Topic Thread

Price eleasticiy of demand in construction industry

  • 1.  Price eleasticiy of demand in construction industry

    Posted 12 days ago
    ​Hi everyone,

    I am currently working on my school assignment that is about demand  in construction industry.
    How would you describe the elasticity and why? Do you think it is more elastic or inelastic? Is there a difference between general contractors and subcontractors? Any thoughts?

    Any feedback will be helpful.

    Thank you in advance!

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    Ana Maravic
    Accounting Associate
    Paramount Contract Services LLC
    Pittsburgh, PA
    (412) 281-9650
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  • 2.  RE: Price eleasticiy of demand in construction industry

    Posted 9 days ago
    Ana,
    OK, let me go back to college economics class - the last time I had to think about price elasticity - and try to apply it to construction from my experience.  My recollection is that price elasticity refers to the affect on demand that results from the change in price.  Demand that significantly drops with small increases in price would be highly elastic and demand that remains relatively the same regardless of price would have low elasticity.
    If my memory of the definition is correct and it hasn't changed since I was in school when I think Warren G. Harding was president, then I will offer the following opinion, for what it's worth.
    For my comments, the demand is for construction projects.  The cost is the price the owner is willing to pay for the project.
    If the construction is for public work paid for by the federal government, then the price is less elastic.  The government will find a way to get the construction done it deems necessary, regardless of price.  It will seek the lowest price from the contractors it hires and generally must choose the one with the lowest bid, but even if the low bid is significantly more than expected, the project may be delayed, but will likely still be completed.
    If the construction is for public work for state or local governments, then it is more elastic.  The more local the government, the more accountable the politicians tend to be with spending the people's money.  Deficit spending isn't usually a sustainable option for counties and cities.
    If the construction is for private work, the price is even more elastic.  While a project may move forward if the price of construction increases, it will likely undergo revisions in design to find ways to offset the increased price so that the overall budget remains the same.
    Hope this helps.  Good luck.

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    Steve Hunt CPA
    Cfo
    Alto Construction Company, Inc.
    Tampa FL
    (813) 241-2586
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