The document provides information about different types of economic systems. It discusses market economies and command economies. For market economies, it notes that producers have freedom and prices are determined by supply and demand with little government interference. Advantages include competition and innovation, while disadvantages include unequal investment and growing inequality. For command economies, the government makes all major economic decisions regarding production, distribution, and prices.

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ACKNOWLEDGEMENT
Firstly I would like to express my gratitude with all my heart to Almighty god for giving me
the courage and the strength to complete this assignment.
As far as I concern I think it is my fortune following the course Quantity Surveyor at
British College of Applied Studies. I think BCAS is one of the institute seeks to give the
best and updated knowledge in theory and practice in the fields. This is the place where all
the students’ future is lightened up.
Success behind the institution is always the result of the hard and dedicated services
and of all he personnel guiding its destinies.
Behind all of this there is always a person who guides the institution in able manner, a
person who was encouraging us to do this report in a correct manner, so my first gratitude
goes Mr. Salahudeen M.Fareen who was instructing us in a friendly manner to achieve the
target while fulfilling our knowledge in ECONOMICS subject.
Thank you.

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CONTENT
ACKNOWLEDGEMENT......................................................................................................................................1
CONTENT .............................................................................................................................................................2
INTRODUCTION..................................................................................................................................................3
TASK-01 ................................................................................................................................................................4
01. EXPLAIN THE FOLLOWING ECONOMIC PRINCIPLES AND RELATE THE TO WITH SRI
LANKAN CONSTRUCTION INDUSTRY. ................................................................................................4
02. OPPORTUNITY COST AND HOW ITS STATE IN ECONOMIC DECISIONS........................................8
03. DIFFERENT TYPES OF ECONOMIC SYSTEM......................................................................................12
TASK-02 ..............................................................................................................................................................20
01. ECONOMIC EQUILIBRIUM ....................................................................................................................20
TASK-03 ..............................................................................................................................................................24
01. IDENTIFIES DIFFERENT TYPES OF MARKET STRUCTURES. .........................................................24
02. IDENTIFY THE APPROPRIATE MACROECONOMIC CONCEPTS TO EXPLAIN THE
MEASUREMENT AND DETERMINATION OF NATIONAL INCOME................................................29
03. BRIEFLY EXPLAIN FISCAL AND MONETARY POLICIES AS AN INSTRUMENT TO ACHIEVE
MACRO-ECONOMIC GOALS AND OBJECTIVES................................................................................35
03. AB...............................................................................................................................................................38
CONCLUSION ....................................................................................................................................................39
REFERENCE .......................................................................................................................................................40

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INTRODUCTION
This assignment is Principles of Construction Economics subject for the third semester in
BTEC HND in Quantity Surveying under EDEXCEL examination system.
Economics is the social science studying the production, distribution and consumption
of goods and services. It is a complex social science that spans from mathematics to
psychology. At its most basic, however, economics considers how a society provides for its
needs. Its most basic need is survival; which requires food, clothing and shelter. Once those
are covered, it can then look at more sophisticated commodities such as services, personal
transport, entertainment, the list goes on.
Construction economics is concerned with the allocation of scare resources. Many of
the world resources (factors of production such as land, labour, capital, enterprise) are finite,
yet people have infinite wants. Therefore faced with two-pronged problem: at any point in
time there is a fixed stock of resources, get against many wants. This problem is formally
referred to as scarcity. In an attempt to reconcile this problem, economists argue that people
must make careful choices-choices about what is made, how it is made and for whom it is
made; or in terms construction, choices about what investments are made, how these are
constructed and on whose behalf. Indeed, as its very simplest level, economics is ‘the science
of choice’.

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TASK-01
01. EXPLAIN THE FOLLOWING ECONOMIC PRINCIPLES AND
RELATE THE TO WITH SRI LANKAN CONSTRUCTION
INDUSTRY.
SCARCITY OF RESOURCES
World is developing, always population is growing, human needs and wants are ever
increasing, more and more needs and wants are adding to the human lives but the resources
we consume to fulfill human needs and wants are gradually diminishing. Then it brings the
problem of “Scarcity” of resources. Scarcity exists in every society because human material
wants are unlimited, whereas the economic resources necessary to produce the goods &
services to satisfy these wants are limited. All economies therefore have an economic
problem: what to produce, how to produce, and the distribution of output.
Likewise in the industry also we have scarcity in each and every resource. So we have
to utilize them and get utmost use within the available resources. When we go for a project
the client has to well analyze that which can give or not the maximum output, and he has to
choice which gives the maximum output. As well as all materials having scarcity in
construction industry and all these should put in to maximum use.
In economics, factors of production are the resources employed to produce goods and
services which leads to the scarcity to industrial activities. Here the rate of output is modeled
as a function of the rate of use of each input employed. They are
Land:- all natural resources (gifts of nature) including fields, mineral wealth, and fishing
stocks but the resource is limited
Labor:- The physical and mental work of people whether by hand, by brain, skilled or
unskilled
Capital: - Man made goods used to produce more goods including factories (plant),
machines and roads.
Entrepreneur: - An entrepreneur risks financial capital and organizes land, labor & capital
to produce output in the hope of profit.

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LIMITED RESOURCES
1. Natural resources
They are provided by nature and not by human beings.
Eg: - land, sunlight, sand, water etc.
Land
The price of the land, in which the construction should take place, is a stepping stone to
calculate the total cost for the project. Then the type of foundation to be used can be
calculated by inspecting the land is situated, transport facilities, building approval from the
town council and the RDA. And all requirements for a construction to be carried out under
the economic resources come under the economic resources.
Example:- an apartment, half constructed in Kollupitty has been stopped due to the security
reasons as the building gives a good view of the president house even though it was approved
by the town council.
Gypsum
Gypsum is calcium sulfate. The most common form of it is the dihydrate which means that
each molecule of calcium sulfate has two water molecules associated with it. It is expressed
as CaSO42H20. The other form called gypsum anhydrite has no water.
Regular use of gypsum is essential to the sustainability of most irrigated soils.
Irrigated land eventually leads to sodicity and salinity unless extreme care is taken. Gypsum
is a key ingredient for the maintenance of agriculture on many types of soil and over a wide
pH range, including sodicity.
Gypsum, in addition to prevention and correction of sodicity, include: greater stability
of soil organic matter, more stable soil aggregates, improved water penetration into soil, and
more rapid seed emergence.
For many reasons gypsum can be considered to be a farmer's best friend. Some of the
reasons are multiple and interrelated.

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Iron, Silver, Tin, Lead and Zinc soil
Iron is commonly used in many products for many purposes, but iron reserves are running
low. Five hundred million tons of iron are mined every year and statistics by the U.S.
Geological Survey show that iron reserves may run out anywhere between 128 and 300 years.
Silver, used not only for jewelry but for film, X-ray imaging and batteries, is limited to 14 to
29 years of reserves. Lead and zinc, used industrially all around the world, may only exist for
20 to 46 years.
Hydrocarbons, Phosphorus, Sulfur, Chromium
Hydrocarbon is a limited resource used to make the billions of barrels of oil that are used
every year. Though, as a global society, humans largely depend on oil and coal to fuel
technologies and civilizations, hydrocarbon reserves may only last for another 35 to 100
years. According to the United States Geological Survey, phosphorus, another natural
element, may only last on Earth for 40 more years. Sulfur, used to produce the leading
industrial chemical and chromium, used to produce stainless steel, are also being depleted
and may only last for 50 to 80 years.
2. Human resources
This consists of the energy, skills and knowledge of the working population. These resources
are described as labour.
3. Manufactured resources
The word capital is used to describe manufactured resources. It consist of such things as
factories, machineries, railways etc.
ECONOMIC PROBLEM
A theory that scarcity exists in the sense that only finite and insufficient resources are
available to satisfy the needs and desires of all human beings. The fundamental economic
problem then faced by human society and business operators is how best to allocate scarce
resources to the provision of various goods and services within the economy.

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LABOUR DIVISION & SPECIALIZATION
Labour covers all human effort. If the labor force is used in good way, industries can get
more production. We can divide labor force into two categories. One is manual workers such
as carpenters, masons, stone breakers and etc. they give their physical efforts for production.
Second one is non-manual workers such as bank managers, architects, quantity surveyors and
etc. they give their mental efforts for production. Both parties involving is very important in
construction industries. The reward for labor is wage. We have to look not only the quantity
of labor but also quality to satisfy client’s wants and to earn more profit in a construction
project.
More can be done with the same number of labors if the laborers become more
skilled. Education, training and experience convert the labor into skilled labor. If we increase
productivity which is defined as ‘output per worker hour’, we can increase output of
construction. For example, we are using 10 labours to construct walls in a construction
project. If we increase it to 20, we can get more and quick output in the same time.
In the construction industry the labours can be categorized into three. They are:-
 Skilled labours ex: - mason, carpenter etc.
 Semiskilled labours ex:- machine operators etc.
 Unskilled labours
The wages are decided upon ability of the labours thus adding to the main budget. They play
the main roles of construction. Here again these labours can be categorized into two.
According to their abilities, they are:-
a. Physical ability labours ex: - mason, carpenter etc.
b. Mental ability labours ex: - quantity surveyors, architect, engineers etc.
The division of Labour is “The allocation of labours such that each worker specialized in one
or few functions in the production process”. The Specialization is defined as “The special
ability in doing a specific task gained through the Labour division”.

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02. OPPORTUNITY COST AND HOW ITS STATE IN ECONOMIC
DECISIONS.
OPPORTUNITY COST
Opportunity cost can be explained as the cost (benefit) of the next best alternative forgone or
missed. In other words opportunity cost is the cost or benefit missed in terms of the next best
alternative on which resources could have been used for production or consumption. In
simple terms this is the act of measuring the cost of a given activity (decision) in terms of the
next best alternative forgone or sacrificed.
When considering the opportunity cost with the construction industry, here the resources are
the sacrifice. This sacrifice is done depending on the project under taken by the contractors.
For example, the resources required for construction vary depending on the site. That is in the
case of constructing bridges, commercial buildings, apartments, roads etc. thereby the least
opportunity cost is required, regarding the resources, for the construction of any site.
Diagram 1- choice and opportunity cost

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According to the above diagram a contractor has two choices. First one is road construction
and the other building construction. Since more resources are necessary for road construction
and since that the contractor has sufficient resources for building construction thereby this
was chosen and the road construction was sacrificed.
Table 01- Unit of project A and B
Graph 1- Production Possibility Curve
80 79 77
74
70
65
58
48
35
19
0
0
10
20
30
40
50
60
70
80
90
0 20 40 60 80 100 120
Unit Of
Project
A
0 10 20 30 40 50 60 70 80 90
10
0
Unit of
Project
B
80 79 77 74 70 65 58 48 35 19 0

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Units of
Project A
Units of
Project B
Opportunity Cost of
Project A
Opportunity Cost of
Project B
0 80 - 10 (10/1)
10 79 0.1 (1/10) 5 (10/2)
20 77 0.2 (2/10) 3.33 (10/3)
30 74 0.3 (3/10) 2.5 (10/4)
40 70 0.4 (4/10) 2 (10/2)
50 65 0.5 (5/10) 1.43 (10/7)
60 58 0.7 (7/10) 1 (10/10)
70 48 1 (10/10) 0.77 (10/13)
80 35 1.3 (13/10) 0.63 (10/16)
90 19 1.6 (16/10) 0.53 (10/19)
100 0 1.9 (19/10) -
Table 02- Unit of project A and B
If the country is currently producing 40 units of project A and 70 units project B, When
consider about opportunity cost of producing another 10 units of project A is 0.5.
Now assume that technical progress leads to 10% increase in the output of project A for any
given amount of resources.
Unit Of
Project
A
0 11 22 33 44 55 66 77 88 99 110
Unit of
Project
B
80 79 77 74 70 65 58 48 35 19 0
Table 03-Variation of Unit of project A and B

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Graph 2- Production Possibility Curve
80 79 77
74
70
65
58
48
35
19
0
80 79 77
74
70
65
58
48
35
19
0
0
10
20
30
40
50
60
70
80
90
0 20 40 60 80 100 120

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03. DIFFERENT TYPES OF ECONOMIC SYSTEM.
Market Economy
Free Market Economy is an economy ruled by the people, not the government. It grants
freedom to producers who now only have to make what is needed and wanted, not what the
government decides is needed and wanted. And the buyers, producers, and sellers control
prices, with almost no government interference. So, this shows that if you are in a market
economy you are less likely to be scammed out of your money. You will literally pay for
what you're getting and not for more. That’s one of the main characteristic of free market
economy. And the other characteristic of the market economy is: The people get to choose
almost every aspect of the economy, the prices, and how much or little the producers will
produce.
Say for an example: - Italy
Advantages
 Having a Competition between different firms leads increase of efficiency Most
people work harder
 There is more innovation as firms look for new products to sell and cheaper ways to
do their work
 Foreign investment is attracted as word gets out about the new opportunities for
earning profit
 Many people quickly acquire the technical and social skills and knowledge needed to
function in this new economy
 The size, power, and cost of the state bureaucracy are correspondingly reduced as
various activities that are usually associated with the public sector are taken over by
private enterprises.

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Disadvantages
 Distorted investment priorities, as wealth gets directed into what will earn the largest
profit and not into what most people really need (so public health, public education,
and even dikes for periodically swollen rivers receive little attention)
 Growing unemployment (machines and raw materials are available, but using them to
satisfy the needs of the people who don't have the money to pay for what could be
made would not make profits for those who own the machines and raw materials and
in a market economy profits are what matters)
 Growing social and economic inequality (the rich get richer and everyone else gets
poorer, many absolutely and the rest in relation to the rapidly growing wealth of the
rich)
 Increase in all kinds of economic crimes, with people trying to acquire money
illegally when legal means are not available
Command Economy
Command economy is also known as planned economy. The most important aspect of this
type of economy is that all major decisions related to the production, distribution, commodity
and service prices, are all made by the government. It has the powers to decide what shall be
produced, how it shall be produced and for whom it shall be produced. These economies are
generally described as centrally planned economies. This type of economy lacks the kind of
flexibility that is present a market economy, and because of this, the planned economy reacts
slower to changes in consumer needs and fluctuating patterns of supply and demand. On the
other hand, a planned economy aims at using all available resources for developing
production instead of allotting the resources for advertising or marketing.
Say for an example: - Cuba and China

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Advantages
 Prices should be low
 Reduce unemployment
 Human needs will be satisfy
 Resources are well allocated
Disadvantages
 Low quality
 Production will be limited
 Wants are not completely satisfy
 They will not consider about people wants and needs
Transformation Economy
Economies which are moving from command to market economies. It is to be done changing
the ownership public to private one; it is moving slowly in a particular country if we consider
Sri Lankan Telecom they bought the shares from Sri Lanka in lesser number but they were
increase the shares, at the movement the economy changing from command to market
economy.
Say for an example: - Hungarian, Romania
Advantages
 Privatize the government institutions
 Allow limited foreign investment
 Allow limited price system
 Introduce limited private property system

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Disadvantages
 Introduce of private banks.
 Encouragement of private firms
 Government properties are being privatization.
 Consumer demand and spending soon tells firms whether they are producing the right
goods in the right way by rewarding them with a profit or a lost.
Mixed Economy
A mixed economy is an economy that has a mix of economic system. Normally a mixed
economy contains the both government and private enterprises or that combines elements of
capitalism and socialism or a mix of market economy and planned economy. Actually most
of the countries were choose mixed economic system because of disadvantages of market
economic system.
Characteristics Of Mixed Economy
 The four main types of factor within the system are consumers, producers, factor
owners and government.
 The factors of production are partly owned by private individuals and organizations,
 In the private sector of the economy, consumers, producers and factor owners are
assumed to be motivated by pure self-interest
 In the private sector of the economy there is competition. In the state sector, however,
resources will be allocated through the planning mechanism.
 Government has a number of important functions. One is to regulate the economic
activities of the private sector of economy. It needs, for instance, to ensure that
competition exists and that property laws are upheld.

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Advantages of mixed economy
 High taxes and raise taxes
 Reduced the unemployment;
 In market economies experience high unemployment sometimes because it may not
be profitable to employ people. But in mixed economy if these is unemployment the
government may be able to create jobs for those people out of work by employing
them in their own offices and factories or by helping private firms to provide jobs.
 Government ownership may scare resources
 In mixed economy discourages the consumption of harmful goods
 In mixed economy a government may be able to stop people consuming harmful
goods by making them illegal, for example hard drugs or by placing high taxes on
them for example alcohol.
Disadvantage of mixed economy
 Government ownership of some of the scarce resources allows it to produce goods
and a service for those people it thinks deserves them.
 Provide free healthcare
 Free education
 Government provides unemployment
 Following countries are used the mixed economic system.
 Sri Lanka
 India

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Main Economic System
Most countries in the world employ a mix of free market and command market systems. For
example, the Sri Lanka is usually classified as free market, but the command aspect applies
through government regulations, taxation and prohibition of certain products the government
deems hazardous or illegal.
In an ideal mixed market system, both the businesses and the government work
together to meet the demand for products in the safest and most efficient manner possible.
Mixed market systems are favoured by a wide range of societies, because they can balance
diverse economic and political ideals between groups with vastly different views.
Property Ownership
Resource ownership of land and capital is an essential element of the free-enterprise system
and an important feature of mixed economies. Under free enterprise, individuals are free to
own property and operate their own businesses. A mixed economy retains this element of
capitalist economics but also allows some government ownership of industry. Even the
economy of communist China includes some market characteristics that suggest it could be
considered a mixed economy; albeit one that retains many characteristics of a socialist
planned economy. The website Economy Watch points out that reform by China's
government have led to privately owned businesses in the country's manufacturing and
service sectors.
Pricing
Markets allow businesses to provide needed goods and services to customers without
regulatory hindrances. Producers can freely assess the resources available and meet
customers' needs in exchange for a price, whether that be in currency or trade. In its pure
state, a free market allows producers to creatively use available resources to address and
anticipate customer needs. It also enables manufacturers to enter the market easily to produce
a better or more efficient product. Ideal free markets allow creativity to flourish and die
according to consumer demand.

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In reality, free market capitalism has a tendency to form into monopolies or oligarchies, in
which one or a few companies dominate a given product or service market. Monopolies and
oligarchies prevent new businesses and products from entering the market. As such, free
markets left without government intervention may stifle the creativity of entrepreneurs and
encourage inefficient use of resources. Monopolies have control over the price set for a
product and are less subject to "market forces" that reflect the proper balance between selling
price and what customers are willing to pay. Governments regulate the formation of
monopolies and oligarchies to stimulate efficiency and creativity in the marketplace by
supporting entrepreneurs.
Freedom of choice
A mixed economy is a mixture of freedom and controls. A mixed economy has no principles
to define its policies, its goals, its laws—no principles to limit the power of its government.
The only principle of a mixed economy—which, necessarily, has to remain unnamed and
unacknowledged—is that no one’s interests are safe, everyone’s interests are on a public
auction block, and anything goes for anyone who can get away with it. Such a system—or,
more precisely, anti-system—breaks up a country into an ever-growing number of enemy
camps, into economic groups fighting one another for self-preservation in an indeterminate
mixture of defense and offense, as the nature of such a jungle demands. While, politically, a
mixed economy preserves the semblance of an organized society with a semblance of law and
order, economically it is the equivalent of the chaos that had ruled China for centuries: a
chaos of robber gangs looting—and draining—the productive elements of the country.
.
Government Involvement
A central characteristic of a mixed economy is that government can intervene to improve
economic outcomes, especially during economic crises. For example, the U.S. and other
governments, including those in Europe and Asia, employed a variety of interventions to
alleviate the effects of the 2008 global financial crisis. The U.S. sought to stabilize the
nation's banking system by providing $700 billion in federal funds for banks to clear their
books of failed assets, such as residential real estate backed by subprime mortgages.

19. ECONOMICS
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Objectives
Objectives of all economic systems are: stable prices, economic growth (i.e. increase in total
value of goods and services produced), full employment, and efficient use of resources to
produce goods and services. Most economies today are mixed, for example the US has a
mixed economy (even though it is based largely on a free market economy, it has elements of
a command economy.) Mixed economies simply allow for incorporation of various aspects of
each economic system to the best advantage of the country.

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TASK-02
01.ECONOMIC EQUILIBRIUM
Price Elasticity of demand:
It is defined as the percentage change in quantity demanded divided by the percentage change
in the price.
Price elasticity of demand = Percentage change in quantity demanded
Percentage change in price
Elasticity of demand
 Price elasticity demand
Elastic demand
In elastic demand
Perfectly elastic demand
Perfectly in elastic demand
Unit elastic demand
 Cross elasticity demand
Cross elasticity of demand = Percentage change in quantity of a good
% change in the price of the one of its substitutes or complements
 Income elasticity demand
Income elasticity demand = Percentage change in quantity demanded
Percentage change in income
Elasticity of demand
Qd
D
S
S1
S
S1
D
P
P1
P
Q Q1

21. ECONOMICS
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Following factors are effect price elasticity of demand.
The number of substitutes: -
The degree of substitutability demands in part on whether a good is a necessity or a
luxury. Necessities can’t easily be substitutes for and thus have smaller price
elasticity. When consumers can choose between a large numbers of substitutes for a
particular product, demand for any one of them is likely to be price elastic. Demand
will be price inelastic when there are few substitutes.
The period of time: -
If the price of product rises consumers will search for cheaper substitutes. The shout
run is simply a period of time before people have made all their adjustment or
changed their habits; the long run is a period of time long enough for people to make
such adjustments or change their habits.
The proportion of income spent on a commodity:-
if a good represents a large fraction of people’s income, then price elasticity
will be high.
Factors influencing the supply
 The cost of production
 Technical progress
 Taxes and subsidies
 Weather condition affecting agricultural products
Price Elasticity of supply:
It is defined as the percentage change in the quantity supplied divided by the percentage
change in the price.
Elasticity of supply
 Price elasticity supply
Elastic supply
In elastic supply
Perfectly elastic supply
Perfectly in elastic supply
Unit elastic supply

22. ECONOMICS
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Price elasticity of supply = Percentage change in quantity supplied
Percentage change in price
Influence of price elasticity of supply
Time:
in the long run, firms can adjust all factors in puts to change supply easily.
Production time:
if a good is manufactured quickly, supplies can be changed easily.
Stocks:
if a firm has a large amount of stocks, supplies can be changed easily.
Capacity:
if labour and capital are under used, supplies can be changed easily.
 Elasticity of demand means the responsiveness of quantity demanded, or how much
quantity demanded for changes, given a change in the price of a good or service.
 Elasticity of supply means the responsiveness of quantity supplied or how much
quantity supplied changes given a change in the price of a good or service.
Qs
P
P1
P
Q Q1
D1
D1
D
D
S
S
Elasticity of supply

23. ECONOMICS
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Expectations of the future: -
For many firms, it is the expectation of the price in the future more than the current price that
affects decisions about how much to produce.
Period of price also influence in elasticity of demand and supply if a price of a product rise
consumers will search for cheaper substitutes. (E.g.: for the bricks we are using cement
blocks) the longer they have, the more likely they are to find one. Demand and supply will be
therefore being more price elastic in the long run.
The proportion of income spent on a commodity also has little influence in the elasticity of
demand and supply. If a product like phones or computers may rise by 20%. This could mean
pay an extra more money. This is a considerable part of a person’s income. Demand and
supply is likely to be price elastic.

24. ECONOMICS
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TASK-03
01.IDENTIFIES DIFFERENT TYPES OF MARKET STRUCTURES.
The Characteristics Monopoly Market Structure
In a market, if there is an only one supplier of a particular product is known as monopoly
supplier. This is imperfect market competition.
A monopoly exists when there is a sole supplier of a good or service. In this type of market
there is an absence of competition there are no competitors. Examples of monopoly can be
found in the markets for electricity, trail transport and postal services. All these are supplied
by publicly owned industries which have monopoly powers.
A market consists of all consumers & producing firms of a particular Goods or Services. Firm
will make decisions on what level of output to produce and at what price to sell their product.
The way which as firm behaves in making these two basic decisions will depend on the type
of market in which the firm is operating the condition it faces. By looking at the market
structure we can analyze how much competition is there. Market structure refers to the no. of
firms & types of firms in a particular industry.
There are two major types of market structure: perfect competition & monopoly which are
two opposites. In between these two, there are three others structures which have more
grounding in reality. These are Monopolistic competition, Oligopoly & Duopoly. All of these
market structures are defined largely in terms of the no. of suppliers in the market.
Characteristic of monopoly market
No competition
Being the only supplier of goods or services a monopoly faces no competition from other
firms.
There are barriers to entry
The monopoly supplier will be enjoyed by his abnormal profit because he is the only one
supplier in the market but some other producers might come to monopoly market at that time,
prices and profits would fall back to normal as supply increase. The following factors
prevents to other firms come to the monopoly market

25. ECONOMICS
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Control supply
For a particular product the firm or group of firms may control the supply of Raw material
thus other firm cannot enter into monopoly market
Expense
Some of the products cannot be produced by all firms because of the expensive. For an
instance, nuclear power industry needs millions of pounds worth of equipment. This helps to
keep the nuclear power industry in the UK a monopoly.
Price makers
A monopolist is not a price taker. They have a power to make price. Because the monopolist
produces all of a particular good or services for a market it can raise the price of its product
by supplying less of it.
Imperfect information
Monopoly market structure operates with imperfect information the monopoly supplier can
charge different price for different consumer
Complete freedom of entry
There is no entry or exist from the industry. Entry or exist may take time, but firms have
freedom of movement in and out of the industry. This freedom of entry is essential in perfect
competition because if barriers exist, the number of firms in the industry may be reduced so
that each one of them may acquire power to affect the price in the market.
Each firm product is identical
The industry is defined as a group of firms producing a homogeneous products which means
all firm produce the same product in terms of colour, shape and taste etc…the technical
characteristic of the product as well as the services associated with its sale and delivery are
identical. There is no way in which a buyer could differentiate among the products of the
different firms. If the product were differentiated the firm would have some discretion in
setting its prices.

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Perfect competition market structures
The efficiency of perfect competition
While they accept the general case for the superiority of the market economy outlined above,
many professional economists want to be more precise about just what the market economy
does so well. They do this by proving that an idealization of the market economy (perfect
competition) leads, in equilibrium, to an optimum, or efficient, allocation of resources.
In this section we proof of the proposition that perfect competition leads to efficient
allocation of resources. As a first step, we inquire in a little more depth into the meaning of
the term efficiency
Allocative efficiency
Allocation efficiency relates to the allocation of resources among the production of all the
goods and services that are produced. In other words,
 Allocate efficiency relates to the choice among alternative points on the
production-possibility curve.
This result is restricted to price-taking firms because inefficient production, using more fixed
capital than is necessary, can be an entry-barring strategy for oligopolistic firms. It may pay
firms in such markets to produce above the minimum attainable cost in order to maximize
profits in the long run by restricting entry.
Allocation inefficiency means that resources can be reallocated from their present uses so as
to make at least one person better off while making no other person worse off. Conversely,
allocation efficiency means that it is impossible, by producing a different bundle of goods, to
make any one person better off without making at least one other person worse off.
Productive efficiency
Production is efficient when it is impossible to reallocate resources so as to produce more of
some product without producing less of some other product. Watch the double negative. An
allocation of resources is productively inefficient when it is possible to produce more of some
product without producing less of any other product. It is efficient when this cannot be done-
in other words, when the only way to produce more of one product is to produce less of some
other product.

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Productive efficiency has two aspects, one concerning the allocation of resources within each
firm, and the other concerning the allocation of resources among the firms in an industry. The
first condition for productive efficiency is that each firm should produce any given output at
the lowest possible cost. Any firm that is not being productively efficient is producing at a
higher cost than is necessary. This must reduce its profits. Thus, any perfectly competitive
profit-maximizing firm will be productively efficient.
The second condition for productive efficiency is that all firms producing the same product
should have the same marginal cost. This ensures that the total output of each industry is
allocated among its individual firms in such a way that the total cost of producing the
industry’s output is minimized. It firms’ marginal costs were not all the same, resources could
be transferred from the firm with the highest marginal cost to the firm with lowest. The same
output would he produced hut at a lower cost.
 Perfect competition produces productive efficiency. First, all firms are motivated to
produce at the lowest possible cost. Second, since firms in any one industry face the
same price to which they equate their marginal cost, all firms have the same marginal
cost.
An economy that is productively inefficient will be at some point inside the production-
possibility curve. It will be possible to produce more of some goods without producing less of
others.
 Productive efficiency implies being on, rather than inside, the economy’s production-
possibility curves.
01. Freedom to entry and exit
If they wish any firm can freely enter or leave any time in the industry. There are no barriers
to entry & exit. If existing firms in the market are making profit, then the firms will be
tempted to make the same product as them in the hope of earning profits for themselves.
02. Price takers
There are very large number of buyers and sellers of the product, none of whom can buy or
sell enough to be able to influence of the product because buyers and sellers cannot affect the
market price of the product and have to accept the price. Therefore its demand curve is
infinitely elastic.

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Price
Market price
Qd1 Qd2 Qd3 Qd
Graph 3: Price takers Demand curve
03. No. of firms in the market
There are very large numbers of firms in the market
04. Perfect information: - All buyers have perfect information about the prices &
products on sale, and all sellers have all information about the latest production
techniques.
There are no perfectly competitive industries in the world. No industry has all five features
listed, although certain industries have some of them. But the point of studying perfect
competition is giving the perfect use of resources.
Conclusion
In a market, if there is an only one supplier of a particular product is known as monopoly
supplier. This is imperfect market competition. Characteristic of monopoly market is there
are No competition, Operated with differentiate product, There are barriers to entry,
Imperfect information, Price discrimination. Perfect knowledge, complete freedom of entry,
each firm product is identical, Price takers are the reasons for perfect competition is efficient.
Perfect competition is special case that exists in only a few sectors where the product is
homogeneous. This applies to primary commodity industries, but it does not apply to most of
the goods and services purchased by consumers.

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02. IDENTIFY THE APPROPRIATE MACROECONOMIC
CONCEPTS TO EXPLAIN THE MEASUREMENT AND
DETERMINATION OF NATIONAL INCOME.
The methods of measuring national income
Measures of national income and output are used in economics to estimate the total value of
production in an economy.
National income is a measure of the total value of the goods and services (output) produced
by an economy over a period of time (normally a year).
“National income estimate measures the volume of commodities and services turned out
during a given period counted without duplication.”
There are three ways to measure the national income. They are as follows:-
1) Output method
2) Income method
3) Expenditure method
1. Output method
The output method can be classified into three. They are as follows:-
Primary industry
This can be called as an extractive industry. Examples are as follows: - farming, fishing,
mining, forestry, quarrying
Secondary industry
This can be called as manufacturing and construction industry
Tertiary industry
This can be called as service industry.
Tertiary industry is also classified into two. They are as follows:-
 Direct service: - health, education
 Indirect service: - transport, communication, insurance, financing, wear housing

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2. Income method
This is measured by the giving or receiving of salary/wages and by the profit gained.
3. Expenditure Method
National output= national income= national expenditure
01. Circular flow of income
From the simple model assumption was made as though there was no government, no foreign
trade and firms only produced goods and services for consumers. We will now drop these
assumptions, but still assume that prices do not change.
Diagram 2 - Circular flow of income
Money can leak out from the circular flow. Households and firms pay taxes (T) to the
government. They may save some their incomes (savings=S) money may also leak out of our
economy and go abroad to pay for imports. Indeed, households, firms and governments can
all buy imported goods and pay for service abroad. (Expenditure on imports=M).

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Taxes, savings and imports are all known as leakages or withdrawals from the circular flow
of income, because they do not represent payments made for goods and services produced in
our economy
It should be clear, therefore that national income (Y) in an economy is divided between what
we pay in tax, what we save and what we spend imports goods and services.
National Income = Taxes(T) + savings (S) + imports (M) + consumption expenditure (C)
Y = T + S + M + C
Flows of money can also be added to the circular flow of income. At any given times firms as
well as producing goods and services for consumers also produce capital goods. There
spending on these goods is terms gross capital formation or investment (I). government can
also spend money on many goods and services in their public expenditure programs on
education, health care, welfare benefits, roads, defense, etc. (Government expenditure = G).
Foreign countries can also inject money into our economy by buying UK exports. (X).
Investments, government spending and expenditure on exports are known as injections into
the circular flow of income in an economy.
It is only the spending of consumers, firms, governments and foreign countries that generates
outputs and incomes in an economy. If nothing was ever bought, nothing would be produced,
no factors of production would be employed and no income would be earned. One person’s
expenditure is another person’s income. The total amount spent is an economy on its output
over a given period of time represents the aggregate demand for goods and services.
All are the leakages for the system.
Aggregate demand (AD)=Consumption (C)+Investment(I)+Government expenditure(G)
+ Exports (X)
AD = C + I + G + X

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01. National income equilibrium
An economy in equilibrium will be in a state balance or rest. That is the total amount of
output, expenditure and income flowing around the economy is the same during a particular
period of time. As a result prices and employment should also be stable. This situation will
exist only if the total amount of goods and services firms produce is bought buy all the
people, who spend. That is if aggregate demand equals total output.
If however, firms produce more output than there is demand for, some will remain unsold.
Firms will by their mistake and produce less next time, but this means they do not need to
employ so much land, labour or capital. Resources will become unemployed and as a result
incomes will fall. Because the level of output, employment and incomes start changing the
economy is said to in a state of disequilibrium
On the other hand, aggregate demand may be greater than the value of national output. Firms
will want to increase the production of goods and services and will therefore require more
factors of production. Output, employment and incomes will rise.
Equilibrium occurs when these things remain the same.
For the amount output, expenditure and income passed around the economy to remain the
same, flows of money in and out of circular flow, that is injections and withdrawals, must be
equal. In other words investment, expenditure and spending on exports must be balanced by
flows of taxes, savings and spending on imports.
For the economy to be in equilibrium injections must be equal withdrawals
I + G + X = T + S + W
Therefore,
Y= C + S + M+ T
AD= C+ X+ G+ I
Y = AD
C + S + M+ T = C+ X+ G+ I
S + M + T = X + G + I ----> Withdrawals = Injection

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01. GDP
Measures GDP at the cost of the factors used to produce it, and hence at the incomes earned
by those factors. It differs from GDP at market price by the correction for net indirect taxes.
Spelling this out in detail, GDP at market prices must be changed by the addition of
government subsidies on the production or sale of what is produced, and the subtraction of
taxes on the production or sale of what it is produced. Subsides as we have seen, allow factor
incomes to exceed the market value of goods sold, while taxes on expenditure force income
received to be less than the market value of goods sold because some of the proceeds derived
from the sale of the product accrue to the government:
GDP (At factor cost) = GDP (at market price) + subsidies - taxes on expenditure
02. GNP
GNP at factor cost. This is some of all incomes earned by UK residents in return for
contributions to current production that takes place anywhere in the world. Get from GDP to
GNP in two steps. First add receipts of interest, profits and dividends received by UK
residents from assets that they own overseas. These receipts are part of incomes earned by
UK residents, but they are not a part of UK production. Second have to subtract interest profit
and dividends earned on assets located in the uk. But owned abroad, if wish to arrive at
income earned by UK residents. Although these are part of UK production, they are incomes
earned, not by UK, but by forgone, residents. The total of these adjustments is called NET
PROFITY INCOME FROM ABROAD.
GDP (at factor cost) = GDP (at factor cost) + net property income from abroad.
01. NNP
This is GNP minus the capital consumption allowance (deprivation). NNP is thus a measure
of the net output or the economy after deducting from gross output an amount necessary to
maintain intact the existing stock of capital.
NNP (at factor cost) = GNP - deprivation (or capital consumption allowance)

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Conclusion
It is commonly argued that exports are ‘good’ because they raise equilibrium national
income, whereas imports are ‘bed’ because they lower equilibrium income. When we say
exports raise national income, we mean that they add to total expenditure and raise
equilibrium income.
To incorporate the government into the model of the determination of natural income,
allowance must be made for the effects of taxes and government exhaustive expenditures.
From the income expenditure method, government expenditures are an addition to the
aggregate desired expenditure function. Taxes which are for simplicity assumed to be only
taxes on personal incomes, introduce a wedge between national income and disposable
income.
An increasing in tax rates reduces household’s disposable income, and with a given
propensity to consume out of disposable income, the propensity to consume out of national
income is reduced. Thus, an increase in tax rates shifts downwards the curve relating
consumption expenditure to national income, while a decrease in tax rates shifts the curve
upwards.

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03. BRIEFLY EXPLAIN FISCAL AND MONETARY POLICIES AS AN
INSTRUMENT TO ACHIEVE MACRO-ECONOMIC GOALS AND
OBJECTIVES.
Monetary policy
Monetary policy is one of the tools that a national government uses to influence its economy.
Using its monetary authority to control the supply and availability of money, a government
attempts to influence the overall level of economic activity. Usually this goal is
“macroeconomic stability”- low unemployment, low rate of inflation, economic growth, and
balance of external payments.
Easy money (Expansionary monetary policy)
A policy initiated by a central bank to lower the rate interest paid by banks to borrow money
as a way to increase economic activity. In some economic circumstances, lower bank
borrowing rates can stimulate consumer borrowing which in turn can increase demand for
goods.
Tight money (Contractionary monetary policy)
Contractionary monetary policy is monetary policy that seeks to reduce the size of the money
supply. In most nations, monetary policy is controlled by either a central bank or a finance
ministry.
Monetary policy tools
1. Interest rates
The Bank has the power to announce the minimum and maximum rates of interest and other
charges that commercial banks may impose for specific types of loans, advances or other
credits and pay on deposits. Currently, the Bank does not set any interest rate levied by
commercial banks except for the minimum interest rate payable on savings deposits. The
Bank has opted not to use this as a tool of monetary policy but to let market forces determine
interest rate.

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2. Reserve requirement
Reserve requirements are a percentage of commercial banks and other depository institutions
demand deposit liabilities (i.e. chequing accounts) that must be kept on deposit at the central
bank as a requirement of banking regulations. Though seldom used, this percentage may be
changed by the central bank at any time , thereby affecting the money supply and credit
conditions. If the reserve requirement percentage is increased, this would reduce the money
supply by requiring a larger percentage of the banks, and depository institutions, demand
deposits to be held by the central bank, thus taking them out of supply. As a result, an
increase in reserve requirements would increase interest rates, as less currency is available to
borrowers. This type of action is only performed occasionally as it affects money supply in a
major way. Altering reserve requirements is not merely a short-term corrective measure, but a
long term shift in the money supply.
3. Open market operations
Open market operations are just that, the buying or selling of government bonds by the
central bank in the open market. If the central bank were to buy bonds, the effect would be to
expand money supply and hence lower interest rates, the opposite is true if bonds are sold.
This is the most widely used instrument in the day to day control of the money supply due to
its ease of use and the relatively smooth interaction it has with the economy as a whole.
Fiscal policy
Fiscal policy involves changing the level of public spending and/or taxation to affect the level
of aggregate demand. Fiscal policy is a demand management technique whereby
governments directly intervene in the running of the economy by using the instruments of
changing government expenditure and/or the level of taxation. Because of this direct
approach, fiscal policy seen as being more interventionist policy than monetary policy. It is
for this reason that a reliance on fiscal policy is often associated with governments that are to
the left of center, although, it should be noted that most governments, whether on the left of
right of the political spectrum will use a degree of fiscal policy in their management of the
economy. Fiscal adjustments to the level of government expenditure and tax levels are often

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made in annual budgets or announcements by the minister of finance, or equivalent that are
designed to fine tune the economy Still the government is practicing the fiscal policy to
achieve macro-economic objectives.
Tools of fiscal policy
1. Taxes
Taxes collected by the government in various forms. The taxes can be direct or indirect.
Direct taxes are taxes levied on the income or wealth individuals and firms. This includes
income tax, wealth tax, estate tax, corporate tax, capital gains tax, social security tax, etc.
Indirect taxes are taxes levied on goods and services. This includes sales tax, value added tax,
excise duty, etc.
2. Spending
Spending tools refer to increasing or decreasing government spending/expenditure to
influence the economy. Government spending can be in the form of transfer payments,
current spending and capital spending.
Current spending includes expenditure on essential goods and services such as health,
education, defense, etc.
Different between the fiscal and monetary policies
Fiscal Policy Monetary Policy
Principle Manipulating the level of
aggregate demand in the
economy to achieve economic
objectives of price stability, full
employment, and economic
growth.
Manipulating the supply of money to
influence outcomes like economic growth,
inflation, exchange rates with other
currencies and unemployment.
Definition Fiscal policy is the use of
government expenditure and
revenue collection to influence
Monetary policy is the process by which the
monetary authority of a country controls the
supply of money, often targeting a rate of

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the economy. interest to attain a set of objectives oriented
towards the growth and stability of the
economy.
Policy
Tools
Taxes; amount of government
spending
Interest rates; reserve requirements; currency
peg; discount window; quantitative easing;
open market operations;
Policy-
maker Government Central Bank of the country
03.AB
In this scenario the AB limited should know rate of inflation in a country have a major impact
on the value of its currency and the rates of exchange it has with the currencies of other
nation. Inflation is more likely to have significant negative effect, rather than a significant
positive effect on import of advanced equipment from western country.
AB limited attempt to balance exchange rates & inflation, but the interrelationship between
the two is complex and often difficult to manage. However, higher exchange rates often cause
increasing inflation rates a negative influence on the AB limited.
This situation can influence import of equipment from western country inflation has on
country’s exchange rate, a western country may have an inflation rate that is generally
considered high, but if it is still lower than of AB limited company, the relative value of its
curre3ncy can be higher than that of the western country currency.
So, ABC limited tend to know about western country s exchanges rates & level of
inflation

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CONCLUSION
Study of economics is very important subject to every student who follows the courses under
construction industry. The basic human needs are food, clothing and shelter. If we take
shelter, which are buildings and houses in which people live. We cannot live without a house.
To build the houses we must know the current situation about the scarcity and inflation of the
country. Studies of economics help us to improve the knowledge on wide broad.
An Economy faces the basic problem of scarcity. That means unlimited wants and
limited resources. In addition to the above the limited resources are be used in alternative
ways, otherwise we can’t do any work properly.
I was able to get good knowledge on many areas by completing this assignment. They are:-
 Economic principles of scarcity and choices
 Opportunity cost and how they are measured
 Economic system
 Perfect competition and monopoly market
 Macroeconomic concepts
 Impact of fiscal policy and monitory policy on housing construction
 Impact of economic recession on construction industry

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REFERENCE
 The Knowledgesmart Blog, UK Construction - The Impact of Recession, 2010,
available at:http://the-knowledgesmart-blog.blogspot.com/2010/11/uk-construction-
impact-of recession-so.html
 Construction in the UK Economy, The Benefits of Investment, October 2009,
available at:
http://www.wates.co.uk/sites/all/modules/filemanager/files/PDF/L.E.K._Construction
_in_the_UK_Economy.pdf
 Coping with water scarcity, 2008, available at :
http://www.fao.org/docrep/016/i3015e/i3015e.pdf
 Wikipedia, Economy of the Soviet Union, October 2013,
http://en.wikipedia.org/wiki/Economy_of_the_Soviet_Union
 Lipsey, R.G & Harbury, C , First principles of economics ( second edition), Oxford
university press- 1994
 Learning materials on Economics, Department of Quantity Surveying, and BCAS
School of Building Studies..
 BPP Professional Education, CIMA Study text- Economics for business (first Indian
edition), Viva books (pvt) Ltd-2003
 Stanlak, G. F., " Introductory Economics", 5th
edition, ISBN, 1989
 Anderton, A. , Economics (third edition), Pearson –Hill publishers- 2002
 Lipsey, R.G & Harbury, C , First principles of economics ( second edition), Oxford
university press- 1994
 Dr. F. Steb Hipple, Fiscal Policy vs Monetary Policy - East Tennessee State
University