Industry brief: less than 500 words with a correctly labelled diagrams Essay Example

7MCMANSON PTY LTD

McManson Pty Ltd

Lecturer:

Introduction

McMansion is regarded new luxury house large and oversized when matched to existing houses in the neighbourhood. It lacks differentiating features and variance with fundamental architecture. Construction of McMansion is affected by material prices, contractors’ fees, urbanization, population growth, and availability of materials (Hillerbrandt, 2009).

Factors Influencing the Market Demand in Construction Industry

Construction Prices

The gradual increase in cost associated to construction leads to general increase in the contractors quotation cost. Increase in construction cost simultaneously reduces the demand for the housing construction (Randolph, 2008). Decrease of housing construction demand will attributively cause a decline in the supply and also reduce the competitiveness of the housing industry. For example when price of labour increases the construction demand will decline. industry brief: less than 500 words with a correctly labelled diagrams

From the figure above, when construction prices increases from P0 to P1 the demand for construction will reduce from Q0to Q1. Therefore their will decline in the competitiveness of the construction industry (Hillerbrandt, 2009).

Population Growth and Urbanization

Rise in population and urbanization vindicates the increase in demand for housing construction. Market demand for construction increase as countries population increases while competitiveness of the housing industry will increase.

industry brief: less than 500 words with a correctly labelled diagrams 1

Factors Influencing the Market Supply in Construction Industry

Application of new technologies

The changing demand in construction industry has led to innovation and application of new technologies thus increasing the construction prices (Randolph, 2008).

industry brief: less than 500 words with a correctly labelled diagrams 2

Technology will lead to movements along the supply curve. New technology will lead to increase in prices from P0 to P2 which causes upward movement in supply curve from point A to B. When supply moves upwards quantity demanded increase from Q0 to Q2.

Construction materials

Increasing construction industries as a result of favorable market economic conditions will result high demand of materials thus higher material prices.

Price elasticity of demand refers to the measure of degree of sensitivity of quantity demanded to the change in commodity prices (Hillerbrandt, 2009). The degree of responsiveness to consumers in increase of construction prices is determined by the nature of the commodities. Housing is considered basic need for individuals hence any increase in price will cause a less than proportionate decrease in the quantity demanded. Housing construction industry as a less than proportionate sensitivity to change in prices hence its demand is inelastic.

industry brief: less than 500 words with a correctly labelled diagrams 3

From the graph above when construction prices increases from P0 to P1 the quantity demanded reduces with a less than proportionate from Q0 to Q1.

Income elasticity of demand refers to the measure of degree of responsiveness of the quantity demanded in response to consumer’s income (Randolph, 2008). The degree of sensitivity of quantity demanded to the consumer’s income as a positive relationship where an increase in consumer’s income will cause increase in the housing construction. Housing has a positive income elasticity of demand therefore it is a normal good. For example, if income increases by 20% the demand for housing construction increases will increase by 8%.

industry brief: less than 500 words with a correctly labelled diagrams 4

From the graph increase in the consumers income from Yo to Y2 quantity demanded increases from Qo to Q2.

Impact of external shocks on changing market conditions

Increase in the cost of materials and technology leads to decrease in supply hence resulting in downward shift in supply curve (Hillerbrandt, 2009). However, increase in population and urbanization leads to increase in construction of houses causing upward shift of supply curve.

industry brief: less than 500 words with a correctly labelled diagrams 5

Reference List

Hillerbrandt, B., 2009. Economic Theory and the Construction Industry. London: MacMillan.

Randolph, B., 2008. The Changing Australian City: New Research Needs. Urban Policy and Research, pp.481-93.