ABA 2307

B. Arch 3rd Year 2015

BUILDING ECONOMICS
Lecture 3 & 4

Construction Demand & Supply I

Today's lecture plan, we will look at

Introductions

Law of demand & its determinants

Law of supply

Relationship between demand & supply

Determinants of construction demand

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Introduction

In economics, the term demand refers to the

amount of a good or service which consumers

are both able and willing to purchase per unit

of time at all alternative prices

The qty demanded is the amount of a

product people are willing to buy at a certain
price
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Introduction contd

The relationship between price and quantity

demanded is known as the demand

relationship.

Supply refers to the amount of good or

service which sellers are willing to sell at all
alternative prices
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Law of demand

It states that, if all other factors remain

equal, the higher the price of a good, the less
people will demand that good.

Meaning the higher the price, the lower the

quantity demanded

Demand curve

A, B and C are points on the demand curve. Each point on the

curve reflects a direct correlation between qty demanded (Q)
& price (P).
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Determinants of demand
1.

price of the commodity,

2.

Consumers tastes and preferences,

3.

The number of consumers considered,

4.

Consumers income,

5.

The prices of related goods,

6.

The range of goods available to consumers

7.

Consumers expectations regarding future prices

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Law of supply

The law of supply demonstrates the

quantities that will be sold at a certain price

This means that the higher the price, the

higher the qty supplied. Producers supply
more at a higher price because selling a
higher qty at a higher price increases
revenue.
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Law of supply

A, B and C are points on the supply curve. Each point

on the curve reflects a direct correlation between
qty supplied (Q) & price (P)
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Relationship btn demand & supply

It shows that demand is inversely

proportional to price while supply is directly

proportional to it

Demand for built facilities i.e. constructed

space comes from 1st order primary needs
for shelter to the higher order needs for
production of goods and services
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Relationship btn demand & supply

This demand translates into construction

demand, which in turn translates into

construction supply commonly termed

construction output.

Demand is the value of contracts for new

construction work awarded to main
contractors including speculative work
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Relationship btn demand & supply

while construction output is the amount

payable to contractors for work done in the

relevant period

Therefore, construction demand normally

leads to construction output spread over a
period of time
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Determinants of Construction Demand

1)
2)

3)
4)
5)
6)

7)

Availability of credit
Condition of the existing stock of built
facilities
Economic conditions economic growth &
development
Exchange rates
Government action policy & expenditure
Household disposable income
Household formation rate
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Determinants of Construction Demand

Interest rates
9) Inflation
10) Money supply
11) Peoples tastes & preferences for housing,
entertainment etc
12) Planning regulations
13) Political climate conflict, governance,
security etc
14) Population (size, structure and geographical
distribution)
8)

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Determinants of Construction Demand

15) Prices

tender prices, property prices &

import prices
16) Output
17) Taxation
18) Technology
19) Unemployment
20) Weather conditions.

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Economy & Construction Investment

A countrys economy and its construction investment

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Determinants of Construction Demand

> 50% of the determinants of construction

demand listed above are economic factors

A countrys economy & its construction

investment are interdependent; their causal
relationship is bi-directional

Construction investment may be growth

dependent or growth initiating.
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Questions?

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