MICROECONOMICS (ECO402)

BC220418266

Atiqa Zahra

The demand for residential property:

Qd=700,000−5P

The supply of residential property:

Qs=100,000+11P

Where:

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)

Solution I.

Market Equilibrium: When demand equal supply

Price Equilibrium: When Quantity demanded equal Quantity Supply.
= 700,000 – 5P = 100,000 + 11P
= 700,000 – 100,000 = 5 + 11P
= 600,000 = 16P
600000
=
16
P = 37500
P = Rs. 37500 per Marla (equilibrium price).
Qd = 700,000 – 5(37500)
= 700,000 – 187,500
 = 512,500
Qs = 100,000 + 11(37500)
= 100,000 + 412,500
= 512,500
Qd = 512,500 Plots (equilibrium quantity).

Solution II.

Solution III.

Formula of price elasticity:

%∆Q
Es =
%∆P
Formula of percentage change of Quantity.
Q1−Q
%∆Q = ∗100
Q
105000−95000
= ∗100
95000

= 10.53%
Formula of percentage change of Price.
 P 1−P
%∆P = ∗100
P
40000−35000
= ∗100
35000
= 14.29%
%∆Q
Es =
%∆P
10.53 %
=
14.29 %
= 0.74Answer
The value of elasticity 0.74 less than 1 indicates that supply relatively inelastic less than 1%
increase quantity supplied. Show that suppliers are not very responsive to price changes in the
range.