Task 01 1.1 Explain the following economic principles and asses them in related to srilankan construction industry.

Scarcity and Choice The basic economic problem that arises because people have unlimited wants but resources are limited. Because of scarcity, various economic decisions must be made to allocate resources efficiently. In other way Recourses are not enough to satisfy the human wants completely.

When we talk of scarcity within an economic context, it refers to limited resources, not a lack of riches.. People must make choices between different items because the resources necessary to fulfill their wants are limited. These decisions are made by giving up one want to satisfy another. The human is being created with lots of desires. These desires are unlimited. A person always compare his life with a person who richer than him. Day by day human needs are increasing rapidly. Because of this scarcity problem the word choose is arise. People cant do everything what they want because Recourses are limited. So they have to choose what they capable to do. Economic list outs some factors of production which causes the scarcity Land Land is the naturally occurring materials of the planet that are used for the production of goods and services, including the land itself the minerals and nutrients in the ground; the water, wildlife, and vegetation on the surface and the air above. The natural resources and materials of the land become the goods produced. Without these materials of the land, there is no production. Production is, in fact, the basic process of transforming naturally occurring materials that provide little satisfaction in their natural state, to goods and services that provide more satisfaction. Labor Labor is the mental and physical efforts of humans used for the production of goods and services. Labor includes both the physical effort of factory workers and farmhands often associated with labor, as well as the mental effort of executives and supervisors. Capital Capital is the manufactured, artificial goods used in the production of other goods, including machinery, equipment, tools, buildings, and vehicles. Capital is the produced factor of production. This factor must be produced using other factors of production, which means that society is often faced with the choice between producing consumption goods that satisfy wants and needs and capital goods that are used for future production.

Entrepreneurship Entrepreneurship is the special sort of human effort that takes on the risk of bringing labor, capital, and land together to produce goods. Entrepreneurship is the factor that organizes the other three. Without someone to organize production, the other three factors do not produce.

Srilankan Construction industry shows massive development due to Arrival of tourism and increase of human needs. Huge apartments, luxury hotels and multistory commercial buildings are decorated the skyscrapers of Colombo and major cities of Srilanka. Srilankan construction industry faces scarcity problems in many ways. As a developing country it effect more and more. One of the main problems is scarcity on Technical personals. Srilanka has very talented personals, but because of low salary problem they migrating to overseas. So Srilankan Construction industry faces that loses and also lack of skilled labors. Another problem is on river sand. River sand is a natural recourse and it has an end. Because of huge constructions sand mining is increased. So this has been a big scarcity for Srilankan construction industry. According to some government policies Srilankan Construction industry faces scarcity on materials. Recently Srilankan Construction industry faces a problem with regard to cement price increase. Because of high price richest people can only purchase those stuffs.

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Specialization A method of production where a business or area focuses on the production of a limited scope of products or services in order to gain greater degrees of productive efficiency within the entire system of businesses or areas. Many countries specialize in producing the goods and services that are native to their part of the world. This specialization is the basis of global trade as few countries produce enough goods to be completely self-sufficient. Specialization is related to an economic concept, division of labor, discussed and applied by Adam Smith; the 18th-century Scottish economist .Smith tested the benefits of specialization and a division of labor when describing a pin factory, in which each worker performs a single specialized task. One worker measures wire, another cuts it, one points it others make the head and so on. Through this process, workers produced thousands more pins than if each worker made whole pins independently. For example Srilanka was specialized in tea for last several years. Traditional method of making gives extra taste for Srilankan tea. So world tea market was deepened on Srilankan tea. Single personnel can also specialize in specific areas. An engineer can be specializing in construction work throughout years of experience. When we talk about Srilankan construction industry, some construction companies are specialized in building and civil works. MAGA Construction Company is specialized for building high rise building while SIERRA and SANKEN lanka are specialized in road and civil engineering works. Likewise Construction companies are specialized for some specific works. In middle range construction companys specialized individuals are playing a major role. In these companies professionals are young and inexperienced. I have great experience when I was gone for industrial training. I was appointed as trainee in a mid range construction company in suburb of Colombo. I inspect the major problem is inexperienced technical staffs. In construction there is a firm called specialized subcontractors and suppliers. It mean there are specialized in particular work or service. SAN pilling is specialized for pilling and decking works. And ABANS is specialized in supplying and installing LG air conditioning systems.

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1.2 Explain the opportunity cost and how they are measured The cost of an alternative that must be forgone in order to pursue a certain action, Put another way, the benefits you could have received by taking an alternative action. For example, if an asset such as capital is used for one purpose, the opportunity cost is the value of the next best purpose the asset could have been used for. Opportunity cost analysis is an important part of a companys decisionmaking processes Another example clarify in ease terms, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you cannot spend the money on something else. If your nextbest alternative to seeing the movie is reading the book, then the opportunity cost of seeing the movie is the money spent plus the pleasure you forgo by not reading the book. The production possibilities frontier shows all the different possible attainable combinations of the production of two goods. Any point that is along the PPF is both efficient and feasible. The slope of the PPF at any given point is the opportunity cost of production. More specially, it shows how much of one good we have to give up in exchange for one more units of the other good. Take, for example, the PPF in above table. Here our economy is simplified to two goods cars and vans. For further simplification, we'll assume that the PPF is a straight line. If we dedicate all our time to making car, we can produce 3 cars per hour. This is illustrated by the intercept at 3 on the car axis. On the other hand, if we dedicate all our time to making vans, we can produce 6 vans per hour, illustrated by the intercept at 6 on van axis. To calculate the opportunity costs, we look at how much of each good we have to give up making more of the other. Using the formula in the class notes

Decrease in production of vans 1 Opportunity cost of producing cars = --------------------------------------- ---------- = 2 Increase in production of cars 0.5

Decrease in production of cars Opportunity cost of producing vans = --------------------------------------Increase in production of vans

0.5 --------- = 0.5 1

Below table is finalized with above figures.

Cars

Vans

0 0.5 1 1.5 2 2.5 3

6 5 4 3 2 1 0

Opportunity cost of producing cars 2 2 2 2 2 2

Opportunity cost of producing vans 0.5 0.5 0.5 0.5 0.5 0.5 -

7 6 5 4 3 2 1 0 0 0.5 1 1.5 Cars 2 2.5 3 Y-Values Linear (Y-Values)

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Vans

1.3 Characteristic of main economic system An organized way in which a state or nation allocates its resources and apportions goods and services in the national community. Four very different types of Economic Systems have evolved as different societies have placed different emphasis on different goals and priorities in their efforts. Traditional Economic System Family or Community based Economic System that relies on custom and ritual to make its choices. The work that people do, the goods and services they provide, how they use and exchange resource all are works in traditional patterns. These economic systems are not very dynamic things dont change very much. Standards of living are very low and individuals dont enjoy much financial or occupational mobility. But economic behaviors and relationships are predictable. Srilankan veddah community is a such a example for this, but it seems changing to mixed economic system. Today you can find traditional economic systems at work among Australian aborigines and some isolated tribes in the Amazon. In the past, this could be found everywhere in the world. Market economic System This economic system relays on privet sector and the economic decisions are made by individuals. The unfettered interaction of individuals and companies in the marketplace determines how resources are allocated and goods are distributed. Individuals choose how to invest their personal resources what training to pursue, what jobs to take, what goods or services to produce. And individuals decide what to consume. Within market economy the government is entirely absent from economic affairs. American economic system is such an example for this. Privet sector is handling the economy of America. Command Economic system Government controls the economy. The state decides how to use and distribute resources. The government regulates prices and wages it may even determine what sorts of work individuals do. Communism is a type of command economic system. The classic example of a command economy was the communist Soviet Union. The collapse of the communist bloc in the late 1980s led to the demise of many command economies around the world. Cuba, china and Libya continues to hold on to its planned economy even today. Mixed economic system Mixed economic system combines elements of the market and command economy. Many economic decisions are made in the market by individuals. But the government also plays a role in the allocation and distribution of resources. British ruled countries are example for this, including modern economic countries.

Economic System in Srilanka Ancient medieval Srilankan economic system falls into traditional system. Because those communities are live as tribes. They are not much expose to need of an economic system. They use barter system as their major economy. After improvements of sea transportation Arabian businessmans are enter the island for business. The Arabs are causes for the improvement of Srilankan economic system. Ancient kings are ruling the island with command economic system till western influence spread the economy. They introduce the mixed economic system for there business reasons. They identifies the Srilanka is strategically and most suitable place business. Current government of Srilanka handles the mixed economic system with negative and positive situations. Basically mixed economic system includes privet and government sectors. Main propose of privet sector is to earn money. Government uses this privet sectors to give their service to peoples. Currently Srilanka initiates massive development projects Such as highways, airports, and harbors. Governments main aim is to give service from these developments. Same time building companies are foreign construction firms. Mixed economic system is kind of open economy. This system always welcomes investors and businessmen. Srilanka is one of the countries for foreign investments. There is huge competition among privet companies in Srilanka with some government rules. In Srilankan government recently allowed Etisalat Telecommunication Company to start their business. Already four other telecommunication companies are proving there service to people. Currently there is a massive competition among Etisalat, Dialog and Mobitel. Because of this people receives so many advantages and offers. Srilankan government earns lots of money as tax from these companies. This is the big advantage for government. Recently I have read an article about tax. It noted the Srilankan government takes more than 50% as taxes. Same time mixed economic system gives some disadvantage to Srilanka as well. If these types of companies increase government cannot control them. Some time government can lose taxes. And foreign culture spread to the country, it will cause dangerous effects for Srilankan life styles. Recently sexual abuse and child abuse are increased in the country. And foreign companies open there bars, clubs and prostitution centers. Government cannot control these bad developments, because Srilanka falls into mixed economic system.
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Task 2 2.1 Equilibrium price The equilibrium price is the price where the goods and services supplied by the producer equal the goods and services demanded by the customer. A simple explanation is to understand following factors Individual Demand is how much each consumer is willing to pay in a point and time for a certain quantity of goods and services. Demand refers to market demand, or the aggregation total of all individual demand for goods and services. Individual Supply is how many goods and services each producer is willing to produce for a particular quantity of payment in a point and time. Supply refers to market supply, or the aggregation total of all individual supply for goods and services.

Therefore the Equilibrium Price is where Supply equals Demand. How the equilibrium price is achieved is through the market forces of the economy. First a basic example for understand what equilibrium is. What happens when hot water is mixed with cold water? Heat moves from hot water to cold water till temperatures on both sides become equal. Like matter and energy, wealth also moves from higher concentration to lower concentration till concentration or level on both sides becomes equal. This is called Law of Equilibrium.

Calculation Qd = 300-5p (Demand) Qs = 100+3p (supply) So 300-5p = 100+3p 3-5p = 1+3p 3-1 = 3p+5p 2 =8p 2=

2.2 Factors which influence elasticity of demand and supply Elasticity of supply measures the relationship between change in quantity supplied and a change in price. If supply is elastic, producers can increase output without a rise in cost or a time delay If supply is inelastic, firms find it hard to change production in a given time period Factors that Affect Price Elasticity of Supply

Spare production capacity If there is plenty of spare capacity then a business should be able to increase its output without a rise in costs and therefore supply will be elastic in response to a change in demand. The supply of goods and services is often most elastic in a recession, when there is plenty of spare labor and capital resources available to step up output as the economy recovers.

Stocks of finished products and components If stocks of raw materials and finished products are at a high level then a firm is able to respond to a change in demand quickly by supplying these stocks onto the market - supply will be elastic. Conversely when stocks are low, dwindling supplies force prices higher and unless stocks can be replenished, supply will be inelastic in response to a change in demand.

The ease and cost of factor substitution If both capital and labor resources are occupationally mobile then the elasticity of supply for a product is higher than if capital and labor cannot easily and quickly be switched

Time period involved in the production process Supply is more price elastic the longer the time period that a firm is allowed to adjust its production levels. In some agricultural markets for example, the momentary supply is fixed and is determined mainly by planting decisions made months before, and also climatic conditions, which affect the overall production yield.

Task 3 State the characteristics of perfect competition and monopoly market structure and analyze them in relation to construction industry Perfect competition is a theoretical market structure. It is primarily used as a benchmark against which other market structures are compared. The industry that best reflects perfect competition in real life is the agricultural industry like Asian developing countries. Basic futures of perfect competition market system Many small firms each of who produces an insignificant percentage of total market output and thus exercises no control over the ruling market price Many individual buyers, none of whom has any control over the market price Perfect freedom of entry and exit from the industry, Firms face no sunk costs entry and exit from the market is feasible in the long run. This assumption ensures all firms make normal profits in the long run Perfect knowledge consumers have readily available information about prices and products from competing suppliers and can access this at zero cost in other words; there are few transactions costs involved in searching for the required information about prices No externalities arising from production and/or consumption which lie outside the market
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