The Application of Price Elasticity in the Building Industry
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The Application of Price Elasticity in the Building Industry

If the high cost of building materials is not checked, the MDGs aim of shelter for all will never be realized.

The high cost building materials in the Nigerian Market is alarming. It has got to the point that common man no longer has the hope of owning a building. This has constituted a challenge to the conventional belief that Shelter is one of the basic needs of man. However, the Nigerian government is not totally relaxing in this regard. Some efforts have been put to address this issue but the question is whether the efforts are enough to save the common man.

Recently, the unit price of cement is 2500 naira (per bag) and it has raised many issues in the Nigeria’s building industry. In order to address this issue, many promises have been given by the government of the day in the area of collaborative efforts with the dealers of this commodity in order to save the common man. Despite this government’s efforts, the dealers have not shown enough interest in making the commodity affordable in the interest of the masses.

However, the application of the simple economic concept of Price Elasticity of demand can save both the suppliers and the consumers of this commodity. By definition, Price Elasticity of demand is the degree of responsiveness of demand due to changes in the price of the commodity. This definition is still based on the conventional Law of demand that explains the negative relationship between price and quantity demanded, ceteris paribus. According to this economic concept, high prices favour the suppliers of commodities that have relatively inelastic demand while a little reduction in price increases the sales of elastic goods.

Since Shelter is a basic need of man, cement, a major material for building is automatically regarded as an elastic commodity. This is to say that a little reduction in the unit price of cement will bring about increase in the quantity demanded and challenges of housing across the nation will be drastically reduced. By so doing, the Millennium Development Goal (MDGs) of housing for all is gradually achieved. Indisputably, the reason for the high cost of cement in Nigeria is either the high cost of production or high cost of importation of the commodity. Hence, the suppliers increase the price to have good profit. However, the concept of Elasticity elucidates that a little reduction of the price will encourage buyers and a collective goal achieved.

Recently, the Lagos State government established a law to protect the tenants from the high-handedness of the Landlords. The law should put an end the compulsory two years advance payment imposed on the tenants by their Landlords. Although this is a measure to help the tenants, the best measure is to force down the price of cement by flooding the market with the product for a while. This will offer the opportunity for a wider set of people to have their own shelter. More so, Nigerians abroad should also answer the call for the eradication of housing problems facing the economy in the urban areas.

Finally, the suppliers of this cement should also know that their rigidity in price determination of this commodity has not been in the interest of the economy at large. Above all, the simple application of elasticity can perform wonders….

References:

-Dangote Crashes Cement Prices

http://www.vanguardngr.com/2011/07/dangote-crashes-cement-price/

-Simplified Economics, unpublished not by Percy Omenazu (2008)

• Omenazu, a trained economist writes from Lagos, Nigeria. Follow him also on www.lordpercyo.blogspot.com or www.lordpercyo.wordpress.com or www.facebook.com/lordpercyo

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Comments (2)
Kaycee

You tried Percy. But there is much more to it now than the rhetorics of conventional laws of demand and supply. The basic thing in addition, is the presence of enough Import Substition Industries. When their produce flood the market, the supply automatically exceeds demand; then price naturally crashes.

in a market like nigeria, the price elasticity is small , almost inelastic, a price decrease is unlikely to result in an increase in demand. it is in itself an insufficient incentive ti stimulate building activity

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