Civil Engineering Reference
In-Depth Information
performance of construction firms and a greater understanding of the need for a
more holistic approach if the industry is to contribute to an efficient and sustainable
economy in the future. These economic ideas should inform the work of all
professionals concerned with the construction and maintenance of buildings and
infrastructure - and, in particular, the way that they think.
The next section explains some of the key concepts used by economists.
Further clarification is provided in the glossary at the back of the topic, where all
the economic terms highlighted in the text and other concepts and ideas relevant to
construction economics are defined.
INTRODUCING CONSTRUCTION ECONOMICS
Construction economics - like pure economics, its mainstream equivalent - is
concerned with the allocation of scarce resources. This is far more complex than it
at first appears. Many of the world's resources (factors of production such as land,
labour, capital and enterprise) are finite, yet people have infinite wants. We are,
therefore, faced with a two-pronged problem: at any point in time there is a fixed
stock of resources, set 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 of construction, choices about what investments are made,
how these are constructed and on whose behalf. Indeed, at its very simplest level,
economics
is 'the science of choice'.
When a choice is made, therefore, some other thing that is also desired has to be
forgone. In other words, in a world of scarcity, for every want that is satisfied, some
other want, or wants, remain unsatisfied. Choosing one thing inevitably requires
giving up something else. An opportunity has been missed or forgone. To highlight
this dilemma, economists refer to the concept of
opportunity cost
. One definition of
opportunity cost is:
the value of the alternative forgone by choosing a particular activity.
Once you have grasped this basic economic concept, you will begin to understand
how economists think - how they think about children allocating their time between
different games; governments determining what their budgets will be spent on; and
construction firms deciding which projects to proceed with. In short, opportunity
costs enable relative values to be placed on all employed resources.
This way of thinking emphasises that whenever an economic decision is made
there is a
trade-off
between the use of one resource for one or more alternative
uses. From an economic viewpoint the value of a trade-off is the 'real cost' - or
opportunity cost - of the decision. This can be demonstrated by examining the
opportunity cost of reading this topic. Let us assume that you have a maximum of
four hours each week to spend studying just two topics - construction economics
and construction technology. The more you study construction economics, the
higher will be your expected grade; the more you study construction technology,
the higher will be your expected grade in that subject. There is a trade-off, between
spending one more hour reading this topic and spending that hour studying
