Engineering Economics

ENGINEERING ECONOMICS
LECTURE 1
ENGINEERING ECONOMY INTRODUCTION + THE ECONOMIC ENVIRONMENT
TECHNOLOGICAL UNIVERSITY OF THE PHILIPPINES -TAGUIG Mr. Jim A. Linda. CoE. Electrical Department, Electrical and Allied
WHAT IS ECONOMICS
 One of the social sciences, which consists of that

body of knowledge dealing with people and their
assets or resources.
Mr. Jim A. Linda. CoE. Electrical Department, Electrical

TECHNOLOGICAL UNIVERSITY OF THE PHILIPPINES -TAGUIG
and Allied
WHAT IS ENGINEERING ECONOMY
 Defined as that branch of Economics, which

involves the applications of definite laws of
economics, theories of investment and
business practices to engineering
problems involving cost.
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ECONOMIC THEORIES AND THEIR APPLICATIONS
 Engineering Economy may also be considered to

mean the study of engineering problems with the
concept of obtaining maximum benefit at the least
cost.
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5 IMPORTANT USES OF ENGINEERING ECONOMY
 - Seeking new objectives for the applications of engineering

 - Discovery of factors limiting the success of a venture or enterprise.
 - Comparison of alternatives as a basis for decision.
 - Analysis of possible investments of capital.
 - Determination of bases for decision.

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2 KINDS OF GOODS
 - Consumer Goods - are products bought for consumption by the

average consumer. Alternatively called final goods, consumer goods are the end
result of production and manufacturing and are what a consumer will see stocked
on the store shelf. Clothing, food, and jewelry are all examples of consumer goods
 - Producer Goods - also called intermediate goods, in
economics, goods manufactured and used in further manufacturing, processing, or
resale. Producer goods either become part of the final product or lose their
distinct identity in the manufacturing stream.

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EXAMPLES OF CONSUMER GOODS
 Clothes
 Shoes
 Soap
 Food
 Tape Recorders
 Houses
 Medical and dental services
 Barber and beauty services

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EXAMPLES OF PRODUCER GOODS
 Electric motors
 Generators
 Tools
 Concrete mixers
 Busses
 Airplanes
 Ships

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NECESSITIES
 Products or services that are required to

support human life and activities, that will
be purchased in somewhat the same quantity
even though the price varies considerably
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LUXURIES
 Products or services that are desired by

humans and will be purchased if money is
available after the required necessities have
been obtained.
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DEMAND
 Quantity of a certain commodity that is bought at

a certain price at a given place and time

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ELASTIC DEMAND
 Occurs when a decrease in selling price will cause

a greater than proportionate increase in the
volume of sales.

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INELASTIC DEMAND
 Exist when there is a lesser change in quantity

demanded in response to change in price

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FACTORS THAT INFLUENCE DEMAND
 Income
 Population
 Taste and preferences
 Price Expectation
 Price of Related Goods
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STATE THE LAW OF DEMAND
 The demand for a commodity varies inversely as

the price of the commodity, though not
proportionally.

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SUPPLY
 Quantity of a certain commodity that is offered

for sale at a certain price at a given place and
time.

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FACTORS THAT INFLUENCE SUPPLY
 Price of Goods
 Cost of Production
 Availability of Resources
 Number of producers and Sellers
 Technological Advancement
 Taxes/Subsidies
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STATE THE LAW OF SUPPLY
 The supply of a commodity varies directly as the

price of the commodity, though not proportionally.

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RELATIONSHIP OF SUPPLY AND DEMANDS
 When free competition exists, the price of a product

will be that value where supply is equal to the demand.

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SHORTAGE

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SURPLUS

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EQUILIBRIUM POINT

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PRICE-
DEMAND
RELATIONSHIP
CURVE

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PRICE-DEMAND
RELATIONSHIP FOR
NECESSITIES &
LUXURIES

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PRICE-SUPPLY
RELATIONSHIP

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PRICE-SUPPLY-
DEMAND
RELATIONSHIP

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PERFECT COMPETITION
 Occurs in a situation where a commodity or

service is supplied by a number of vendors and
there is nothing to prevent additional
vendors entering in themarket.

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MONOPOLY
Opposite of perfect competition.

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A PERFECT MONOPOLY EXISTS WHEN?
 A unique product or service is available from

a single vendor and that vendor can prevent
the entry of all others into the market

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OLIGOPOLY
 Exists when there are so few suppliers of a

product or service that action by one will
almost inevitably result in similar action by
the others.
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STATE THE LAW OF DIMINISHING RETURNS
 “When the use of one of the factors of production

is limited, either in increasing cost or by absolute
quantity, a point will be reached beyond which an
increase in the variable factors will result in a less
than proportionate increase in output.”
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Engineering Economics - Lesson 1

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 One of the social sciences, which consists of that

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

 Defined as that branch of Economics, which

 Engineering Economy may also be considered to

 - Seeking new objectives for the applications of engineering

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

 - Consumer Goods - are products bought for consumption by the

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

 Products or services that are required to

 Products or services that are desired by

 Quantity of a certain commodity that is bought at

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

 Occurs when a decrease in selling price will cause

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

 Exist when there is a lesser change in quantity

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

 The demand for a commodity varies inversely as

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

 Quantity of a certain commodity that is offered

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

 The supply of a commodity varies directly as the

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

 When free competition exists, the price of a product

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

 Occurs in a situation where a commodity or

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

Opposite of perfect competition.

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

 A unique product or service is available from

Mr. Jim A. Linda. CoE. Electrical Department, Electrical

 Exists when there are so few suppliers of a

 “When the use of one of the factors of production

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