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Contemporary Construction - Economics and Finance

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I. Economics and the Society A. Basic Economic Problems The United Kingdom won its bid for the 2012 Olympics. The 2012 London Olympics is expected to generate beneficial effects to the UK economy. In order to harvest the potential turnovers, studies must be undertaken to scrutinize the issues that might hinder the economic projections. These issues, further explained below, are composed of the basic economic problems facing every society. 1. Scarce Resources Resources are merchandise used in the production of goods and services, whereas scarcity is the condition of limited resources. A resource can be considered scarce if it cannot meet the needs. Scarcity is directly relative with the supply and demand. Supply is the amount of goods that are either able or just willing to sell at a given price. Demand is the amount of good that consumers, based on their needs and wants, are willing and able to buy at a given price. If the demand is higher than the supply, more goods must be produced. Over time, this increased production will result to a problem, scarcity. Scarcity leads us to the allocation of resources, a topic that will be discussed in the later part of the assignment. Due to the Olympic related constructions, most of the scarcity will be from the raw materials for construction materials like steel, aluminium, timber, plastic, and glass, resulting to the scarcity of the construction materials itself. 2. Opportunity Cost Opportunity cost is the cost of alternatives forgone as a result of a decision to carry out an action. Opportunity can either be a value (monetary) cost or time cost. Opportunity costs can come from decisions such as, working overtime, working over the weekends, choice of materials, equipments and amount of human resources. Greater opportunity costs can come from choosing one project over another. Bigger companies will be more concentrated on big projects due to the Olympics. ...read more.


Conservatory j. Garage k. Swimming Pool If the list is ordered by preference, then the consumer will get the most satisfaction from having a 2-storey house constructed. The next is having a garden, and so on. Enterprises, say construction companies, can use this scales of preferences to know what the public wants. This can be at most use with companies in the Design and Build business and Real Estate businesses. 2. Utility Utility is the ability of a good to satisfy consumer's wants, but in economics it is not how useful a good is. Economists use marginal utility to measure satisfaction. Marginal utility is the amount of satisfaction gained from acquiring an extra unit of good. In the construction industry, this can be used in ordering construction materials. For example, due to the 2012 Olympics, construction materials will be in high demand, therefore the chance of scarcity is high. Realising this, a contractor with several contracts, expected a shortage and ordered as much as he can. The first load generated high satisfaction because it was utilised properly. As more bricks arrive and the brick stock increases, his worries decreases resulting to less satisfaction from acquiring the good. 3. Economic Problems Entrepreneurs make forecasts by scientific means or by just pure instinct. They make forecasts by answering through research and brainstorming the basic economic problems of the society. Before producing new goods and services, these problems are also resolved. The following from Economics for the Construction Industry, R. Shutt are the three basic problems that should be resolved: a. What commodities, and how much of each shall be produced? * Are investment or consumption goods wanted? * Is the society developed or underdeveloped? * Is production for home consumption or for exportation? * What are the input factors? * What forms of goods shall be produced? * Is there competition from abroad? * What government policies are likely to affect the production of the goods considered? ...read more.


1. Vertical Integration Vertical integration is where an organisation controls its input, distribution, and services. Firms can backward integrate by acquiring their suppliers while firms can forward integrate by taking control of its distribution. Vertical integration results to lower transaction costs and a higher degree of control. In the construction industry and in any other business field, lowering costs will be of great help to competitiveness. Construction Companies are more likely to be seen to backward integrate. Construction firms can integrate with construction material distributors, and further integrate to factories. With this scenario, all of the three are likely to benefit. Construction firms can acquire cheaper materials, while the distributor and the factory have constant companies to supply to, which in turn give them a sense of stability and peace of mind. 2. Horizontal Integration Horizontal Integration is a strategic move to expand and gain a greater market share. This means businesses at the same chain level are acquired. This type of integration can often be seen when a company is in the brink of closure and a company buys it out. Companies can generate a great deal of advantages with horizontal integration. Competition and substitute products can be acquired to gain a greater market share. Companies can also acquire firms within their field of expertise. In the construction industry, a firm can be competitive by acquiring other firms within the same industry but of different specialty. For example, a civil engineering company can acquire electrical, mechanical, and building services engineering companies to gain flexibility, offer a variety of services that other companies can't and form a package. In economics, the bottom line is money, and horizontal integration means more capital (accounting). More capital means that smaller companies can now take on bigger projects that they usually cannot take on before the integration. In making decisions on who to award a project after tendering, the company size of the tenderers are influential to the decision. A company with more capital (accounting) are more likely to finish the job and perform the job better than smaller companies. ?? ?? ?? ?? ...read more.

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