table below:Price ofresidentialproperty perMarla (inrupees)Quantitysupplied(number ofresidentialplots)35,000 95,00040,000 105,000Using the data in the table, calculate the price elasticity of supply of residential propertywhen the price increases from Rs. 35,000 to Rs. 40,000. Also, interpret the result.(Marks = 3+2+5)I MPORTANT:24 hours extra / grace period after the due date is usually available to overcomeuploading difficulties. This extra time should only be used to meet theemergencies and above mentioned due dates should always be treated as finalto avoid any inconvenience.OTHER IMPORTANT I NSTRUCTIONS:D EADLINE : Make sure to upload the solution file before the due date on VULMS. Any submission made via email after the due date will not be accepted.FORMATTING GUIDELINES :
Solution
Sure, I can help with that. Here are the steps to solve the requirements:
I. To calculate the equilibrium price and quantity of residential property, we need to set the demand equation equal to the supply equation and solve for P (price).
700,000 - 5P = 100,000 + 11P
This simplifies to:
16P = 600,000
So, P = 600,000 / 16 = 37,500
Substitute P = 37,500 into either the demand or supply equation to find Q (quantity). Let's use the demand equation:
Qd = 700,000 - 5*37,500 = 512,500
So, the equilibrium price is 37,500 and the equilibrium quantity is 512,500.
II. An increase in consumers’ income would cause the demand curve to shift to the right. This is because as income increases, people are able to afford more, thus increasing the demand. This would result in a new equilibrium price and quantity, which would be higher than before.
III. The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price.
The change in quantity supplied is (105,000 - 95,000) / 95,000 = 0.1053 or 10.53%
The change in price is (40,000 - 35,000) / 35,000 = 0.1429 or 14.29%
So, the price elasticity of supply is 10.53% / 14.29% = 0.737
A price elasticity of supply of 0.737 means that for every 1% increase in price, the quantity supplied increases by 0.737%. This indicates that the supply is inelastic, as the percentage change in quantity supplied is less than the percentage change in price.
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