DEPARTMENT OF QUANTITY SURVEYING

FACULTY OF ARCHITECHTURE,PLANNING AND SURVEYING

COURSE : PRINCIPLES OF ECONOMICS

COURSE CODE : DQS156

SESSION : MARCH 2023 – AUGUST 2023

SUBMISSION : WEEK 13

(INDIVIDUAL PROJECT)

PREPARED BY: MUHAMMAD IRFAN AIMAN BIN ABDUL WAHAB

GROUP: AP1142T
PREPARED FOR: NUR FATIHA MOHAMED YUSOF
 CONTENT

1.0 INTRODUCTION.........................................................................................................2
1.1 SUPPLY AND DEMAND.................................................................................2
1.2 ELASTICITY....................................................................................................3
1.3 NATIONAL INCOME......................................................................................5

2.0 LITERATURE REVIEW..............................................................................................7

2.1 SUPPLY AND DEMAND.................................................................................7
2.2 ELASTICITY....................................................................................................9
2.3 NATIONAL INCOME......................................................................................10

3.0 CALCULATION...........................................................................................................11
3.1 QUESTION 1....................................................................................................11
3.2 QUESTION 2....................................................................................................13
3.3 QUESTION 3....................................................................................................14

4.0 CONCLUSION.............................................................................................................15

5.0 REFERENCES..............................................................................................................16

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1.0 INTRODUCTION

1.1 SUPPLY AND DEMAND

Supply and demand is a simple concept that describes how much of something people
want to buy (demand) and how much of that thing is available for sale (supply).

Fernando, J. (2023b) suggested the law of supply and demand combines two fundamental
economic principles describing how changes in the price of a resource, commodity, or
product affect its supply and demand.

While the supply and demand definition may sound complex at first, it is a simple model
that visualizes the behaviors of producers and consumers in a given market. This model is
largely based on the three main elements:

1. Supply curve: the function that represents the relationship between the price and
the quantity of products or services that producers are willing to supply at any
given price point.

2. Demand curve: the function that represents the relationship between the price and
the quantity of products or services that consumers are willing to purchase at any
given price point.

3. Equilibrium: the point of intersection between the supply and demand curves,
representing the price-quantity point where the market stabilizes.

The idea known as the law of supply and demand underpins the relationship between
customers and producers. This rule is characterised by the link between a product's or
service's pricing and market actors' desire to offer or consume that product or service
depending on that price.
DEFINITIONS:
The law of demand states that the higher the price of a good the lower the quantity
consumers will wish to buy.
The law of supply states that the higher the price of a good the more producers will want
to supply.

Demand schedule is a table that shows different quantities of a good or product sought
out by consumers at a range of given prices.

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Supply schedule is a table that shows different quantities of a good or product that
producers are willing to supply at a range of given prices.

The Law of Diminishing Marginal Utility states that as consumption of a good or

service increases, the utility derived from every additional unit will decrease.

Equilibrium is the quantity-price point where quantity demanded equals quantity

supplied, and thus produce a stabilized balance between the price and quantity of a
product or service in the market.

Equilibrium occurs when:

1.2 ELASTICITY
Hayes, A. (2022) reported that Elasticity is a measure of a variable's sensitivity to a
change in other variables or a single variable. Most commonly this sensitivity is the
change in quantity demanded relative to changes in other factors, such as price.
In business and economics, price elasticity refers to the degree to which individuals,
consumers, or producers change their demand or the amount supplied in response to
price or income changes. It is predominantly used to assess the change in consumer
demand as a result of a change in a good or service's price.
Key Takeaways:
 Elasticity is an economic measure of how sensitive one economic factor is to
changes in another.
 For example, changes in supply or demand to the change in price, or changes in
demand to changes in income.
 If demand for a good or service is relatively static even when the price changes,
demand is said to be inelastic, and its coefficient of elasticity is less than 1.0.
 Examples of elastic goods include clothing or electronics, while inelastic goods
are items like food and prescription drugs.
 Cross elasticity measures the change in demand for one good given price changes
in a different, related good.
When the value of elasticity is greater than 1.0, it suggests that the demand for the good
or service is more than proportionally affected by the change in its price. A value that is
less than 1.0 suggests that the demand is relatively insensitive to price, or inelastic.
Inelastic means that when the price goes up, consumers’ buying habits stay about the
same, and when the price goes down, consumers’ buying habits also remain unchanged.

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If elasticity = 0, then it is said to be 'perfectly' inelastic, meaning its demand will remain
unchanged at any price. There are probably no real-world examples of perfectly inelastic
goods. If there were, that means producers and suppliers would be able to charge
whatever they felt like and consumers would still need to buy them. The only thing close
to a perfectly inelastic good would be air and water, which no one controls.

Types of Elasticity:
1. Elasticity of Demand

The quantity demanded of a good or service depends on multiple factors, such

as price, income, and preference. Whenever there is a change in these
variables, it causes a change in the quantity demanded of the good or service.
Price elasticity of demand is an economic measure of the sensitivity of
demand relative to a change in price. The measure of the change in the
quantity demanded due to the change in the price of a good or service is
known as price elasticity of demand.
2. Income Elasticity

Income elasticity of demand refers to the sensitivity of the quantity demanded

for a certain good to a change in real income of consumers who buy this good,
keeping all other things constant. The formula for calculating income elasticity
of demand is the percent change in quantity demanded divided by the percent
change in income. With income elasticity of demand, you can tell if a
particular good represents a necessity or a luxury.

3. Cross Elasticity

The cross elasticity of demand is an economic concept that measures the

responsiveness in the quantity demanded of one good when the price for
another good changes. Also called cross-price elasticity of demand, this
measurement is calculated by taking the percentage change in the quantity
demanded of one good and dividing it by the percentage change in the price of
the other good.

4. Price Elasticity of Supply

Price elasticity of supply measures the responsiveness to the supply of a good

or service after a change in its market price. According to basic economic
theory, the supply of a good will increase when its price rises. Conversely, the
supply of a good will decrease when its price decreases.

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1.3 NATIONAL INCOME
Based on Team, I. (2023b), National Income is the total amount of money earned by a
nation's people and businesses. It is used to measure and track a nation's wealth from
year to year. The number includes the nation's gross domestic product (GDP) plus the
income it receives from overseas sources.
There are three methods for calculating the income of any economy:
1. The income approach;

The income approach tries to sum up all the incomes earned in the economy.
The provision of goods and services generates cash flows, termed income.
There must be a corresponding payment for all the output generated in an
economy. Calculation of imports is not necessary in this case as foreign
purchases are automatically accounted for in this approach. The income
approach totals incomes across several categories: employees' wages,
proprietors' income, corporate profits, rent, interest, and taxes on production
and imports.

The income approach formula is as follows:

2. The expenditure approach;

The logic behind the expenditure approach is that someone else's income is
someone else's expenditure. By summing up all the expenses in the economy,
we can arrive at the exact figure, at least in theory, as in the income approach.

Intermediate goods, however, should be excluded from the calculation using

this approach to avoid double counting. The expenditure approach, therefore,
considers all the spending on final goods and services produced in an
economy. Expenditures across four major categories are considered. These
categories are consumer spending, business investment, government spending,
and net exports, which are exports minus imports.

The expenditure approach formula is as follows:

GDP = C + I +G + NX
Where:
C = Consumer Spending
I= Business Investment
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 G= Government Spending
NX= Net Export (Export-Import)

3. The value-added approach.

The value-added approach does the opposite. It adds all the additional values
created at each step of the production process. However, if each value-added
step is calculated correctly, the total sum should equal the product's final
value. This means that, at least in theory, the value-added approach should
arrive at the same figure as the expenditure approach.

The value-added approach formula is as follows:

Gross Domestic Product

In the contemporary world, we most often use Gross Domestic Product (GDP) as a
measurement of a nation’s income.Gross Domestic Product (GDP) is the market value of
all final goods and services produced within a country’s borders in a given period of
time. In a closed economy, GDP measures the total income of every agent and the total
expenditure made by every agent.
In light of this knowledge, we say that the gross domestic product (Y) is the sum of the
total investments (I), total consumption (C), government purchases (G), and net exports
(NX), which is the difference between exports (X) and imports (M). Therefore, we can
denote a nation's income with an equation as follows.

Gross national product

Gross national product (GNP) is a metric to evaluate the total market value of goods and
services made by a country’s citizens regardless of the country’s borders.
GNP can be found with a few additions and subtractions to GDP. For calculating the
GNP, we aggregate GDP with any other output produced by the citizens of the country
outside of the country’s borders, and we subtract all output made by the foreign citizens

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 within a country’s borders. Thus, we can arrive to the GNP equation from the GDP
equation in the following way:

Net national product

Net national product (NNP) is the total amount of output produced by a country’s
citizens minus the cost of depreciation.
We can denote the net national product of a country with the following equation:

2.0 LITERATURE REVIEW (Function, Uses, Advantages & Graph)

2.1 DEMAND AND SUPPLY
Function:
Supply and Demand determine the price of goods and quantities produced and
consumed. Consumers may exhaust the available supply of a good by purchasing a
given good or service at a high volume. This leads to an increase in demand. As
demand increases, the available supply also decreases. (Hall, M. 2021b)
Uses:
Supply and demand have an important relationship because together they determine
the prices and quantities of most goods and services available in each market.
According to the principles of a market economy, the relationship between supply and
demand balances out at a point in the future.
Advantages:
DemandCaster, P. (2019b, May 21) said that..
1. Improved Resource Utilization
By considering both supply and demand, trade-offs are more visible on the front end
of the process. This leads to better decision making due to a broader view of the

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company’s momentum. With an end-to-end focus, purchasing, warehousing, logistics,
finished goods, and distribution may help inform the entire planning effort. As a
result, resources can be allocated strategically rather than “intuitively”.
2. Reduced Inventory Cost
By integrating supply and demand planning, the risk of overstock or shortage can be
reduced. This is not only true of raw materials and assembly components, it can have
a positive impact on finished goods as well. This allows retailers to shift according to
demand changes while mitigating the risk to the manufacturer of being stuck with
unsold goods. Operationally, this level of controlled inventory can help promote Just
in Time (JIT) production that can result in additional cost savings as well.
3. Increased Response to Demand Volatility
By adding the demand signal to the supply planning process, forecasts can be
improved by shortening demand latency. Managers can look at a broader set of
variables including time of year, competitor offerings, and trends in product families
to proactively plan optimized equipment and staff utilization to address the impact of
external events and other changes in demand.

Graph: Based on The Editors of Encyclopaedia Britannica. (2023b, May 15).

nahsbyubwe
Demand Curve = Increase in Demand Supply Curve = Decrease in Supply

Relationship Of Price To Supply And Demand

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2.2 ELASTICITY
Function:
Kenton, W. (2021b) suggested that elasticity indicates how much of a good or
service buyers consume when the price changes. When a product is elastic, a change
in price quickly results in a change in the quantity demanded.
Uses:
Income elasticity of demand helps a business firm to know the income elasticity for
it’s products and to select target markets and make forecasts. It is the fact that the
income of the consumer is not a controllable factor for the business firm, but a firm
can get selective control by selecting a target group of the consumers. From the
business viewpoint, the concept of income elasticity of demand has the following
important uses.
Advantages:
Based on Enotes World. (2021b).
1. Setting An Optimum Price
Companies are better able to find the optimum price for products when the elasticity
of demand is high. The reason is that consumers greatly react to price changes. Their
acceptable price range is much narrower in scope. Therefore, company marketers
can test various pricing scenarios, setting prices low, near the competitive average or
higher. They can then compute which price point elicits the greatest profit margin.
Companies also can use the basic economic formula for price elasticity to derive
their optimal price point. They also may conduct marketing research surveys to
support their calculations, asking customers their preferred price ranges.
2. Lower Taxes
Taxes tend to be lower when the elasticity of demand is higher. The government can
charge higher taxes when demand is inelastic because prices are generally higher.
Inelasticity occurs when consumers are less senitive to price changes. The
government has less leeway to enact tax increases when price elasticity is greater.
This would drastically affect the demand for certain commodities or products and
would result in reduced revenue, according to Economic Concepts, an online
reference site. Companies with lower revenues and profits would simply owe less in
taxes.
3. Increasing Sales
Business owners may be able to increase sales when the elasticity of demand is high
for the types of products or services they sell. The main reason companies can
increase sales is that they have a better handle on pricing structures. They know
which price points generate the greatest amount of revenue. Still, companies must
meet the needs of consumers with quality products and services. It is much more
difficult to set prices when demand is ineastic. Acceptable price ranges may be high,

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but that may not necessarily create more sales. Competition tends to increase more
rapidly in growth industries, which is when demand is more inelastic.
Graph : Referred The Advantages of the Elasticity of Demand. (2021b, November
20).

2.3 National Income

Function:
The main objective of national income is to throw information about aggregate
output and income to serve as a foundation for the government in creating
programmes and initiatives that maximise the national welfare of the people.
Uses:
S, N. (2017b, January 13) said that..
1. Population
A higher national income clearly does not mean a higher standard of living if the
extra income is shared among more people. The standard of living depends on the

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average real income per head or per capital — that is, real national income divided
by the population.
2. Composition of Output
In ancient Egypt productive resources were wasted on building pyramids. Similarly,
a modern society may use a large part of its resources for military purposes that
contribute little to the welfare of the people. Moreover, societies differ in their
needs.
3. Distribution of Income
The wealth of a country may belong to only a small number of very rich people and
so a high national income can conceal widespread poverty. Living standards within a
society depend partly on how wealth and income are shared among the people.
Advantages:
Based on Testbook. (2023b).

1. Standard of living:
The standard of living indicates the nature of livelihood and comforts of individuals.
The national income estimates disclose the changes in the citizens' standard of
living.
2. Economic Trends:
The national income estimates reveal whether a country's economy is moving
forward, declining, or stable. They also enlighten the rate of development of the
economy.
3. The output of various sectors:
The national income estimates are of great use for knowing the level of productivity
in various sectors such as agriculture, industry, transport, business, etc. They also
notify the contribution of each sector to the national dividend. The national income
estimates also know the different changes in the sectors.

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3.0 CALCULATION
3.1 QUESTION NO 1 : ELASTICITY

The following table shows demand and supply schedules for coconut in Perak.

Price Quantity Quantity Supplied

(RM/unit) Demanded (unit)
(units)
1.00 150 600
0.80 250 400
0.70 300 300
0.50 450 200
0.30 500 100

Based on the table above, answer the following questions.

a) On the graph paper provided, plot the demand and supply curve for coconut in Perak.

b) State the equilibrium price and quantity.

Picture is answer for a), b) and d) i)

c) Assuming the legal price for coconut is established at RM0.50. This legal price is
called price floor. State the disequilibrium problem that prevailed in the market.

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 Answer: The disequilibrium problem that prevailed in the market will be shortage
Qd>Qs (excess DD will cause P to rise to Equilibrium Price)

d) Assuming the government decided to change the legal price of coconut from
RM0.70 to RM1.00 per unit.

(i) On the same graph paper, show whether there would be a problem of shortage or
surplus and how much it would be.

Answer: The market will be causing a excess supply surplus since the quantity
supplied is greater than the quantity demanded. Surplus = 450 Units

(ii) Name the price control imposed by the government.

Answer: Price Ceiling

3.2 QUESTION NO 2 : SUPPLY & DEMAND

a) Based on the table given, calculate the coefficient of elasticity of demand for these goods.

Good % Price % Quantity Degrees of

Increase Demanded Falls Elasticity
A 20 10 Inelastic
B 40 50 Elastic
C 30 0 Perfectly Inelastic
D 20 60 Elastic

Answer:
A= 10/20 B= 50/40 C= 0/30 D= 60/20
= 0.5 = 1.25 =0 =3

The table below shows the relationship between the price of good X and the quantity
demanded for good Y and Z

Quantity
Price of Good X Quantity
Demanded Good
(RM/unit) Demanded Good
Z (Units)
Y (Units)
11.00 50 10
10.00 46 18
9.00 40 22
8.00 37 26

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 b) Calculate the cross elasticity of demand for good Y and Z when the price of good X
rises from RM9.00 a unit to RM10.00 a unit.

Answer:

c) State the relationship of the respective goods.

i. X and Y = Substitute Good
ii. X and Z = Complementary Good

3.3 QUESTION NO 3 : NATIONAL INCOME

The table shows national income data for a country with a population of 10 million people.

ITEMS RM million

Private domestic investment 23,000

Transfer payment 10,000
Government expenditure 35,000
Public consumption 15,000
Exports 17,000
Indirect tax 12,000
Private consumption 38,000
Imports 19,000
Change in stock -10,000
Subsidies 8,000
Depreciation 6,000
Corporate profits 24,000
Net income from abroad 20,000

Calculate:

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 a) Gross domestic product at market price.
=RM23000+RM35000+RM15000+RM38000-(RM17000-RM19000)-RM10000
=RM99000 Millions

b) Gross national product at market price.

=RM99000+RM20000
=RM119000 Millions

d) National income.
=RM119000-RM12000-RM6000+RM8000
=RM109000 Millions

d) National income per capita.

=RM109000/10
=RM10900 Millions

e) List two (2) uses of calculating national income.

- To measure standard of living of people
- To compare economic performance

4.0 CONCLUSION
Subsequently, the balance between demand and supply is critical in defining market
dynamics. Businesses can make educated decisions about optimising production levels and
pricing strategies by understanding the elements that drive customer demand and the
dynamics impacting the availability of goods and services. Furthermore, governments may
use this information to create effective interventions, such as setting up benefits or rules, to
stabilise markets and encourage economic growth.
Elasticity, on the other hand, is an important indicator for determining how responsive
demand or supply is to changes in price or income. Economists and companies may predict
and measure the impact of price changes on customer behaviour and market equilibrium by
estimating the degree of elasticity. This information allows market participants to adapt the
way they operate accordingly, whether it's revising pricing methods to maximise income or
discovering possible replacements or complements to satisfy changing customer preferences.
Finally, national income is critical in assessing a country's economic performance.
Policymakers and economists obtain insights into the general health and growth trajectory of
an economy by analysing aggregate income received by people, families, and businesses
within a country. This data enables the creation of appropriate financial and monetary
policies, as well as the assessment of wealth and income distribution within society.
Understanding national income assists in identifying areas of development potential,
designing social welfare programmes, and measuring the efficacy of economic policies aimed
at increasing prosperity and raising living standards.

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5.0 REFERENCES
1. Hall, M. (2021). Is Demand or Supply More Important to the Economy? Investopedia.
https://www.investopedia.com/ask/answers/040815/demand-or-supply-more-important-
economy.asp#:~:text=Supply%20and%20Demand%20Determine%20the,the%20available
%20supply%20also%20decreases
2. DemandCaster, P. (2019, May 21). Seven Advantages of Integrated Demand and Supply
Planning. Plex, by Rockwell Automation. https://www.plex.com/blog/seven-advantages-
integrated-demand-and-supply-planning
3. The Editors of Encyclopaedia Britannica. (2023, May 15). Supply and demand | Definition,
Example, & Graph. Encyclopedia Britannica.
https://www.britannica.com/money/topic/supply-and-demand
4. Kenton, W. (2021). Elasticity: What It Means in Economics, Formula, and Examples.
Investopedia. https://www.investopedia.com/terms/e/elastic.asp#:~:text=Elasticity%20is
%20an%20important%20economic%20measure%2C%20particularly%20for%20the
%20sellers,change%20in%20the%20quantity%20demanded
5. Enotes World. (2021). Uses of Elasticity of Demand. eNotes World.
https://enotesworld.com/uses-of-elasticity-of-demand/
6. The Advantages of the Elasticity of Demand. (2021, November 20). Bizfluent.
https://bizfluent.com/info-12132333-advantages-elasticity-demand.html
7. Vedantu. (n.d.). National Income. VEDANTU.
https://www.vedantu.com/commerce/national-income
8. S, N. (2017, January 13). Top 5 Uses of National Income Data | Economics. Economics
Discussion. https://www.economicsdiscussion.net/national-income/top-5-uses-of-national-
income-data-economics/25916
9. Testbook. (2023). Measurement of National Income - Types, Methods and Advantages.
testbook.com. https://testbook.com/ias-preparation/measurement-of-national-
income#:~:text=Advantages%20of%20Measuring%20National%20Income&text=They
%20also%20enlighten%20the%20rate,%2C%20transport%2C%20business%2C%20etc
10. Hayes, A. (2022). What Is Elasticity in Finance; How Does it Work (with Example)?
Investopedia. https://www.investopedia.com/terms/e/elasticity.asp
11. Fernando, J. (2023b). Law of Supply and Demand in Economics: How It Works.
Investopedia. https://www.investopedia.com/terms/l/law-of-supply-demand.asp
12. Team, I. (2023b). Gross National Income (GNI) Definition, With Real-World Example.
Investopedia. https://www.investopedia.com/terms/g/gross-national-income-gni.asp

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