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Durability of building materials, market structure and the economic
development of the construction industry
Rakhra, A. S.
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Ser THl
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dLO, 1260
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National Research
Conseil national
C . 2
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Council Canada
de recherches Canada
BLDG
1
DURABILITY OF BUILDING MATERIALS, MARKET STRUCTURE AND THE ECONOMIC DEVELOPMENT OF THE CONSTRUCTION INDUSTRY
by A.S. Rakhra
Presented at
VTT Symposium 48
Third international conference on the durability of building materials and components, Espw, Finland
Vol. I, 1984, p. 178
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188 fir
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C I a T III'
r
RDG.
P,- r !l.nPRAF,Y
L7
Reprinted with permission
DBR Paper No. 1260
Division of Building Research /
T h i s paper, w h i l e b e i n g d i s t r i b u t e d i n r e p r i n t form by t h e D i v i s i o n of B u i l d i n g Research, remains t h e c o p y r i g h t of t h e o r i g i n a l p u b l i s h e r . It s h o u l d n o t be reproduced i n whole o r i n p a r t w i t h o u t t h e p e r m i s s i o n of t h e p u b l i s h e r . A l i s t of a l l p u b l i c a t i o n s a v a i l a b l e from t h e D i v i s i o n may be o b t a i n e d by w r i t i n g t o t h e P u b l i c a t i o n s S e c t i o n , D i v i s i o n of B u i l d i n g R e s e a r c h , N a t i o n a l R e s e a r c h C o u n c i l of C a n a d a , O t t a w a , O n t a r i o ,
K1A
0R6.-
178
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A.S. Rakhra, R e s e a r c h O f f i c e r D i v l s i o n of B u i l d i n g Research N a t i o n a l R e s e a r c h C o u n c i l Canada Ottawa, Canada
DURABILITY OF BUILDING MATERIALS, MARKET STRUCTURE AND THE ECONOMIC DEVELOPMENT OF THE CONSTRUCTION INDUSTRY
A b s t r a c t
The p r e s e n t paper t r a c e s s h o r t - and long-term e f f e c t s o f
enhancing d u r a b i l i t y o n t h e c o n s t r u c t i o n s e c t o r a n d t h e r e s t o f t h e economy. While s h o r t t e r m e f f e c t s may b e n e g a t i v e , i n t h e form o f reduced o u t p u t a n d employment l e v e l s i n t h e m a t e r i a l m a n u f a c t u r i n g i n d u s t r i e s , t h e long-term e f f e c t s a r e e x p e c t e d t o b e p o s i t i v e . These e f f e c t s w i l l v a r y a c c o r d i n g t o t h e market s t r u c t u r e of m a t e r i a l m a n u f a c t u r i n g f i r m s , i . e . , whether t h e y a r e " c o m p e t i t i v e " f i r m s o r "monopolies". C e t t e communication d d c r i t l e s e f f e t s
a
c o u r t e t 3 l o n g terme d e l ' a c c r o i s s e m e n t d e l a d u r a b i l i t s d e s mat'eriaux p o u r l e s e c t e u r de l a c o n s t r u c t i o n , e t l e r e s t e d e 1'6sonomie. Bien que l e s e f f e t sa
c o u r t t e r m e p u i s s e n t S t r e n ' e g a t i f s ( b a i s s e d ep r o d u c t i o n e t r d d u c t i o n d e l a main-d'oeuvre dans l ' i n d u s t r i e d e f a b r i c a t i o n d e s mat'eriaux), l e s e f f e t s 3 l o n g t e r m e d e v r a i e n t & t r e p o s i t i f s . Ces e f f e t s vont v a r i e r e n f o n c t i o n d e l a s t r u c t u r e commerciale d e s e n t r e p r i s e s d e f a b r i c a t i o n , s e l o n q u ' e l l e s s o i e n t e n s i t u a t i o n de "monopole" ou d e "concurrence".
-
179
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1 ECONOMIC CONCEPT OF DURABILITYA s d i s c u s s e d elsewhere, t h e p h y s i c a l , chemical o r mechanical c o n c e p t s of d u r a b i l i t y may be d i f f e r e n t from t h e economic
concept
(11.
M a t e r i a l s may remain p h y s i c a l l y d u r a b l e l o n g a f t e r t h e y have ceased t o be economically a t t r a c t i v e t o u s e o ro p e r a t e . Another m a t e r i a l may a l s o become a v a i l a b l e , which h a s lower i n i t i a l and o p e r a t i n g and maintenance c o s t s ( l i f e c y c l e c o s t s ) t h a n t h e e x i s t i n g one; i t t h e r e b y r e n d e r s t h e l a t t e r c o s t - i n e f f e c t i v e . Thus, t h e d u r a b i l i t y of a b u i l d i n g m a t e r i a l can be d e f i n e d , i n economic terms, a s t h e time p e r i o d o v e r which i t c o n t i n u e s t o meet t h e requirements of t h e b u i l d i n g a t l e s s l i f e - c y c l e c o s t s t h a n any o t h e r s u b s t i t u t e . M a t e r i a l s competing f o r t h e same u s e c a n b e ranked on t h e b a s i s of t h e i r l i f e c y c l e c o s t s and chosen a c c o r d i n g l y .
I n c a s e s where t h e r e e x i s t s only one m a t e r i a l t o s a t i s f y a g i v e n o b j e c t i v e , t h e r e l e v a n t q u e s t i o n would b e how d u r a b l e i t s h o u l d be. Assuming t h a t t e c h n i c a l p o s s i b i l i t i e s e x i s t , a m a t e r i a l ' s d u r a b i l i t y c a n b e i n c r e a s e d by u s i n g more r e s o u r c e s . But,
i s
i t always economically e f f i c i e n t t o manufacture goods t h a t l a s t , s a y , 100 y e a r s ? The answer t o t h i s r e q u i r e s some knowledge of t h e c o s t s t r u c t u r e of b u i l d i n g m a t e r i a l s o r components f o r v a r y i n g d e g r e e s of d u r a b i l i t y ( s e e Fig. 1 ) . The optimum l e v e l of d u r a b i l i t y w i l l be reached a t t h e p o i n t where t h e p r e s e n t v a l u e of t o t a l l i f e - c y c l e c o s t s i s minimum ( p o i n t L i n Fig. 1). The p r e s e n t v a l u e of t o t a l l i f e - c y c l e c o s t s c u r v e i s t h ev e r t i c a l summation of t h e i n i t i a l c o s t and t h e p r e s e n t v a l u e of r e p a i r and replacement c o s t curves. A s a m a t e r i a l , o r any s t r u c t u r e made t h e r e o f , i s made more d u r a b l e , t h e i n i t i a l c o s t r i s e s , w h i l e t h e p r e s e n t v a l u e of r e p a i r and replacement c o s t f a l l s . A s a r e s u l t , t h e t o t a l c o s t curve w i l l f i r s t d e c l i n e and t h e n r i s e , a s t h e r i s e i n i n i t i a l c o s t outweighs t h e f a l l i n r e p a i r and replacement c o s t s .
The diagram does n o t t a k e i n t o account t h e budgetary c o n s t r a i n t on t h e u s e r . The l e v e l of d u r a b i l i t y s e l e c t e d must s a t i s f y t h e
PRESENT VALUE OF
4%
\ TOTAL LIFE CYCLE COSTS-u PRESENT VALUE OF REPAIR
-
- -
-
COSTS ~ i g . 1 ~ e l a t i o n - - - _ A between d u r a b i l i t y o L D U R A B I L I T Y of m a t e r i a l s and c o s t s r e s o u r c e s a v a i l a b l e t o t h e u s e r a s i l l u s t r a t e d i n F i g u r e 2. I n t h i s diagram, t h e h o r i z o n t a l a x i s r e p r e s e n t s p r e s e n t v a l u e of r e p a i r and replacement c o s t s , t h e v e r t i c a l a x i s d e n o t e s i n i t i a l c o s t s a n d t h e l e v e l o f d u r a b i l i t y i s r e p r e s e n t e d by a f a m i l y o f c u r v e s (1, 2 and 3). The h i g h e r t h e c u r v e , t h e h i g h e r s h o u l d b e t h e l e v e l o f d u r a b i l i t y . F o r example, c u r v e ( 1 ) d e n o t e s a d u r a b i l i t y of t e n y e a r s , c u r v e ( 2 ) of twenty y e a r s and c u r v e (3) of t h i r t y y e a r s . Any p o i n t o n a c u r v e p r o v i d e s t h e same l e v e l of d u r a b i l i t y w i t h v a r i o u s combinations of i n i t i a l c o s t s and r e p a i r o r r e p l a c e m e n t c o s t s . A u s e r w i t h a l i m i t e d budget c a n spend i t a l l e i t h e r on i n i t i a l c o s t s (01) o r o n maintenance, r e p a i r and r e p l a c e m e n t c o s t s (OM). U s u a l l y , some p a r t of t h e budget w i l l b e s p e n t on i n i t i a l c o s t s and t h e remainder on maintenance and replacement. I f more i s s p e n t on i n i t i a l c o s t s ( i . e . , more d u r a b i l i t y ) , l e s s w i l l h a v e t o b e s p e n t o n maintenance and replacement. T h i s t r a d e - o f f between i n i t i a l c o s t s and maintenance and r e p l a c e m e n t s c o s t s i s i l l u s t r a t e d by c u r v e s ( 1 ) and ( 2 ) . Curve ( 1 ) i n d i c a t e s t h a t t h e u s e r can o b t a i n a ten-year l e v e l of d u r a b i l i t y by combining a g i v e n i n i t i a l e x p e n d i t u r e w i t h t h e d e s i r e d maintenance a n d replacement e x p e n d i t u r e . S i n c e e v e r y p o i n t on t h i s c u r v e w i l l p r o v i d e t e n y e a r s of d u r a b i l i t y , i t may t h u s b e c a l l e d a n "iso- d u r a b i l i t y " o r " i n d i f f e r e n c e " c u r v e . A p o i n t t o t h e l e f t(e.g. E 2 ) w i l l r e q u i r e him t o spend more now a n d l e s s l a t e r , a n d a p o i n t on t h e r i g h t w i l l r e q u i r e him t o spend l e s s now and more
O M 2 M * M , M Fig. 2 U s e r ' s e q u i l i b r i u m M A I N T E N A N C E , R E P A I R A N D
R E P L A C E M E N T C O S T S $
i n t h e s e l e c t i o n o f d u r a b i l i t y
l a t e r on maintenance and replacement c o s t s . Which p o i n t a n d which c u r v e s h o u l d b e s e l e c t e d ? It depends o n t h e b u d g e t a r y c o n s t r a i n t g i v e n by t h e l i n e I M . T h i s budget i n F i g u r e 2 a l l o w s t h e u s e r t o g o a s f a r a s i n d i f f e r e n c e c u r v e ( 2 ) a n d t h e e q u i l i b r i u m p o i n t i s E. I t i s o n l y a t t h i s p o i n t t h a t t h e whole budget i s s p e n t , a p r e r e q u i s i t e f o r e q u i l i b r i u m , and a l s o a t t h i s p o i n t t h e maximum l e v e l of d u r a b i l i t y i s o b t a i n e d .
2 MACROECONOMIC EFFECTS OF DURABILITY OF BUILDING MATERIALS ON THE CONSTRUCTION AND OTHER INDUSTRIES
There i s a g e n e r a l l y h e l d b e l i e f among m a n u f a c t u r e r s t h a t e n h a n c i n g d u r a b i l i t y o f b u i l d i n g m a t e r i a l s o r development of more d u r a b l e m a t e r i a l s w i l l r e d u c e t h e t o t a l o r o v e r a l l m a t e r i a l
r e q u i r e m e n t s o v e r t h e b u i l d i n g ' s l i f e t i m e o r o v e r a g i v e n p e r i o d of time. The argument r u n s l i k e t h i s
-
o t h e r t h i n g s b e i n ge q u a l , a n i n c r e a s e i n d u r a b i l i t y w i l l r e s u l t i n
a
r e d u c t i o n i n t h e consumption of m a t e r i a l s f o r r e p a i r and replacementpurposes. It w i l l a l s o r e d u c e t h e consumption of l e s s d u r a b l e m a t e r i a l s . T h i s r e d u c t i o n i n m a t e r i a l s consumption w i l l l e a d t o a d e c l i n e i n o u t p u t , employment, a n d p r i c e l e v e l s of f i r m s , t h e demand f o r whose p r o d u c t s h a s f a l l e n , and t h r o u g h v a r i o u s
-
1 8 2 - employment l e v e l s i n o t h e r r e l a t e d i n d u s t r i e s . The i n i t i a l e f f e c t s of t h i s d e c l i n e w i l l be a m p l i f i e d t h r o u g h " m u l t i p l i e r " and " a c c e l e r a t o r " e f f e c t s . M u l t i p l i e r e f f e c t s o c c u r i f a n i n i t i a l i n c r e a s e ( o r d e c r e a s e ) i n a g i v e n l e v e l of b u i l d i n g i n v e s t m e n t r e s u l t s i n a series of secondary i n c r e a s e s ( d e c r e a s e s ) i n t h e l e v e l df income i n t h e b u i l d i n g o r o t h e r r e l a t e d s e c t o r s . A c c e l e r a t o r e f f e c t s o c c u r when a n i n c r e a s e ( d e c r e a s e ) i n income r e s u l t i n g from a n i n c r e a s e ( d e c r e a s e ) i n i n v e s t m e n t c a u s e s a h i g h (low) demand f o r h o u s i n g a n d o t h e r consumer goods, t h e consumption of which i n d u c e s c a p i t a l i n v e s t m e n t .2.1 S h o r t Term E f f e c t s
The above viewpoint of a f a l l i n employment and income caused by a r e d u c t i o n i n demand f o r a l e s s d u r a b l e material i s f o r t h e s h o r t r u n only. I n t h e l o n g r u n , t h e r e may n o t be any d e c l i n e i n income a n d employment l e v e l s ; r a t h e r t h e y may i n c r e a s e .
I n F i g u r e 3, t h e x-axis measures t h e amount of a f a b r i c a t e d p o l y e t h y l e n e p l a s t i c m a t e r i a l demanded by t h e c o n s t r u c t i o n
i n d u s t r y , and s u p p l i e d by t h e m a n u f a c t u r i n g i n d u s t r y , p e r p e r i o d of time. The y - a x i s measures t h e l e v e l o f m a t e r i a l p r i c e s . Curve DD r e p r e s e n t s t h e amount of a m a t e r i a l demanded a t v a r i o u s p r i c e l e v e l s , " o t h e r t h i n g s b e i n g equal". Curve SS shows t h e q u a n t i t i e s of t h e m a t e r i a l t h a t a l l s e l l e r s a r e w i l l i n g t o s e l l Q U A N T I T Y OF M A T E R I A L D E M A N D E D A N D S U P P L I E D Fig. 3 S h o r t - r u n consumption e f f e c t s o f r e d u c t i o n i n demand f o r a l e s s d u r a b l e m a t e r i a l
a t a l t e r n a t i v e p r i c e s , o t h e r t h i n g s b e i n g e q u a l . I n t h e c a s e o f t h e demand c u r v e , o t h e r t h i n g s i n c l u d e consumer income, consumer p r e f e r e n c e , consumer e x p e c t a t i o n s a n d t h e p r i c e s of r e l a t e d goods o r m a t e r i a l s . I n t h e c a s e of t h e s u p p l y c u r v e , o t h e r t h i n g s comprise l e v e l bf t e c h n o l o g y , p r i c e s o f o t h e r r e s o u r c e s , and p r o d u c e r s ' e x p e c t a t i o n s . A s a r e s u l t of t h e consumer's p r e f e r e n c e f o r more d u r a b l e p l a s t i c m a t e r i a l s , t h e demand f o r t h e e x i s t i n g m a t e r i a l , p o l y e t h y l e n e , i s d e c r e a s e d ; t h i s i s r e f l e c t e d i n t h e s h i f t i n t h e demand c u r v e DD t o D'D'. I f t h e p r o p o r t i o n of t h e o l d t y p e of f a b r i c a t e d p o l y e t h y l e n e consumed by t h e c o n s t r u c t i o n i n d u s t r y i s q u i t e l a r g e , t h e p r i c e l e v e l w i l l d e c l i n e from P t o P I and s o would t h e l e v e l of o u t p u t f r o m M t o
M1.
Owing t o t h e d e c l i n e i n t h e demand f o r t h e material, t h e demand c u r v e (MRP) f o r l a b o u r u s e d i n t h e p r o d u c t i o n o f t h e o l d
m a t e r i a l w i l l s h i f t downward t o t h e l e f t (MRP'), a s i l l u s t r a t e d i n F i g u r e 4. Assuming t h e upward s l o p i n g s u p p l y c u r v e f o r labour*, t h e downward s h i f t i n t h e demand c u r v e f o r l a b o u r
as
aconsequence of downward s h i f t i n t h e demand f o r m a t e r i a l i n which i t i s used a s one of t h e i n p u t s , w i l l r e s u l t i n t h e
5 / * / SUPPLY CURVE V) F i g .
4
S h o r t - r u n employment e f f e c t s of Q U A N T I T Y O F L A B O U R r e d u c t i o n i n demand D E M A N D E D OR SUPPLIED f o r a l e s s d u r a b l e m a t e r i a l*
The upward s l o p i n g c u r v e f o r l a b o u r i m p l i e s t h a t a n i n c e n t i v e i n t h e form of h i g h e r wages i s needed t o o b t a i n more l a b o u r h o u r s from a wage e a r n e r .-
184 -
d e c l i n e o f employment from L t o
L 1
and t h e wage r a t e f r o m The e x t e n t of d e c l i n e w i l l depend on t h e market s t r u c t u r e . Broadly s p e a k i n g , a market s t r u c t u r e c o u l d b e p e r f e c t c o m p e t i t i o n o r i m p e r f e c t c o m p e t i t i o n .P e r f e c t c o m p e t i t i o n i s a market s t r u c t u r e i n which t h e r e a r e a l a r g e number of b u y e r s and sellers o f i d e n t i c a l o r comparable goods and s e r v i c e s , and where t h e a c t i o n of any s i n g l e buyer o r g r o u p of b u y e r s o r s e l l e r s c a n n o t i n f l u e n c e t h e market p r i c e o f t h e s e goods and s e r v i c e s . I m p e r f e c t c o m p e t i t i o n , on t h e
c o n t r a r y , i s a market s t r u c t u r e c h a r a c t e r i s e d by a few s e l l e r s and b u y e r s , d i f f e r e n t i a t e d goods and s e r v i c e s , and monopoly power. Examples of i m p e r f e c t c o m p e t i t i o n a r e : monopoly ( o n e s e l l e r o r p r o d u c e r ) , and m o n o p o l i s t i c c o m p e t i t i o n (many
p r o d u c e r s p r o d u c i n g s e v e r a l d i f f e r e n t i a t e d goods a n d competing among themselves by a d v e r t i s i n g t h e i r p r o d u c t s o r making them l o o k d i f f e r e n t by u s i n g d i f f e r e n t l a b e l s ) . I n a s i t u a t i o n where monopoly o r i m p e r f e c t c o m p e t i t i o n p r e v a i l s i n t h e p r o d u c t i o n of a m a t e r i a l , t h e d e c l i n e i n employment a n d wages w i l l be s m a l l e r t h a n i n t h e c a s e where p e r f e c t c o m p e t i t i o n e x i s t s . I n t h e c a s e of a monopoly, t h e
MRP
c u r v e would b e s t e e p e r t h a n i n t h e c o m p e t i t i v e s i t u a t i o n , and h e n c e a n e q u a l s h i f t i n i t would c a u s e more d e c l i n e i n employment l e v e l .2.2 Lonn Term E f f e c t s
The above viewpoint i s narrow and a p p l i e s t o s h o r t p e r i o d s o n l y . A d e c l i n e i n t h e consumption o f a l e s s d u r a b l e b u i l d i n g m a t e r i a l may n o t b e ' f o l l o w e d by a d e c l i n e i n t h e t o t a l a c t i v i t y of t h e economy, a s t h e r e s o u r c e s r e l e a s e d by one i n d u s t r y c a n b e absorbed by o t h e r i n d u s t r i e s . According t o t h e b a s i c p r i n c i p l e s of economics, r e s o u r c e s o f a n econony a r e l i m i t e d i n r e l a t i o n t o t h e i r a l t e r n a t i v e u s e s . F o r example, i f i r o n and s t e e l a r e r e q u i r e d i n l e s s e r q u a n t i t i e s t h a n b e f o r e a s b u i l d i n g m a t e r i a l s ,
-
185
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t h e r e i s a p o s s i b i l i t y t h a t more may b e demanded by a n o t h e r i n d u s t r y , s a y t h e a u t o i n d u s t r y , t h u s i n c r e a s i n g t h e l e v e l of t o t a l economic a c t i v i t y .
I n t h e long run, f i r m s w i l l have ample time t o a d j u s t t h e i r
producing c a p a c i t y t o a changed s i t u a t i o n . Firms s u f f e r i n g l o s s e s r e s u l t i n g from reduced m a t e r i a l demand and p r i c e s
w i l l
s t o p manufacturing, w h i l e o t h e r s w i l l reduce t h e manufacturing c a p a c i t y t o meet t h e reduced demand. The r e l e a s e d workers w i l l have enough t i m e t o look f o r j o b s somewhere else; t h u s t h e s i t u a t i o n of unemployment among t h e workers p r e v i o u s l y employed by t h e m a n u f a c t u r e r s of less d u r a b l e m a t e r i a l may n o t e x i s t . The unemployed workers and o t h e r r e s o u r c e s w i l l move t o o t h e r i n d u s t r i e s , r e s u l t i n g i n i n c r e a s e d l e v e l s of o u t p u t and
employment i n t h o s e i n d u s t r i e s . The d e c l i n e o r s l a c k i n t h e o u t p u t of less d u r a b l e m a t e r i a l may be picked up by i n d u s t r i e s producing more d u r a b l e m a t e r i a l s , where demand h a s gone up. Also, t h e less d u r a b l e and, p e r h a p s , cheaper m a t e r i a l may b e r e q u i r e d i n g r e a t e r q u a n t i t i e s by o t h e r i n d u s t r i e s t h a t do n o t r e q u i r e d u r a b l e products. I n some i n d u s t r i e s where t h e r a t e of obsolescence i s very h i g h ( i . e . , t h e a u t o i n d u s t r y ) due t o c e r t a i n t e c h n o l o g i c a l and t a s t e changes, i t does n o t pay t h e manufacturer t o i n c r e a s e t h e d u r a b i l i t y of m a t e r i a l s . I n summary, a r e d u c t i o n i n t h e consumption of c e r t a i n b u i l d i n g m a t e r i a l s may n o t l e a d t o a d e c l i n e i n t h e n a t i o n a l l e v e l of o u t p u t and employment. T h i s w i l l be p a r t i c u l a r l y t r u e i n t h e long run. F i g u r e 5a i l l u s t r a t e s how a r e p r e s e n t a t i v e f i r m producing l e s s d u r a b l e m a t e r i a l a d j u s t s t o reduced demand f o r i t s i n d u s t r y ' s product ( i l l u s t r a t e d i n F i g u r e 5b). The S A C and LAC c u r v e s
r e p r e s e n t t h e s h o r t r u n and l o n g r u n a v e r a g e c o s t s , w h i l e t h e
SMC curve r e p r e s e n t s s h o r t run m a r g i n a l c o s t (marginal c o s t
curve d e n o t e s a n a d d i t i o n t o t h e t o t a l c o s t of a p r o d u c t a s a r e s u l t of producing an a d d i t i o n a l u n i t of o u t p u t ) . These f i g u r e s assume l o n g r u n e q u i l i b r i u m ( i . e .
,
q u a n t i t y of aQ U A N T I T Y O F LESS D U R A B L E M A T E R I A L D E M A N D E D OR S U P P L I E D PER P E R I O D O F T I M E F i g . 5 Long-run a d j u s t m e n t p r o c e s s of a f i r m and a n i n d u s t r y : l e s s d u r a b l e m a t e r i a l s ( a ) R e p r e s e n t a t i v e f i r m ( b ) I n d u s t r y l e v e l and t h e r e i s no i n c e n t i v e on t h e p a r t of f i r m s t o e n t e r o r l e a v e t h e i n d u s t r y ) , and t r a c e t h e e f f e c t s o f r e d u c t i o n i n d u r a b i l i t y by i n t e g r a t i n g s h o r t p e r i o d w i t h l o n g p e r i o d e f f e c t s . The i n d u s t r y ' s demand c u r v e f o r t h e l e s s d u r a b l e m a t e r i a l (DD) s h i f t s l e f t t o D'D' w i t h t h e s w i t c h from t h e u s e of l e s s d u r a b l e m a t e r i a l t o more d u r a b l e m a t e r i a l . The s u p p l y c u r v e SS
remaining t h e same, t h e market p r i c e f o r t h e m a t e r i a l
i s
r e d u c e d from P t o P I . A f i r m p r o d u c i n g t h e same m a t e r i a l (Fig. 5a) h a s t o lower t h e p r i c e f o r i t s p r o d u c t s from p t o pl. I t s s a l e s a r e reduced t o x l and i t w i l l s u f f e r l o s s e s a s i t c a n n o t now c o v e r t h e a v e r a g e c o s t of p r o d u c t i o n ( c x l ) . I n a v e r y s h o r t p e r i o d , i t c a n n o t r e d u c e i t s c o s t of p r o d u c t i o n , e i t h e r by l o w e r i n g i t s p r o d u c t i o n c a p a c i t y o r by l a y i n g o f f some w o r k e r s s u c h a s managers o r s u p e r v i s o r s . But w i t h t h e p a s s a g e o f t i m e , t h e f i r m w i l l have o p p o r t u n i t y t o a d j u s t t o t h e new s i t u a t i o n . A f i r m which c a n n o t c o v e r t h e a v e r a g e c o s t of p r o d u c t i o n w i l l q u i t t h e i n d u s t r y . Consequently, t h e o u t p u t s h a r e of a s u r v i v i n g f i r m w i l l i n c r e a s e t o x 2 from x l , b u t w i l l remain l o w e r t h a n t h e i n i t i a l l e v e l of x. The s u p p l y c u r v e f o r t h e i n d u s t r y w i l l t h u s s h i f t t o t h e l e f t ( t o S'S' ), r e s u l t i n g i n a l o w e r p r i c e l e v e l o f P2 a s compared t o t h e i n i t i a l p r i c e l e v e l P , and a lower o u t p u t l e v e l o f X2. The new e q u i l i b r u m p o i n t w i l l b e E2, and-
187
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e f f i c i e n c y w i l l be r e s t o r e d . The new o r l o n g r u n s u p p l y c u r v e f o r t h e m a t e r i a l w i l l be LS. On t h e o t h e r s i d e of t h e p i c t u r e t h e demand f o r a more d u r a b l e mate r i a l w i l l i n c r e a s e , r e s u l t i n g i n i n c r e a s e d p r i c e l e v e l s ( F i g u r e 6). The i n c r e a s e d u s e of more d u r a b l e m a t e r i a l w i l l s h i f t i n d u s t r y ' s demand c u r v e t o D'D' a n d t h e new e q u i l i b r u m p r i c e and o u t p u t l e v e l s would b e , r e s p e c t i v e l y , P andX1.
I n d i v i d u a l f i r m s ( F i g u r e 6 a ) w i l l s t a r t e a r n i n g more t h a n normal p r o f i t s p e r u n i t of o u t p u t (P2-PI, i.e. d i f f e r e n c e between t h e a v e r a g e c o s t and p r i c e of a u n i t of o u t p u t ) . Encouraged by h i g h e r p r o f i t s , t h e e x i s t i n g f i r m s i n t h e l o n g r u n w i l l expandt h e i r p r o d u c t i o n c a p a c i t y by h i r i n g more workers a n d e n l a r g i n g t h e i r p l a n t s . Also, some new f i r m s w i l l e n t e r t h e market. A s a r e s u l t of t h e s e two changes, t h e s u p p l y c u r v e of t h e i n d u s t r y w i l l s h i f t t o S'S' and t h e f i n a l e q u i l i b r u m p r i c e w i l l be Pp.
Some r e s o u r c e s t h a t were r e n d e r e d s u r p l u s by t h e d e c r e a s e i n demand f o r l e s s d u r a b l e m a t e r i a l s may now b e a b s o r b e d i n t h e i n c r e a s e d p r o d u c t i o n of more d u r a b l e m a t e r i a l s , w h i l e o t h e r s may be a b s o r b e d by o t h e r i n d u s t r i e s . Thus, t h e p l a n t e x p a n s i o n o f f i r m s producing more d u r a b l e m a t e r i a l s may c r e a t e a d d i t i o n a l demand f o r l a b o u r a n d o t h e r m a t e r i a l s t h a t may e a s i l y compensate
Q U A N T I T Y OF MORE DURABLE MATERIAL DEMANDED OR SUPPLIED
P E R PERIOD OF TIME
F i g . 6 Long-run a d j u s t m e n t p r o c e s s of a f i r m and a n i n d u s t r y : more d u r a b l e m a t e r i a l s
-
188
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f o r t h e l o s s of j o b s caused by t h e c o n t r a c t i o n of p l a n t s producing l e s s d u r a b l e m a t e r i a l s . T h i s a l l depends on t h e r e l a t i v e d i f f e r e n c e i n s i z e of t h e s h i f t and t h e e l a s t i c i t y o f demand f o r more d u r a b l e m a t e r i a l and l e s s d u r a b l e m a t e r i a l .
3 CONCLUDING
REMARKS
" D u r a b i l i t y " both i n t e c h n i c a l and economic terms, i s a r e l a t i v e concept and t h e s e l e c t i o n of d u r a b i l i t y of b u i l d i n g m a t e r i a l s should be based on economic c o n s i d e r a t i o n s a l o n g w i t h t e c h n i c a l p o s s i b i l i t i e s .
Adoption of more d u r a b l e m a t e r i a l s may be accompanied by d e c l i n e i n o u t p u t , p r i c e and employment l e v e l s i n t h e s h o r t run. In t h e long run, however, through t h e p r o c e s s of adjustment and
expansion, t h e r e may be more employment, income and o u t p u t . The degree of employment g e n e r a t i o n o r c o n t r a c t i o n w i l l , of c o u r s e , depend on t h e market s t r u c t u r e . More employment w i l l be
generated i n c o m p e t i t i v e f i r m s t h a n i n monopolies.
4 REFERENCE
1. Rakhra, A.S., Economic a s p e c t s of t h e d u r a b i l i t y of b u i l d i n g m a t e r i a l s : a n e x p l o r a t o r y a n a l y s i s , D u r a b i l i t y of Building M a t e r i a l s , Vol. I , 1982, pp.
