Civil Engineering Reference
In-Depth Information
THE BASIC LAW OF DEMAND
We already established in the last chapter (for example see
Key Points 3.2)
that a
demand curve has a negative slope. It moves downward from left to right. This is
illustrated in
Figure 4.1
.
The shape of the demand curve for most goods or service is not surprising when
one considers the basic
law of demand
. This may be stated formally as:
at higher prices, a lower quantity will be demanded than at lower prices (and
vice versa), other things being equal.
The law of demand, therefore, tells us that the quantity demanded of a product is
inversely related to that product's price, other things being equal.
To continue with this analysis, we must consider the 'other things being equal'
phrase more carefully. Clearly, demand is not only affected by price. As already
implied in
Chapter 3,
it is easy to see that other factors may also affect demand. The
demand curve shown in
Figure 4.1
may shift to another position. Conditions in the
relevant market may change significantly enough to cause consumers to change the
quantity demanded at each and every price. For instance, imagine that
Figure 4.1
represents the demand curve for a product of the construction industry. What events
may cause more or less demand for that product at every price?
DEMAND IN THE CONSTRUCTION INDUSTRY
The determination of demand for goods and services produced by the construction
industry is a complicated process. This is partly due to the size, cost, longevity
and investment nature of the products and partly due to the broad range of what
constitutes construction activity. This will become clearer as we consider factors
affecting demand for various sectors of the industry.
Demand for Housing
In 2010 there were in excess of 27 million households in the UK. A large
majority of these 27 million households could afford to demand a home,
but it is important to remember the introductory point about effective
demand and avoid confusion between 'need' and 'demand'. Each household
requires some kind of shelter - a flat, bungalow, terraced house, maisonette,
semi-detached house, cardboard carton, or whatever. The related resources are
allocated through the market mechanism and the public sector, or through some
mix of the two. It is difficult to envisage just one housing market. Indeed, when
statisticians discuss the UK housing market it is usual to distinguish four sectors.
1 The
owner occupied sector
- that is, accommodation owned outright or being
bought with a mortgage.
2 The
private rented sector
-
property that is let at a market rent deemed 'fair' to
tenants and landlords.
3 The
local authority rented sector
- housing made available by the local authority
(council) at a subsidised rate from public funds.
