Download ENGINEERING ECONOMY

Technological University of the Philippines- Taguig
Prepared by:
Engr. Rexmelle F. Decapia Jr.
RME/Instructor
Adam Smith (1723-1790)- the study of the nature and causes of
national wealth or simply as the study of wealth.
Alfred Marshall (1842-1924) – the study of man in the ordinary
business life.
Arthur Cecil Pigou (1877-1959)- the study of economic welfare
which can be brought, directly or indirectly, into relationship
with the measuring-rod of money.
Lionel Robbins- the science which studies human behavior as a
relation between ends and scarce means have other alternatives.
Collins Dictionary of Economics- the study of the problems of
using available factors of production as efficiently as possible so
as to attain the maximum fulfillment of society’s unlimited
demands for goods and services.
Economics Professor and Economist- is the wise use of both
money or time or both.
Geoffrey Crowther- is anything that is generally acceptable
as a means of exchange (i.e. as a means of settling debts)
and at the same time acs as a measure and a store of value.
- Is used as medium of exchange on local, national and
international markets has evolved from shells, elephant
tusks, animal skins to metallic money (i.e. coins) to paper
money after the invention of printing press in 18th century
to finally bank money (i.e. currency) with the development
of the banking system.
- With the currency system, a standard called “monetary
unit” forms the basis of a country’s domestic money supply.
a. As a medium of exchange
Goods and services can be changed for money, which can
be exchanged for other goods and services.
b. As a unit of account
The units in which money is measured (pesos, dollars,
pounds, etc.) are used as the units in which prices,
financial assets, debts, accounts, etc. are measured.
c. As a store of value
A portion of a person’s income may be used for
immediate consumption while the rest may be held in
some form in order to yield future consumption. Since
money grows time, the money held over a period of time
as a store of value purchasing power.
Engineering economy - is the analysis and evaluation of
the monetary consequences by using the theories and
principles of economics to engineering applications,
designs and projects.
- Is the study of problems involving economic solutions
with the concept of obtaining the maximum
productivity or reward at least cost or risk. It is the
study of the desirability of making an investment.
Good or Commodity is defined as any tangible economic product
(soap, car, shirts, tools, machines, etc.) that contributes directly
or indirectly to the satisfaction of human wants.
Service is defined as any tangible economic activity (hairdressing,
insurance, banking, catering, etc.) that contribute directly or
indirectly to the satisfaction of human wants.
Consumer goods and services are those products or services that
are directly used by people to satisfy their wants.
Example:houses, cars, clothes, appliances, food, books, movies,
medical and dental services, etc.
Producer goods and services also satisfy human wants but
indirectly in as much as they are used to produce the consumer
goods and services.
Example: factory buildings, machine tools, airplanes, ships, buses,
etc.
Necessities refer to the goods and services that are required to
support human life, needs and activities.
Necessity product or staple product is defined as any product that
has an income and elasticity of demand less than one. This means
that as income rises, proportionately less income is spent on such
products.
Ex: includes basic foodstuffs like bread and rice, clothing, etc.
Luxuries are those goods and services that are desired by human
and will be acquired only after all the necessities have been
satisfied.
Luxury product is defined as any product that has an incomeelasticity of demand greater than one. This means that as the
income rises, proportionately more income is spent on such
products.
Ex: includes consumer durables like electric appliances, expensive
cars, holidays and entertainment, etc.
Market refers to the exchange mechanism that brings
together the sellers and buyers of a product, factor of
production or financial security. It may also refer to the
place or area in which buyers and sellers exchange a welldefined commodity.
Buyer or Consumer is defined as the basic consuming or
demanding unit of a commodity. It may be an individual
purchaser of a good or service, a household (a group of
individuals who make joint purchasing decisions), or a
government.
Seller is defined as an entity which makes product, good or
service available to buyer or consumer in exchange of
monetary consideration.
Perfect Competition (atomistic competition) refers to
the market situation in which any given product is
supplied by a very large number of vendors and there is
no restriction against additional vendors from entering
the market.
Characteristics:
a. Many sellers and many buyers
b. Homogenous product
c. Free market-entry and exit
d. Perfect information
e. Absence of all economic friction
Monopoly is the opposite of a perfect competition.
Characteristics:
a. One seller and many buyers
b. Lack of substitute products
c. Bloackaded entry
Perfect Monopoly is a market situation where economies
of scale are so significant that cost are only minimized
when the entire output of an industry is supplied by a
single producer so that supply cost are lower under
monopoly than under perfect computation and
oligopoly.
Oligopoly exists when there are so few suppliers of a
product or service that the action of one will inevitably
result in a similar action by the other suppliers.
Characteristics
a. Few seller and many buyers
b. Homogenous or differentiated product
c. Difficult market entry
Demand is the need, want or desire for a product backed
by the money to purchase it. Is based on the
willingness and ability to pay for a product , not
merely want or need for the product
Price
1
P1
2
P2
D1
D2
Demand
Supply is the amount of a product made available for sale.
Price
2
S2
1
S1
D1
D2
Supply
“Under conditions of perfect competition, the price at
which any given product will be supplied and purchased
is the price that will result in the supply and the demand
being equal.”
Supply
Price
Price
Demand
Units
Supply= Demand
When there is additional supply without an additional
demand , a new lower price is established.
Supply
Price
New Price
Old Price
Demand
Units
Supply= Demand
When there is an additional demand without an
additional supply, a new and higher price is established.
Supply
Price
Old
Demand
New
Demand
Old Price
New Price
Units
Supply= Demand
Law of Diminishing returns
“When the use of one of the factors of production is
limited, either in increasing the cost or by absolute
quantity, a point will be reached beyond which an
increase in the variable factors will result in less than
proportionate increase in output.
Output in
kW
Inputs in kW