Question

Article 1

Hong Kong public housing: increased land supply and reduced demand to cause drop in shortfall, but government still lagging behind targets (SCMP, 18 Dec 2019)1
Hong Kong’s public housing shortfall is expected to ease in the next 10 years because of increased land availability and reduced demand, but the government is still expected to miss its supply target. Secretary for Transport and Housing Frank Chan Fan, who is in charge of reviewing and updating a rolling 10-year housing strategy annually, admitted the long wait for public housing would probably not improve soon as “demand pressure for flats remains very high”. “The queue for public housing with more than 250,000 applicants may increase in the future, and there is still a shortfall in supply,” he said on Wednesday....... As for public flats, supply is still expected to fall behind the government’s new target because of limited available land.......... Given the smaller demand and additional supply, the shortfall would be narrowed down to about 29,000 flats in the coming decade, compared to 67,000 last year....... The Lantau reclamation project, which was mentioned in last year’s report as one of the long-term measures for land supply, was omitted from this year’s report........ Demand for public sector homes has always been keen in the city. Families for public rental housing face an average waiting time of five years and four months for a subsidized flat.

Question 1:
With reference to Article 1, given that the supply of housing is perfectly inelastic, with the aid of diagram(s), illustrate the following situation in Hong Kong public housing market: “Given the smaller demand and additional supply, the shortfall would be narrowed down”.

Answer 1

Public housing Market Equilibrium

Market Equilibrium is determined where -------- Qd=Qs

With the perfectly inelastic supply ,the supply curve is vertical to y-axis.

Initially the equilibrium price is (p) and and equilibrium quantity is Q ,with the reduction in demand,the demand curve shifts downward.

The demand curve D shifts to left as D'.New equilibrium price falls to Price while Equilibrium quantity remains the same.