1. Construction & Property Economics Lesson 4 – Demand and Supply on Construction Industry

2. Aim of this lecture
The determinants of demand and supply on construction industry
Various market structures
Construction market structure
The relationship between output, revenue and price
Price elasticity

3. Question Clients Contractors Sub-contractors fragmentation
Who creates demand for the construction process?
Who liaise with the client to supply the product?
Who supply the product?
What is the term given to the theory in our industry which leads to weaknesses such as lack of collaboration, trust, training, etc?
Clients
Contractors
Sub-contractors
fragmentation

4. Construction Industry Determinants
Demand Determinants
Government Policies
Economic Conditions
Construction Price
Inflation
Population Growth/Urbanization
Foreign investment
Supply Determinants
Resource Procurement
Project Delivery Process
Role of contracting firms
Technological Application
Usage of material

5. Supply and Demand Curve on Construction Industry

6. What are current demand determinants in the Singapore Property Market
What are current demand determinants in the Singapore Property Market ? Can you see the correlation between construction industry and the property market ?

7. Different Market Structures

8. Perfectly competitive firm
“one is such that a small part of the total industry in which it operates that it cannot significantly affect the price of the product in question

9. Single-Firm Demand Curve
Perfect elasticity – the firm can sell as much output as it wants, providing it does not alter the price. If the firm were to raise its price, consumers will buy the same skill, product or service from another producer – price taker, it takes price as given

10. Characteristics of Perfect Competition
Homogenous product
Entry and exit without serious impediments
Large number of buyers and sellers
Complete information
To both sellers and buyers
Market prices
Product quality
Cost conditions

11. Which Market model best fits the construction and property market ?

12. Market Structures That Typify That The Construction Industry
So far only highlighted a hypothetical market structure, now let’s analyse actual markets in our industry
Construction market is generally competitive:
Many firms producing an insignificant total output of construction
No formal restrictions preventing firms from participating
Most however do have some control over price

14. Defining – Output / Revenue / Price
DEFINITION
OUTPUT - is the amount of goods and services produced by a person, machine, firm, industry, or country etc. during a specific time period, such as a year
REVENUE - is income that a company receives from its normal business activities, usually from the sale of good and services to customers
PRICE - is the quantity of payment or compensation given by one party to another in return for goods or services

15. What is the relationship between price and revenue?
In economics, the total revenue test is a means for determining whether demand is elastic or inelastic. If an increase in price causes an increase in total revenue, then demand can be said to be inelastic, since the increase in price does not have a large impact on quantity demanded.

16. Definition of Elasticity in economics
Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price when nothing but the price changes.
If a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or responsive to price changes). On the other hand, a product is deemed inelastic if a large change in price is accompanied by a small amount of change in quantity demanded

17. Determinants of Demand Elasticity
Share of consumer’s budget spent on the good
Increasing in price reduce the demand because people are not both willing and able to purchase at higher price
Availability of substitutes
The greater the availability of substitute for a good, the greater the good’s elasticity of demand
A matter of time
The longer the adjustment period, the greater the consumer’s ability to substitute
Some elasticity estimates
The elasticity of demand is greater in the long run because consumers have more time to adjust

18. Determinants of Supply Elasticity
Price Elastic of Supply
Elastic Supply – Quantity supplied responds substantially to changes in price
Inelastic Supply – Quantity supplied responds only slightly to changes in the price
Determinant of price elasticity of supply
Time period – supply is more elastic in the long run