Economics

Micro Economics | Economics Related to Building Industry

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Micro Economics Related to Architecture and Engineering

The study of Economics can be broadly classified into two categories:

  1. Micro Economics
  2. Macro Economics

In this article, we are going to discuss various terms related to Micro Economics. Check out the brief on “Macro Economics and Micro Economics“.

Here is the list of terms we are about to discuss in this article:

  1. Budget Constraints
  2. Choice
  3. Demand and Supply
  4. Uncertainties
  5. Equilibrium
  6. Technical constraints
  7. Profit maximization
  8. Cost minimization
  9. Monopoly
  10. Oligopoly
  11. Production

Budget constraints

For individuals, the budget for acquiring property depends in the earning capacity of the family per annum, the ability to raise loan, savings, repaying capacity (in 5year/ 10year/ 15year loan periods).

Choice

Depends on the budgetary capability, savings, willingness to invest, optimum level to spend, location of the property etc, choice of the specifications, reputation of the builders, quality of construction, timely completion of projects, proximity to public amenities like transport, railway station, airport etc.

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Financing of Projects | Economics related to Architecture and Engineering

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Financing of Projects | Economics related to Building Industry

Financing of Projects is the most important factor determining the success of the project. Various factors influence the success of a project.

In this article, we are going to study the major factors that are responsible for the success of the Building project…

Here are the four factors:

  1. Sources
  2. Total Cost Estimation of the Project
  3. Utility in Financing
  4. Agencies and Institutions directly and indirectly influencing the economic aspects of  a project

Sources

Loans are available for both purchasers and Builders from:

All Nationalized Banks,

Co-operative Banks,

Private Banks,

LIC HFL,

Finance Companies,

Insurance Companies like General Insurance Co (GIC), United India Insurance Co Ltd, National Insurance Co Ltd, Oriental Insurance Co Ltd, New India Assurance Co Ltd (for the employees), Foreign Direct Investment FDI, 20 Nationalised Banks along with Regional Rural Banks come under Public sector.

Commercial Banks, Cooperative Banks operate under provisions of Cooperative societies Law of states – for credit and non-credit purpose.

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Micro Economics and Macro Economics | Engineering Economics

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The study of economics is broadly divided into two categories:

  1. Micro Economics
  2. Macro Economics

In our previous article “Introduction to Building Economics as related to Architecture“, we discussed certain important terms relating to Building Economics. This article is the continuation of the study of Micro Economics and Macro Economics. This article will give you a brief idea of Macro Economics and Micro Economics.

Micro Economics

It is a small part of whole economics which deals with individuals, their needs, their behaviour, individual firms and its activities. This deals with studies like incomes, capital spending on building, individuals who are engaged in various products for building construction.

Micro-economics is also called Price Theory.

Importance of Micro-economics

It analyses how millions of consumers and producers in an economy take decisions about products and services offered. It also deals with how buildings and services are distributed belonging to different economic status.

Limitations

  • It cannot give an idea of the function of the economy as a whole.
  • It assumes full employment which is a rare phenomenon in developing countries or even developed countries which is quite unrealistic.

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Public Versus Private Participation | General Economics

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Public Sector and Private Sector

Public Sector is controlled by government to manufacture Power, Steel, Aluminium, copper, mining etc to provide employment to common man and control the country’s economy.

The Public Sector Unit tends to overstaff resulting in the increase in cost production.

Due to the lack of modernisation, they do not use their surpluses in the form of Capital.

PSU provides employment to the millions of people around the country.

They monopolise the market.

The PSUs could not survive due to so many controls and overruns.

  • Navratnas in PSU
  • IOC
  • Petrochemical Corp. (IPCL)
  • ONGC
  • BP Corporation. Ltd
  • HPCL
  • NTPC
  • SAIL
  • BHEL
  • Mahanagar Tele. Nigam Ltd (MTNL)

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Macro Economics | Economics Related to Building Industry

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Study of Macro Economics

Study of Economics can be divided into two parts:

  1. Micro Economics
  2. Macro Economics

In this article, we are going to discuss various terms related to Micro Economics. Check out the brief on “Macro Economics and Micro Economics“.

Here is the list of terms we are about to discuss in this article:

  1. Demand and supply
  2. Inflation
  3. Interest rate
  4. Employment
  5. Savings and Investments
  6. Monetary Policy
  7. Fiscal Policy

Demand and Supply

At national level, this depends on the government policies. How different building activities and infrastructure are planned and budgeted. Taxation polices, direct and indirect tax, allocation of funds for housing for the weaker sections in Five Year plans.

Inflation

This aspect depends on how effectively the government can control inflation by exercising control over general price rise and building materials, effective tax collection both at central and state level, maintaining equilibrium in demand and supply, earning foreign exchange. The increase in oil prices invariably increase the cost of living in all walks of life including building industry.

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Introduction to Building Economics as related to Architecture

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Introduction to Building Economics

Building economics is concerned with production and consumption and services and the analysis of commercial activities –

As it is related to architecture and building activity – all types of buildings for all types of functions by the builders (production) and consumption i.e., the ones who either buy or hire those buildings for various functions with the services offered by professionals like architects, planners, engineers etc.

Ends – scarce means

The scarce means like land, building materials, and allied services result in failing to meet the deman in housing sector.

Basic concept – any activity (legally permitted) which shall result in building activities to serve people for which the people are ready to pay the price directly or indirectly by buying or hiring the spaces can be treated as an economic activity.

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Basic Inputs into Building Construction | Engineering Economics

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Building Construction Economics

We will be discussing Inputs into Building Construction in terms of four important factors:

  1. Land
  2. Labour
  3. Capital
  4. Materials

Land

Marshall defines Land “Land means the materials, and the forces which nature gives us freely for the human beings (other creatures as well), in land, in water, in air, light and Heat”.

  • Land is nature’s gift
  • Land has no supply price (supply remains same) whether price of land is high or low
  • Land is permanent (lack of mobility)
  • Land lacks mobility in geographic sense
  • Provides infinite variation in fertility, utility, situation etc

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Equity Versus Efficiency | Building Economics

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Efficiency in Economics

Capability and able to perform duties well. The efficiency in production of building materials is high as there is competition and those who work in production are offered annual bonus depending upon the profits made by companies.

The efficiency in construction industry is generally high if the projects are handled by Architects, Engineers, and experienced builders. Unfortunately many constructions re handled by builders who are not experienced.

This is due to the ignorance of the public and loss of investments by the public. Most of such constructions are mediocre.

Equity in Economics

The central Government helps the public in offering fair rates of interest of the public invests in Central Schemes like Indira Vikaas Patrika (IVP), Postal Savings schemes which offer Monthly income schemes on investment in Postal saving schemes and they offer interest on fixed deposit also. Share market is most risky as it is volatile.

Public versus Private Participation relating to Architecture and Engineering

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Public Participation versus Private Participation

Public sectors like HUDCO, Hindustan steel, Heavy Engineering corporation etc are controlled by Central Government, Nizam Sugars, Allwyn Ltd, Praga tools etc are controlled by the State Government of AP (Andhra Pradesh).

As far as Building Industry is concerned, materials like cement, steel, wood, aluminium, brick manufacture, variety of floor tiles, wall tiles, electrical materials, plumbing and sanitary ware and fittings etc (to mention only few) are produced in India resulting in quality products, at various price levels to suit different economic levels of social strata.

Only Housing meant for central/state government employees is controlled by central or State governments. The housing for weaker sections are taken care of by State governments as a policy of Government.

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Labour Intensive Projects Versus Capital Intensive Projects

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Labour Intensive Industry versus Capital Intensive Industry

There is a problem of choosing between labour intensive industries or Labour intensive methods and Capital Intensive industries or Capital Intensive Methods. In under developed countries, due to chronic unemployment or cheap labour to capital is preferred.

The most efficient use of resources in less developed countries will tend to favour labour intensive methods. For innovations, it would also follow the Capital Saving and Labour – using innovations, it would be preferred. It would be profitable to adopt capital-intensive techniques to increase productivity.

If the export industries are capital-intensive such as mining and mineral refining, then, even though there is surplus labour, extensive investment has to be done in order to earn necessary Foreign Exchange.

For example, In India, Labour force is available in plenty. This is the reason most of the building industry is Labour Intensive including both skilled and unskilled labour.

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