MODULE III BUILDING ECONOMICS IN ARCHITECTURE

INTRODUCTIO TO ECONMONMICS , ARCHITECTURE , BUILDING ECONOMICS , B.ARCH SYLLABUS

1. SEMESTER – 7
BUILDING ECONOMIC AND
SOCIOLOGY
MODULE -03
INTRODUCTION TO ECONOMICS

2. MODULE 3

•Introduction to economics: Definition of economics
•Definitions of terms: Goods; Utility, Value, Price and Wealth, micro and macroeconomics
•Economics and the market: Consumption, wants and needs and their characteristics.
•Concepts of economics: Supply and demand Opportunity cost; Laws of supply and demand.

3. INTRODUCTION

Economics may be defined as the study of how people, firms, society choose to employ scarce productive
resources, that have alternative uses, to satisfy wants which are unlimited and of varying degrees of
importance.
•Economics is a social science.
•It is called “social” because it studies mankind of society.
•It deals with aspects of human behavior.
•It is called science since it studies social problems from a scientific point of view.
•The development of economics as a growing science can be traced back in the writings of Greek
philosophers like Plato and Aristotle.

•Economics was treated as a branch of politics during early days of its development because ancient Greeks
applied this term to management of city-state, which they called “Polis‟.

Actually economics broadened into a full fledged social science in the later half of the 18th century.
Derived from the greek word ‘oikonomia’- means household management
Adam smith- father of economics
‘Wealth of nations’- 1776

4. SPECIALISATIONS

Public Finance,
Welfare Economics,
Development Economics,
 Agricultural Economics,
Industrial Economics,
International Trade and
Commerce,
 Urban Economics Rural
Economics,
 Econometrics.

5. ECONOMIC ANALYSIS
A systematic approach to determining the optimum use of scarce resources, involving comparison of two or
more alternatives in achieving a specific objective under the given assumptions and constraints.
As in other science disciplines, in economics also the relevant facts are systematically collected, classified,
analyzed, and inferences are drawn.
OBJECTIVE OF ECONOMIC ANALYSIS
To help improved decision making with regard to employment of scarce productive resources for meeting
various needs.

GENERAL FEATURES OF ECONOMIC ANALYSIS

1.The major planks of economic analyses- Production, distribution, and consumption.

2.Given that there is wide gap between resources available and wants to be met, the analyses centers
around finding answers to the questions what are to be produced, to whom those products are to be
reached and what purposes they are to be used.

6. “Economics is the science which studies human behaviour as a relationship between ends and scarce means
which have alternative uses”.
THREE POSTULATES:
1. Human wants are unlimited
2. Resources are limited
3. Resources have alternative uses

DEFINITION
SCARCITY: unlimited wants and needs but limited resources
Because ALL resources, goods, and services are limited – WE
MUST MAKE CHOICES.

7. HOW PEOPLE/SOCIETY/ECONOMY MAKE CHOICES
When there are unlimited wants and desires But, limited resources.
Economics is a discipline which studies how scarce economic resources are used to maximize development for a
society.
•In economics, goods are items that
satisfy human wants

and
provide utility , for example, to
a consumer making a purchase of a
satisfying product.
•A common distinction is made
between goods which are
transferable, and services, which
are not transferable.
GOODS

8. •Goods are tangible in nature i.e. they can be seen and
touched.
•There is a time gap between production and consumption of
goods as they are
•produced first and consumed later.
•They can be stored and utilized when required.
•They can be transferred from one place to another.

(Let us take example of any one good, say chair. You
can see a chair and can also touch it).
The carpenter first makes it in his workshop. You use it
after purchasing it from the market. So there is a time
gap between production of chair and its consumption. If
suppose you do not require that chair immediately you
can keep it in your store and can use it when you
require it. You can even give it or sell it to another
person
•But goods alone are not sufficient to fulfill our wants.
We need the services of different people for
different jobs.

9. •Services are non-tangible in nature i.e. they can neither be seen
nor be touched.
•There is no time gap between the production and consumption of
services.
•That is why they are produced and consumed simultaneously.
•Services cannot be stored.
•Transfer of service is not possible

10. The transformation of inputs into outputs
PRODUCTION

11. LAND – natural resources
LABOR – physical and intellectual
CAPITAL - tools, machinery, factories
ENTREPRENEURSHIP – investment
FOUR FACTORS OF PRODUCTION (INPUTS)

12. The utility definition in economics is derived from the concept of usefulness. An economic good yields utility to the
extent to which it's useful for satisfying a consumer’s want or need. Various schools of thought differ as to how to
model economic utility and measure the usefulness of a good or service.
UTILITY
What does utility mean in economics ?
•Utility is a term in economics that refers to the total satisfaction received from consuming a good or service.
However, some economists believe that they can indirectly estimate what is the utility for an economic good
or service by employing various models.
•Utility is an economic theory that measures the value, happiness, or satisfaction that someone gets from
consuming a product or service. People tend to purchase things because they want or need those things.
Utility measures how much value those purchases provide.
•Utility is a significant concept in economics because it helps explain many aspects of supply, demand, and
pricing.
•Items that provide more value tend to have a larger market because they offer more satisfaction to
consumers. Higher levels of demand typically lead, in turn, to higher prices.
•Understanding the pleasure that different products provide can help economists understand why various
goods command different prices.

13. •Form utility is the value that an item has based on the
form that it takes. Individual car parts have value, but
when someone assembles them into a functional vehicle,
the utility the car offers is higher than the utility offered
by each of its parts alone.
•Time utility is the satisfaction that a product offers to a
consumer based on when they receive the product. A
hungry consumer receives more pleasure from food than
someone who just ate. If a consumer never encounters a
product, even if it’s high quality, they never receive its
utility.
•Place utility is the value that a product offers based on
where the product is. If you’re hiking, a hiking backpack
provides significant utility. If you’re trying to bring your
books to school, a hiking backpack works, but isn’t quite
as useful, offering less value. If you’re staying at home
for the next few weeks, the bag provides much less
utility.
•Possession utility describes the utility that something
offers based on who has that item. A DVD in a store has
value, but it doesn’t provide as much value as it would if
it were in a consumer’s DVD player, letting a group of
people watch the movie.

14. VALUE
Value may be defined as the cost proportionate to the function.
Value is also defined as the ratio of utility to the cost
It is expressed mathematically as
Value = Functional or Utility/ Cost
Economic value is the measurement of the benefit derived from a good
or service to an individual or a company. Economic value can also be
the maximum price or amount of money that someone is willing to pay
for a good or service. As a result, economic value can be higher than
market value
The economic value is the amount an individual is willing to pay for a good or service while considering the money
could be spent elsewhere. However, the economic value can change if the price of the good or service changes. If the
price of a product rises significantly, individuals might no longer buy the product leading to a decline in its economic
value. As a result, the producer of the product might lower prices since the lower economic value has to lead to a
decline in sales of the product.
Market value is based on supply and demand and is the price or amount that someone is willing to pay in the
market.

15. •Price, the amount of money that has to be paid to acquire a given product. Insofar as the amount people are
prepared to pay for a product represents its value, price is also a measure of value.
•It follows from the definition just stated that prices perform an economic function of major significance.
•So long as they are not artificially controlled, prices provide an economic mechanism by which goods and services
are distributed among the large number of people desiring them.
•They also act as indicators of the strength of demand for different products and enable producers to respond
accordingly.
• This system is known as the price mechanism and is based on the principle that only by allowing prices to move
freely will the supply of any given commodity match demand.
PRICE AND WEALTH
•If supply is excessive, prices will be low and production will be reduced; this will cause prices to rise until there is a
balance of demand and supply. In the same way, if supply is inadequate, prices will be high, leading to an
increase in production that in turn will lead to a reduction in prices until both supply and demand are
in equilibrium.

16. •Wealth measures the value of all the assets of worth owned by a person, community, company, or country.
Wealth is determined by taking the total market value of all physical and intangible assets owned, then
subtracting all debts. Essentially, wealth is the accumulation of scarce resources.
•Specific people, organizations, and nations are said to be wealthy when they are able to accumulate many
valuable resources or goods. Wealth can be contrasted to income in that wealth is a stock and income is a flow,
and it can be seen in either absolute or relative terms.
•Wealth is an accumulation of valuable economic resources that can be measured in terms of either real goods
or money value.
•Net worth is the most common measure of wealth, determined by taking the total market value of all physical
and intangible assets owned, then subtracting all debts.
•The concept of wealth is usually applied only to scarce economic goods; goods that are abundant and free for
everyone provide no basis for relative comparisons across individuals.
•Unlike income, which is a flow variable, wealth measures the amount of valuable economic goods that have
been accumulated at a given point in time.
•The relative differences in wealth between people are what we usually refer to in order to define who is
wealthy or not.

17. MICROECONOMICS

•Derived from the greek word ‘mikros’ which means ‘small’
•Based on economic behaviour of small economic units
•It is a microscopic study
•Important areas that come under microeconomics-theory of
demand, theory of production, allocation of resources,
market structure
•Microeconomics is the study of individual and business
decisions regarding the allocation of resources and prices of
goods and services.
•The term also considered taxes, regulations, and government
legislation. It doesn’t try to explain which actions should take
place in a market, but rather the effects of changes in certain
conditions. Microeconomics has applications in trade, industrial
organization and market structure, labor economics, public
finance, and welfare economics.

18. •One of the microeconomics’ core principles involves
demand, supply, and equilibrium, as they collectively
influence prices. Another principle involves production
theory, which explores how goods and services are created
or manufactured.
•A third principle involves the costs of production, which
ultimately determine the price of goods and services.
Finally, the principle of labor economics attempts to explain
the relationship between wages, employment, and income.
•On the producer side, industrial organization has grown into
a field within microeconomics that focuses on the detailed
study of the structure of firms and how they operate in
different markets. Labor economics , another field of
microeconomics, studies the interactions of workers and
firms in the labor market.

19. MACROECONOMICS

•Macroeconomics is a branch of economics dealing with
the performance, structure, behaviour, and decision-
making of an economy as a whole, rather than individual
markets. This includes national, regional, and global
economies.
•Macroeconomists study aggregated indicators such as
GDP, unemployment rates, and price index, and the
interrelations among the different sectors of the economy,
to better understand how the whole economy functions.
• Macroeconomists develop models that explain the
relationship between such factors as national income,
output, consumption, unemployment, inflation, savings,
investment, international trade and international finance.
• In contrast, microeconomics is primarily focused on the actions of individual agents, such as firms and consumers, and
how their behaviour determines prices and quantities in specific markets.

20. Basic macroeconomic concepts
•Macroeconomics encompasses a variety of concepts and
variables, but there are three central topics for
macroeconomic research. They are related to the
phenomena of output, unemployment, and inflation.
Output and income
•National output is the lowest amount of everything a
country produces in a given time period. Everything that is
produced and sold generates income.
• Therefore, output and income are usually considered
equivalent and the two terms are often used
interchangeably. Output can be measured as total income,
or, it can be viewed from the production side and
measured as the total value of final goods and services or
the sum of all value added in the economy.
•Macroeconomic output is usually measured by Gross
Domestic Product (GDP) or one of the other national
accounts. Economists interested in long-run increases in
output study economic growth.

22. ECONOMICS AND THE MARKET
•Market, a means by which the exchange of goods and services
takes place as a result of buyers and sellers being in contact
with one another, either directly or through mediating agents
or institutions.
•Markets in the most literal and immediate sense are places in
which things are bought and sold. In the modern industrial
system, however, the market is not a place; it has expanded
to include the whole geographical area in which sellers
compete with each other for customers.
•A market economy is an economic system in which economic decisions
and the pricing of goods and services are guided by the interactions
of a country's individual citizens and businesses. There may be some
government intervention or central planning, but usually this term
refers to an economy that is more market oriented in general.

23. One of the fundamental concepts of marketing is to understand and
address the needs, wants and demands of your target market. In
short, needs are things that satisfy the basic requirement. Wants are
requests directed to specific types of items. Demands are requests for
specific products that the buyer is willing to and able to pay for.
•A want, in economics, is one step up in the order from needs and is
simply something that people desire to have, that they may, or
may not, be able to obtain.
•Again, with those two simple definitions, it doesn't seem like there
should be much to talk about, but there is.
•Economics deals with how we allocate scarce resources, and those scarce resources may be needed to meet
someone people's needs and other people's wants. So, we do need to talk about wants and needs.
•Needs are based on physiological, personal, or socio-economic requirements necessary for you to function and live.
Transportation is a need for the modern, urban person because work, food, and other necessities of daily life are
too far from where he lives.
•Wants, on the other hand, are a means to fulfilling our needs. You may be able to bike to work, use public
transportation, or drive your own vehicle. While any of the choices will work, you want a car to fulfill your need for
transportation.

24. Characteristics of Economic Wants are
•Unlimited
•Not equally important
•Rise again and again
•Can be satisfied by different means
•Co-operate with each other
•Satisfiable

25. CONCEPT OF ECONOMICS
Objectives
The basic objective of managerial economics is to analyze
the economic problems faced by the business. The other
objectives are:
•To integrate economic theory with business practice.
•To apply economic concepts and principles to solve
business problems.
•To allocate the scares resources in the optimal manner.
•To make all-round development of a firm.
•To minimize risk and uncertainty
•To helps in demand and sales forecasting.
•To help in profit maximization.
•To help to achieve the other objectives of the firm like
industry leadership, expansion implementation of
policies.

26. SUPPLY AND DEMAND
ECONOMIC SCALE
•Economies of scale occurs when more units of a good or service
can be produced on a larger scale with fewer input costs.

•External economies of scale can also be realized whereby an
entire industry benefits from a development such as improved
infrastructure.
Demand is a desire backed by ability and
willingness to pay the price prevailing in the
market
•Demand is closely related to supply. While consumers try to pay the
lowest prices they can for goods and services, suppliers try to
maximize profits.
•If suppliers charge too much, the quantity demanded drops and
suppliers do not sell enough product to earn sufficient profits. If
suppliers charge too little, the quantity demanded increases but
lower prices may not cover suppliers’ costs or allow for profits.

27. •Supply and demand form the most fundamental concepts of economics.
•Whether you are an academic, farmer, pharmaceutical manufacturer, or simply a consumer, the basic premise of
supply and demand equilibrium is integrated into your daily actions.
•Only after understanding the basics of these models can the more complicated aspects of economics be mastered.
•Demand refers to consumers' desire to purchase goods and services at given prices.
•Demand can mean either market demand for a specific good or aggregate demand for the total of all goods in
an economy.
•Demand, along with supply, determines the actual prices of goods and the volume of goods that changes hands
in a market.

28. DETERMINANTS OF DEMAND
•Economies of scale occurs when more units of a good or service can be produced on a larger scale with fewer
input costs.

•External economies of scale can also be realized whereby an entire industry benefits from a development such
as improved infrastructure.

•Price of the commodity.
•Price of the related commodities.
•Income of the consumer.
•Advertisement.
•Taste and preference of the consumer.
•Socio-economic factors like age, education, and occupation.

29. LAW OF DEMAND
Law of demand states that other things remaining constant, there is an inverse relationship between
quantity demanded and price of the commodity.
•The law of supply and demand is a theory that explains the
interaction between the sellers of a resource and the buyers
for that resource.
• The theory defines the relationship between the price of a
given good or product and the willingness of people to
either buy or sell it. Generally, as price increases, people
are willing to supply more and demand less and vice versa
when the price falls.
•The theory is based on two separate "laws," the law of
demand and the law of supply. The two laws interact to
determine the actual market price and volume of goods on
the market.

30. •Graphic representation of the demand schedule.
•The inverse relationship is reflected in the negative slope of The demand curve.

31. LAW OF SUPPLY
Supply refers to the amount of a product that firms are able and willing to offer for sale at a prevailing
market price.
•Like the law of demand, the law of supply demonstrates the
quantities sold at a specific price.
•But unlike the law of demand, the supply relationship shows an
upward slope.
• This means that the higher the price, the higher the quantity
supplied.
•From the seller's perspective, each additional unit's opportunity
cost tends to be higher and higher.
• Producers supply more at a higher price because the higher
selling price justifies the higher opportunity cost of each
additional unit sold.

32. •Price of the commodity.
•Price of other commodities.
•Input price.
•The state of technology.
•Power failure.
DETERMINANTS OF SUPPLY
The law of supply states that the quantity supplied varies directly with the price of the commodity.
It is important for both supply and demand to understand that time is always a dimension on these charts. The
quantity demanded or supplied, found along the horizontal axis, is always measured in units of the good over a
given time interval. Longer or shorter time intervals can influence the shapes of both the supply and demand
curves.

33. SUPPLY AND DEMAND CURVES
•Supply and demand factors are unique for a given product or
service. These factors are often summed up in demand and supply
profiles plotted as slopes on a graph. On such a graph, the
vertical axis denotes the price, while the horizontal axis denotes
the quantity demanded or supplied.
•A demand curve slopes downward, from left to right. As prices
increase, consumers demand less of a good or service.
•A supply curve slopes upward. As prices increase, suppliers
provide more of a good or service.
Market Equilibrium
The point where supply and demand curves intersect represents the market clearing or market equilibrium price. An
increase in demand shifts the demand curve to the right. The curves intersect at a higher price and consumers pay more
for the product. Equilibrium prices typically remain in a state of flux for most goods and services because factors
affecting supply and demand are always changing. Free, competitive markets tend to push prices toward market
equilibrium.

34. GNP is the market value of nation’s total production of goods and
services usually for one year. It includes all the economic productions in
the economy during one year. Part of gnp is produced abroad.
GNP= GDP+ net factor income from abroad
GROSS NATIONAL PRODUCT (GNP)
GDP is the money value of all final goods and services produced
within the domestic territory of a nation
GDP= GNP- net factor income from abroad
GROSS DOMESTIC PRODUCT (GDP)
PER CAPITA INCOME (PCI)
The average income of the individuals of a country in a particular year
is called per capita income. Per capita income can be derived by
dividing the national income of a country by the population of the
country in that year.
PCI= National Income/ Total population of Country’s

35. THANK YOU