Economics for Construction and the Built Environment

Economics for
Construction and
the Built
Environment

Thavanitha.C
QS - 53

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 Economics for Construction and the Built Environment

Acknowledgement

I would like to express my deepest appreciation to all those who provided me the possibility to complete
this assignment and who were helped and encouraged me during this assignment.
A special gratitude I give to my lecturer Miss. Rifaya who supported me and gave stimulating suggestions
and he invested his full effort in guiding me in achieving the goal in this assignment.
And I express my great thanks to my QS coordinator Mr.Arunaath who helped me to complete this
assignment and gave enough supports to finish this assignment..
Furthermore, I would also like to acknowledge with much appreciation to the BCAS campus who gave the
permission to use all required equipment and the necessary books to complete this assignment.
And also I would like to thank to my parents and my friends who were supported me to complete this
assignment. At last I would like to thank to each and every one who were supported me. If I missed to
mention anyone I’m thanking to them too.
I am thankful to my QS coordinator, Mount campus Mr. Mayuran and Mount Campus also to providing me
helps to support my assignments to submit.

Thavanitha.C
QS - 53 (Mount Campus)
QS -21 (Kandy Campus)

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 Economics for Construction and the Built Environment

Table of Contents

Acknowledgement ........................................................................................................................................ 1

List of tables.................................................................................................................................................. 4

List of Figures ............................................................................................................................................... 4

Introduction ................................................................................................................................................... 5

TASK 2 – 2.1 ................................................................................................................................................ 6

Task - 2.2 .................................................................................................................................................... 10

Task - 2.3 .................................................................................................................................................... 13

Task 3 – 3.1 ................................................................................................................................................. 16

Task - 3.2 .................................................................................................................................................... 19

Task – 4 – P4.1............................................................................................................................................ 20

Task - 4.2 .................................................................................................................................................... 24

Conclusion ................................................................................................................................................... 27

References .................................................................................................................................................. 28

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 Economics for Construction and the Built Environment

List of tables

Tables Page number

Table 1 11

Table 2 13

List of Figures

Figures Page number

Figure - 1 19

Figure - 2 24

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 Economics for Construction and the Built Environment

Introduction

This assignment is Economic subject for the third semester in BTEC HND in Quantity Surveying. An
Economic subject is most important for Quantity surveys. Because since the economic function is most
important factor influencing the construction industry and also economic function in the world.
The learning outcome of this assignment ability to solve the law of construction problems. The assignment
has been made after the deep study carried out regarding basis is of the construction Economics.
This is an individual assignment and I have completed this assignment by gathering information
from BCAS Principles of Construction Economic class, reference books and own knowledge.
I hope this assignment will provide the necessary information in Construction Economic subject,
and for those who read this assignment can gain some knowledge about the Construction economics and
how its influencing the Construction industry.
Task 1 is a Class Room Activity we did in Class in Kandy campus; the other tasks are report writings. I
have clearly mentioned the tables and figures which I included for reference.

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 Economics for Construction and the Built Environment

TASK 2 – 2.1

There are quite a few different market structures that can characterize an economy. However, if you are just
getting started with this topic, you may want to look at the four basic types of market structures first.
• Perfect Competition
• Monopolistic Competition
• Oligopoly
• Monopoly
It is important to note that not all of these market structures exist in reality; some of them are just theoretical
constructs. Nevertheless, they are of critical importance because they can illustrate relevant aspects of
competing firms decision making. Hence, they will help you to understand the underlying economic
principles. With that being said, let’s look at them in more detail.

PERFECT COMPETITION
Perfect competition describes a market structure, where a large number of small firms compete against each
other. In this scenario, a single firm does not have any significant market power. As a result, the industry
as a whole procedures the socially optimal level of output, because none of the firms can influence market
prices.
The ideas of perfect competition builds on several assumptions:
1. All firms maximize profits
2. There is free entry and exit to the market
3. All firms sell completely identical (i.e., homogenous) goods
4. There are no consumer preference
By looking at those assumptions, it becomes quite obvious that we will hardly ever find perfect competition
in reality. That is an essential aspect because it is the only market structure that can result in a socially
optimal level of output. Example: Stock Market

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MONOPOLISTIC COMPETITION
Monopolistic competition also refers to a market structure, where a large number of small firms compete
against each other. However, unlike in perfect competition, the firms in monopolistic sell similar, but
slightly differentiated products. That gives them a certain degree of market power, which allows to charge
higher prices with a certain range.
Monopolistic competition builds on the following assumptions:
1. All firms maximize profits
2. There is free entry and exit to the market
3. Firms sells differentiated products
4. Consumers may prefer one product over the other
Now those assumptions are a bit closer to reality than the ones we looked at in perfect competition.
However, this market structure no longer results in a socially optimal level of outputs because the firms
have more power and can influence market prices to a certain degree.
Example: Markets for cereals etc.

OLIGOPOLY
An oligopoly describes a market structure which is dominate by a small number of firms. That results in a
state of limited competition. The firms can either compete against each other or collaborate. By doing so,
they can use their collective market power to drive up prices and earn more profit.
The oligopolistic market structure builds on the following assumptions
1. All firms maximize profits
2. Oligopolies can set prices
3. There are barriers to entry and exit in the market
4. Products may be homogenous or differentiated
5. There is only a few firms that dominate the market
Unfortunately, it is not clearly defined what a few firms means precisely. As a rule of thumb, it said that an
oligopoly typically consists of about 3-5 dominant firms.
Example: Market for gaming consoles

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MONOPLY
A monopoly refers to a market structure where a single firm controls the entire market. In the firm has the
highest level of market power, as a consumers do not have any alternatives. As a result, monopolies often
reduce output to increase prices and earn more profit.
The following assumptions are made when we talk about monopolies:
1. The monopolist maximizes profit
2. It can set the price
3. There are high barriers to entry and exit
4. There is only one firm that dominates the entire market
From the perspective of society, most monopolies are usually not desirable, because they result in lower
outputs and higher prices compared to competitive markets. Therefore, they are often regulated by the
government.

OVERALL
There are four basic types of market structures. Perfect competition describes a market structure, where a
large number of small firms compete against each other with homogenous products. Meanwhile,
monopolistic competition refers to a market structure, where a large number of small firms compete against
each other with differentiated products. An Oligopoly describes a market structure where a small number
of firms compete against each other. And last but not least, a monopoly refers to a market structure where
a single firm controls the entire market.

MARKET STRUCTURE SUITABLE IN BUILDING AND CONSTRUCTION

Oligopolies in a Fragmented Industry
The importance of industry structure to industry economics lies in the way that structure is seen as the most
important determinant of competition in an industry, and the form that competition task. The extent of
control over prices is determined by the intensity of competition in a market, which is, in turn, determined
by the number of firms and type of product. Related issues are the way the process of competition affects
prices and profits, the ease of entry of new firms into or frequency to exit from an industry, the impact of
demand shocks from the business cycle, and the effects of new technologies. These characteristics are the
basis of the four types of market structure used in industry economics.
For the construction industry the definition of the market is particularly opaque. Are all buildings and
structures to be regarded as a single product, or are bridges, shopping malls and apartment blocks distinct
and different markets? Some firms cross these boundaries, some stay within them. It can be argued that the
role of builders and contractors is to organise the production process, thus providing a service, while he
delivery of the product (a building or structure) is the responsibility of the subcontractors who carry out the
work.

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The building and construction industry is typically broken into the engineering, non-residential, and
residential building sector, and some firms that cross all of these areas, however firms typically work in
either the residential or the non-residential sectors. Many of the larger firm cover both engineering and non-
residential building in their activities. Within the non-residential building sector, there are ten or twelve
different sub-markets, divided into offices, retail, factories, health, and so on. Some firms specialize in
building particular types of buildings, more commonly a building contractor will apply their management
skills to a range of building types and no limit themselves to specific sub-markets. In case, for the
construction industry, sub markets are difficult to identity because firms can be highly specialized in one
area, or they can be highly generalized and put up a wide range of buildings and structures.
The construction industry is predominantly made up of small firms, so the traditional approach based on
the number of firms, barriers to entry and market power reveals a fragmented, diverse industry of firms
with low barrier to entry. This supports the view of the industry as being an industry with the characteristics
of perfect competition. The continuing widespread use of low bid tendering and reliance on price
consumption encourages the view that the industry is perfectly competitive. Some parts of the industry fit
the perfect competition model, such as small and medium size contractors that rely on low-bid tendering to
get work and labour based subcontractors, such as formwork, steel fixing, bricklaying and concreting
However, this is also an industry that is highly concentrated with a small number of large contractors. As
this level the industry is oligopolistic, with high barriers to entry due to the prequalification systems and
capability requirements used by the clients to select contractors for major projects. Oligopolistic
competition focuses in particular types of projects (e.g. bridges, high-rise), forms of procurement (e.g.
design and build, negotiated work), finance, or relationships with clients (alliancing, partnering). Suppliers
of lifts and building automation systems are also in this type of market. The large contractors in the
engineering construction and non-residential prequalification requirements for technical capability, track
record and financial capacity. Some subcontracting sectors are also highly concentrated, with a small
number of major manufactures that supply facades, lifts and building automation systems.
Between these two market structures there are some firms in the industry that are in monopolistic
competition. Those medium size contractors that have specialized and differentiated their product from
others, or have developed ongoing relationships with clients, and thus get a large amount of negotiated
work, have clearly broken out of the price-driven competition end of the business. Also, there are
subcontractors that have developed the characteristics of monopolistic competition, in the more capital
intensive subcontractors in the heating, ventilation and air conditioning (HVAC) sector for example. This
part of the industry typically has a few large firms, often more or less national in scope, and a number of
smaller firms working in local and regional markets. Medium size builders that have specialized in
particular types of buildings and/or have developed relationships with repeat clients are also in this
category.
The appropriate model of the construction industry’s market structure will depend on the definition of
industry products or markets adopted and the sector of the industry that is so be analysed. The oligopolistic
characteristics small firms, which typically operate under conditions of perfect competition.

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Task - 2.2
Scale of production is about the fixed cost, variable cost, total cost, average fixed cost, average variable
cost, average cost and marginal cost. Then will explain about how these costs are acting in a construction
firm.
Fixed cost
A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services
produced
Example:-

 Amortization  Property

 Depreciation  Taxes

 Insurance  Rents

 Interest  Salaries

 Expense

Variable cost
A period cost that varies in step with the output or the sales revenue of a company
Example:-

 Operating cost

 Perishable foods

 Food items

 Utilities

 Wages

 Raw materials

Total cost
The cost incurred in producing something or engaging in an activity. In economics total cost is made up of
variable cost plus fixed cost.

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Average fixed cost

Total fixed cost divided by number of units of production
Average fixed cost = Total fixed cost
Quality of output
Average variable cost
Total variable cost per unit of output obtained when a firm engages in short run production
Total variable cost divided by number of units produced

Average cost
Production cost per unit of output, computed by dividing the total of fixed costs and variable costs by the
number of total units produced.

Marginal cost
Marginal cost of labor additional cost has to be spend in order to utilize one more unit of labor in the given
production process.
Marginal cost = change in total cost
Change in quantity

Identify the following cost,

Fixed cost, variable cost, total cost, average fixed cost, average variable cost, average cost and marginal
cost.
Additional information,
Price per unit = 5
Price per labor unit = 20

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Capital Labor Output TFC - TVC - TC - AFC - AVC - AV - MC -

CP*C LP*L TFC+TVC TFC/O TVC/O TC/O ∆TC/∆O

10 1 04 50 20 70 12.5 5 17.5 0
10 2 10 50 40 90 5 4 9 3.33
10 3 21 50 60 110 2.38 2.85 5.23 1.811
10 4 50 50 80 130 1.25 2 3.25 1.05
10 5 55 50 100 150 0.90 1.81 2.72 1.33
10 6 60 50 120 170 0.83 2 2.83 4
10 7 63 50 140 190 0.79 2.22 3.01 6.66
10 8 64 50 160 210 0.78 2.5 3.28 20
Table - 1

 In a construction there are lots of costs. The principal components of contractor’s costs and
expenses are use of labors, materials, equipment, and subcontractors.
 Additional general overhead cost components include taxes, premiums on bonds and
insurance, and interest on loans.
 We can classify the project cost as direct cost and the indirect cost. Direct cost means costs
and expenses that are incurred for a specific activity.
 Direct costs are estimates based on detailed analysis of contract activities, the site
conditions, resources productivity data, and the method of construction being used for each
activity.
 A direct costs includes labor costs, material costs, equipment costs, and subcontractor
costs.
 Other costs such as the overhead costs are termed indirect costs. Part of the company’s
indirect costs is allocated to each of the company’s projects.
 Indirect cost classified into project overhead and general overhead. Project overhead
include the costs of site utilities, supervisors, housing and feeding of project staff, parking
facilities, offices, workshops, stores and first aid facility.
 General overhead include the costs that used to support the overall company activities.
They represent the cost of the head-office expenses, mangers, directors, design engineers,
schedulers, etc

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Task - 2.3
Sources of finance
Business can raise finance by borrowing from banks or government funding or by issuing shares. Other
organizations may face restrictions on how they can raise money.
Sources of finance can be classified into:
1. Internal sources
2. External sources

Internal sources of finance are:

 Owner’s investment (start up or additional capital)

 Retained profits

 Sale of stock

 Sale of fixed assets

 Debt collection

External sources of finance are:

 Bank Loan or Overdraft

 Additional Partners

 Share Issue

 Leasing

 Hire Purchase

 Mortgage

 Trade Credit

 Government Grants

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Source of finance Advantages Disadvantages

Owner’s investment  Doesn’t have to be repaid  There is a limit to the amount an
 No interest is payable owner can invert.

Debt collection  No additional cost in getting  There is a risk that debts owed can
this finance, it is part of the go bad and not be repaid.
business normal operations

Bank loan  Set repayments are spread  Can be expensive due to interest
over a period of time which is payment.
good for budgeting  Bank may require security on the
loan

Bank over draft  This is a good way to cover  Interest is repayable on the amount
the period between money over drawn.
going out of and coming into  Can be expensive if used over a
a business longer period of time.
 If used in the short-term it is
usually cheaper than a bank
loan

Additional partners  No need to repay  Diluting control of the partnership

 No interest  Profit will be split more ways

Mortgage  Business has the use of the  Expensive method compared to

property buying with cost
 Payments are spread over a  If business does not keep up with
long period of time which is repayments the property could be
good for budgeting repossessed
 Once all repayments are
made the business will own
the assets

Table - 2

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Task - D2.2
In the above criteria we saw many sources of finance and the advantages and disadvantages of them. From
that we can come to a conclusion that is if we don’t have money for the construction as a client or contractor,
loan is the best way. Loan means money borrowed at an agreed rate of interest over a set period of time. So
by this we can settle our money little by little as we need.

This bank loan can be divided into two categories that is long term bank loan and the short term bank loan.
Long term bank loan means the bank may give a loan for a fixed amount, to be paid back over a fixed
period of time in fixed instalments. A long term loan might be taken out to buy a very expensive piece of
machinery and be repaid over a five year period.

The advantage of having long term bank loan is able to purchase machinery in ready cash and use it in the
business and starts to get profit and repayments are spread out over a long period of time.

And the other one is short term bank loan. Short term bank loan means the bank may provide a loan to the
business for a fixed amount to be paid back over a short fixed period of time in fixed monthly instalment.
The loan may be used to buy small tools and equipment. The advantage of having short term bank loan is
less interest payments, thus reducing the cost of the loan.

Than all of such these always the best way is owner’s investment. Because the owner’s investment means
money coming from the owner’s own saving. So there is lots of benefits in that. When an owner investing
his own money there is no need to repay. And no need o pay interest so the owner can do anything without
any fear.

But if it is a bank loan the owner should always be very careful because if there is no profit he can’t settle
his loan amount so he may face many challenges. At the same time when we are looking from the other
side if the person shouldn’t have any money then loan is the best way for him.

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Task 3 – 3.1
The client is rarely a single person, even on relatively small projects. Within the client, there are likely to
be a number of groups and individuals with an interest in, or control over the project.
The client is also sometimes referred to as the,

 Employer

 Promoter

 Owner

 Purchaser

 Principal

 User

 Developer
Client base
A client base is a company's primary source of business. A client base consists of the current customers
paying for the products, or services, as well as potential customers which have a high likelihood of
becoming customers.
Client base can be divided into 3 category
1. Public
2. Private
3. Voluntary
Public means Communities of people at large that have a direct or indirect association with an organization
like customers, employees, investors, media, students, etc.
This public can be divided as
I. Fully government
Example :- Health ministry
Education department
II. Semi government
Example:- Universities
Schools
Electricity

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III. Statutory board

Example:- urban department
Private means a type of company that offers limited liability, or legal protection for its shareholders but that
places certain restrictions on its ownership.
Under this private there are lots of institutions
Example:- Banks
Schools
Hospitals
The last one is voluntary. Which means the sectors which are doing services in helping manner without any
expectations.
Example:- UNO
UNICEF
UNESCO
Lions club
Size
Size means the number of individuals in a certain market who are potential buyers and/or sellers of a product
or service. Companies are interested in knowing the market size before launching a new product or service
in an area.
Size can be divided into 3 categories,
1. Building
2. Civil
3. Others

Building means permanent or temporary structure enclosed within exterior walls and a roof, and including
all attached apparatus, equipment, and fixtures that cannot be removed without cutting into ceiling, floors,
or walls.
This building can be divided into several types. Such as,
i. Market complex v. School building
ii. Office building vi. Collective living quarters
iii. Hospital building vii. Housing units
iv. Repair & maintenance viii. Factory

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Civil means the nonmilitary personnel who work for a government, applying its laws and regulations. This
can be divided into many categories,
i. Building
ii. Highway
iii. Bridge
iv. Water supply and drainage
v. Irrigation and land drainage

And the last one is others. Which means specialized. Such as,
i. Electrical
ii. ii. Plumbing
iii. iii. Demolition
iv. iv. Finishing

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Task - 3.2
This task is going to discuss about the component part of construction in that there is an action of 5M. And
going to discuss about input, process and output. Then will explain about economic principles in
construction.
Component part of construction is mainly divided into 5 categories:
1. Money 4. Machinery
2. Material 5. Management
3. Manpower

 Money means the capital amount needed to make a construction. Under that all the costs, salaries
and wages were including.

 Then the material means the things and the items we are using in construction project

 Man power means the people who are working in the construction site. Like engineer, quantity
surveyor, architect, technical officer, supervisors and other laborers.

 Machinery means the tools and equipment used in the construction site for construction.

 Management means the process of dealing with or controlling things or people. Management is the
most important task in the construction site.

To get a quality output shout put all these five inputs in an effective manner. By this input a good process
will happen. Which are,
i. Distribution of value of contractors by sector
ii. Work done by sector
iii. Work done by type of construction
iv. Contracts by type of building v. Work done by type of building

After the end of effective process, we are able to get a compete structure. Which will be the output of the
construction.
Simply we can say this process are as follows,

Input Process Output

(5M) (execution of work) (complete work) Building or Civil works

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Task – 4 – P4.1

The value of the total output of goods and services can be measured by how much people pay for them.
That is, total or national output should be the same as total or national expenditure.
A different view of national output is to recognize that goods and services are produced by factors of
production. The payment made for their work is a cost for firms but an income for the owners of the factors
of production Thus, the value of national output should also be the same as the total value of incomes earned
in a period of time, or national income.
Figure - 1

House Holds

Payment
Payment (Expenditure)
(Income)

Firms

Income and Expenditure

The sum of all factors earnings from current production of goods and services is National income. Factor
earning are incomes of factors of production: land, labor and capital.
Particular country’s national incomes measures, the value of the national output of goods and services can
be measured by how much people pay for them. That is national output should be the same as national
expenditure.
Another view of national output is to recognize that goods and services are produced by factor of
production. The payment made for their work is a cost for firms but an income for the owners of the factors
of production. Thus, the value of national output should also be the same as the national income.
People spend their incomes on goods and services or output. So it is clear that all three measures of the total
out of an economy are the same.
National output = national expenditure = national income

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Government expects collect figures on all three of measures. Their values can be varied. Therefore,
government expects adjustment in those figures.
Measuring National Income
To measure how much output, spending and income has been generated in a given time period we use
national income accounts. These accounts measure three things:
1) Output: i.e. the total value of the output of goods and services produced in UK.
2) Spending: i.e. the total amount of expenditure taking place in the economy.
3) Incomes: i.e. the total income generated through production of goods and services.

In measuring the national income the stock is not measured. Goods and services are being produced and
used continuously. The total flow of goods and services over a period of one year. There are three methods
of measuring the national income.

The Output Method

This methods attempt to measures the value of the outputs of different industries. This is not straight forward
as it seems. One of the serious problems is that of double counting. Ex: If the value of steel industry is
added to the value of total output of the vehicle industry. The value of steel in the vehicle will be counted
twice. This method is overcome by counting only the value added by each firm.
Primary + Secondary + Tertiary

The Income Method

The money value of the goods and services produced will be equal to their cost of production plus profit.
But these costs of production represent incomes to the owner of the factors of represent incomes to the
owners of the factors of the production. They are payment for the services of labour, capital and land and
take the form of wages, interest and rent. Profits are also income payment to entrepreneur and share holders.
The value of what is produced must be equal to the payments made to the factor have produce of production
which have produced goods and services.

Output = Income = Expenditure

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The Expenditure Methods

Whatever produce should be sold to either added to the stock. When a firm adds some of its output to stocks
it has already paid out of the costs of producing those goods. in effect therefore it has bought the goods it
puts into stock, In addition to stocks as part of total expenditure on the national output.
Only spending which creates income in UK can be encounter in the national income. Spending on imports
must be excluded because it creates income overseas. However exports should be included because these
payments create income in UK.
Another problem is that the market prices of many goods and services include taxes such as VAT and some
other subsides. Taxes on goods and services can be deducted from total spending if we are to get a figure
which represents the cost of production plus profit. Subsides should be added to the market price.
Household + Business + Government + Foreigners

Gross Domestic Product (GDP)

This is the part of national income which arises due to economic activity within the country exports and
imports would therefore be included. This is known as gross because it is before capital consumption or
depreciation so national income is calculated under the expenditure method.
The monetary value of all the finished goods and services produced within a country's borders in a specific
time period, though GDP is usually calculated on an annual basis. It includes all of private and public
consumption, government outlays, investments and exports less imports that occur within a defined
territory.
GDP = C + I + G + (X – M)
Where: GDP = C + I + G + (X – M)

 C - Is equal to all private consumption, or consumer spending, in a national economy,

 I - Is the sum of all the country’s business spending on capital,

 G - Is the sum of government spending,

 (X - M) – is the nation’s total net exports, calculated as total exports minus total imports.
(X-M = Exports – Imports)

Gross National Product (GNP)

A quantitative measure of a nation's total economic activity. The GNP equals the gross domestic product
plus income earned by domestic residents through foreign investments minus the income earned by foreign
investors in the domestic market. Gross domestic product, often confused with GNP, is calculated from the
total value of goods and services produced in an economy over a specified period.

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Net National Product (NNP)

The national incomes is also called net national product. The total amount of goods and services produced
in a nation in a given period of time less the quantity of goods and services needed for its production. The
terms income and product are just two difference aspects of the same circular flow of income. The term
net’ means after deducting an amount for capital consumption or deprecation of fixed assets.
The Equilibrium of National Income
According to above completed model of the economy there are three withdrawals sometimes known as
leakages) W, consisting of,
W= S+ M+ T
And there injections (J) consisting of,
J= I+ X+ G
In is not necessary for each withdrawal to equal to its corresponding injection for and equilibrium to exist,
only that the total of all withdrawal is equal to the total of all indications. Thus the equilibrium occurs when,
W= J
Or
S+M+T=I+X+G

What we have tried to demonstrate is that there are equilibrium forces in an economy, which push it
forwards a certain level of income. The signification of this is that our living standards, employment and
well being depend upon the level of national income. Hence the factors, which determine its size, are of
great significance.

The Circular Flow of Income

Economic activity is continuous and consists of a series of flows. The production of goods and services can
be seen as a flow of output. In the opposite direction is a flow of spending on these goods and services.
These flows can be illustrated by using a simple model of the economy.
The most basic analysis of how to determine the level of GDP (or national income) is called income-
expenditure analysis. The analysis starts with the assumption that prices are fixed.
We will look for an equilibrium level of national income. What must be true at equilibrium? At the
equilibrium level of national income, the sum of the desired expenditures of all agents in the economy must
equal the level of national income. Since national income is also GDP or the output of the economy, this
says that output must equal desired expenditure in equilibrium. In other words the entire output of the
economy must be bought by someone.

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Task - 4.2
The construction industry important economic environment while all construction activities related to the
economics. E.g. Example Scarcity of Resources, Opportunity cost, Specialization and division of labour
these economic principals are totally related to the economics. The example takes one Opportunity cost is
important while this cost also decide the project cost. E.g. In the market steel and timber formwork available
but in this case steel from work used opportunity cost high so the economic important for the economics.

Inflation
This means the uncertain rapid & continuous increment in the prices. So, when the inflation is considered
with construction industry, it gives the major effect because, when the inflation is there in prices of raw
materials. It means, when the prices of raw materials are rapidly and continuously increasing, and if the
construction industry can’t bear the inflation then there will not be a development in construction field but
instead, there will be a reduction in development.
So, the results of the inflations are;

 As the construction material cost is increasing, the cost of construction project also will increase.
So, as the result of that, the profit margin of contractors will be reduced. So, some time some
contractors will stop their construction firm for some period or they will close down permanently.
So, contribution of construction industry in the country’s economy will be reduced. So, it will affect
the country’s economic growth.

 As it’s said, because of inflation the construction cost will increase. So, building developers; who
are constructing apartments and selling, will face a problem that, they can’t sell their apartment.
The reason is since the construction cost is increased, price of apartment also will be increased.
So, if these issues wanted to be avoided, then the inflation should be controlled with in a low level.

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Business cycle
Business cycle is simply refers to that the changes of output with the time. The following chart is showing
about business cycle.

Figure - 2
The figure shown above is clearly indicating the characteristic of business cycle. There are some important
points indicated in the figure. They are

 Economic boom – the peak of the curve. It means that, the best economic growth point.

 Normal economy – one point which is located in the straight line which is indicating that how
economic growth should be.

 Economic slump – the low (trough) point of the curve. The lowest level of economic growth is
indicated (Bad economy).
In the construction industry, business cycle is taking major part. As there is no a smooth increment in
Economic growth. The contractors can’t make sure about their income. It means, if the situation is
‘Economic boom’ then it will be a best economic environment for the construction industry, but if it is
‘Economic slump’ then environment is very to the construction industry.
If the business cycle is a straight line (Black line in the curve), then there will be a good economic
environment for construction industry. But normally it is not practical in most countries.
So, by this type of economic growth, there will be some changes in construction industry. Those are;

 The number workers who are willing to work in the construction industry will reduce.

 As there is no more workers and no more profit, sometime construction industry has to be closed.

 The contractors will not come forward to carry out the long term projects. So, long term projects
will be closed
So, overall there will be a fall in construction development.

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Unemployment
Governments also aim to ensure that employment is as low as possible, not only for the sake of the
unemployed themselves, but also because it represents a waste of human resources and because
unemployment benefits are a drain on government revenues.
The unemployment rate is the ratio of individuals without jobs to the number of people in the labor force.
The labor force consists of those people in the economy who are over 16, not in the armed forces, and
willing and able to work.
When the construction industry is taken, unemployment is a better economic environment to the
construction industry. The reason is if the unemployment is there in a country, the labours for construction
work shall be gained in a low rate of salary. Not only that, firms can appoint more labours. So, since the
labour power shall be increased, the outputs of construction industry also shall be increased.
As explained in the earlier task, the labour resource is having a scarcity. So, if there is high level of
unemployment, then it is a better environment for construction industry. If the unemployment is low level
then it is a bad economic environment for construction industry.

Budget
Budget is also called as resource allocation means that, the distribution percentage of limited resources
among the unlimited wants of people. Generally, budget is done by both the public sector & private sector.
So, when the construction industry is taken, if the resource allocation for the construction activities is high,
then it will be a better economic environment for the construction industry. It means that more construction
activities will be carried out. So, again it will be lead the country towards the development.
the construction industry in both developed and developing countries may be viewed as that sector of the
economy which, through planning, design, construction, maintenance and repair, and operation,
transformation various resources into constructed facilities. The types of public and private facilities
produced range from residential and non-residential buildings to heavy construction, and these physical
facilities play a critical and highly visible role in the process of development.
The major participants from the construction industry include the architects, engineers, management
consultants, general contractors, heavy construction contractors, special trade contractors or subcontractors,
and construction workers, along with the owners, operators, and users of the constructed facility. Building
finance and insurance agencies, land developers, real estate brokers, and material and equipment and
suppliers and manufacturers, among others, are also involved in construction but are generally considered
as distinct from but ancillary to the construction industry. The government interacts with the industry as
purchaser, financier, regulator, and adjudicator.

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Conclusion

From this module got a vast knowledge on doing the calculations and got an idea that what are the factors

wants to consider during the construction in terms of economics. And also I learned the supply and demand

according to goods and services. When discussing about the equilibrium got an idea about how market act

between customers and sellers according to the need. Then learned the types of marketing and which is

most suitable for the construction. And the types of cost and how its reacting to the products. And also

having an idea about selecting the proper source of finance according to the type of construction. By this

knowledge in future when working in a construction sector can easily choose the suitable method which is

needed for the specific project. As like this got great idea about many things which will be used in the

construction sector.

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References

valence, d. (2019, 12 14). construction industry economics and policy. Retrieved from blogger:
http://gerard-de-valence.blogspot.com/2017/08/market-structure-in-building-and.html?m=1

Lecture notes

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