Microeconomics - Final

Presentation On Building Materials Price Hike ∑ Group members: +

Imaad Ali Khan

+

Hiten Umrania

+

Brinda Patel

+

Seow Yee, Ang (Sharon)

The aim of our presentation is to link theory with practice. We have used an article from a business magazine referring to Danube Building Materials FZCO to demonstrate some of the various economic concepts found in the real business scenario.

Danube is one of the largest building materials suppliers in the UAE and the region with the extensive portfolio of 10,000 selections ranging from MDF, plywood, timber, laminates, veneers, aluminium and glass among others. In 2004, the company began operations in Jebel Ali with a 19,000 square metre warehouse-cum-office, which serves as its regional hub and caters to booming markets in UAE, Oman, Bahrain and India.

 Topics are covered very superficially

and are as follows:  Demand

And Its Causes  Supply And Its Factors  Price Determination  Elasticity Of Demand  Scarcity  Solution To The Problems In The Above Concepts  Production Possibility Frontier (PPF)

Due to high rate of inflation in the market, demand for building material have increased. How inflation affects price? In inflation situation,  Lending capacity of banks increases.  Due to this, there is more money flowing in the market.  When there is more money, people tend to buy more.  This increases demand for the product  So when demand increases, the price of the product is increased by the suppliers. 

The other main factors which lead to increase in price of building materials are: Scarcity* of raw materials  Restrictions of log cutting in supplier countries like Malaysia, Indonesia and Burma.  Local demand in the supplier countries for the above materials has increased so there is a scarcity of raw materials in these countries 

*(scarcity of resources means limited availability of resources in relation to demand)

Increase in cost of production 

Price of oil has increased Due to the fuel hike there has been a tremendous increase in freight charges also increasing the local transportation cost

Materials

Prices Before (AED)

Prices After (AED)

Steel

2520 / ton

6120 / ton

Wood

105 / pc

130 / pc

White Wood

880 / m3

1100 / m3

Red Meranti

2570 / ton

3300 / ton

Aluminium

1800 / ton

1900 / ton

Even though prices are rocketing, demand is at its peak. Therefore, the demand for building raw materials is inelastic (graph shown) This market condition dispays inelasticity of demand. Reasons for inelasticity of demand is because GCC is the region with the highest level of ongoing construction projects.

Danube has decided that new facilities like warehouses will be established across the U.A.E. Danube has invested AED 80 million into new facilities in Ras Al Khaimah and Ajman. It helps to cut down on transportation costs across the region. Frequency in freight expenses decreases. When supply is more, more demand is met.