Construction economics What is economics Economics

Construction economics

What is economics? • Economics originates from the Greek word for household management • Householder • UNLIMITED WANTS

What is economics? Basically, economics is about using scarce resources (and making decisions about their use)

What is economics? • Studying economics is about simplifying a very complex situation. • Economic principles must start off with an unrealistic view of how the economy works and then introduce real life complications.

Simplest view of an economy Consumer (householder) Firms pay people to work for them People buy goods and pay for them Producer (firm)

Firms Revenue from sales of whatever they produce. Revenue Buying materials Labour Equipment Rent

Government Revenue from taxes and borrowing What else might the Government spend money on?

But in real life, consumers have to pay taxes to the government, buy goods etc Buy imported goods Households Abroad Taxes Government Firms Sells goods abroad and imports materials Abroad Taxes Government

This leads to a more complicated circular flow consumer Firms pay people to work for them People buy goods and pay for them Producer Banks Government

Economic Systems are concerned with the ownership and control of resources 2 main types of system: • Market Economy: resources are allocated through the price mechanism and the ownership and control of such important resources (such as land capital) which are in the hands of private firms and individuals. • Command Economy: resources are allocated by a central planning authority and key industries and resources are owned and controlled by the state.

Main Branches of Economics Microeconomics: is the study of individual decision-making by both individuals and firms Macroeconomics: is the study of economywide phenomena resulting from group decision-making in entire markets. It deals with the economy as a whole. Many overlaps between micro and macroeconomics exists eg. Unemployment, inflation

Some Basic Construction Facts • Construction output accounts for 6% of everything produced in the economy • Almost one in ten people employed in the Malaysia work in construction and linked industries • There are over 170 000 construction firms in the Malaysia (data relevant till 2012)

Background to the Malaysia Construction Industry The construction industry involves several processes: • Primary: Appropriation of natural resources (e. g. quarrying and mining) • Secondary: Converts natural resources into products (e. g. material and component manufacture and construction) • Tertiary: Construction services (e. g. plant hire, design, control, asset management, facilities management) • Associated activities (e. g. legal institutions, finance, health and safety)

Total value of the ‘construction sector’ Materials 2% Construction 6% Construction Sector 20% Real estate inc FM 12 %