MODULE WEEK NO.

President Ramon Magsaysay State University

(Formerly Ramon Magsaysay Technological University)
Iba, Zambales, Philippines
Tel/Fax No.: (047) 811-1683
College of Engineering
COURSE CODE: BES02 – ENGINEERING ECONOMICS
Semester of A.Y. 2020-2021

Introduction
BES02 - ENGINEERING ECONOMICS

Engineering Economy is the analysis and evaluation of the factors that will affect the economic success of
engineering
Intended projectsOutcomes
Learning to the end that a recommendation can be made which will insure the best use of
capital.
A. Solve problems involving interest and the time value of money;
B. Evaluate project alternatives by applying engineering economic principles and methods and select the
most economically efficient one; and
C. Deal with risk and uncertainty in project outcomes by applying the basic economic decision-making
concepts.

Discussion

1. INTRODUCTION

Engineering Economy– uses mathematical formulas to account for the time value of money and to balance current
and future revenues and costs.

It involves formulating, estimating and evaluating the expected economic outcomes of alternatives designed to
accomplish a defined purpose. Mathematical techniques simplify the economic evaluation of alternatives.

Is the analysis and evaluation of factors that will affect the economic success of engineering projects to the end
that a recommendation can be made which will ensure the best use of capital (decision making).

Economics– is the science that deals with the production, allocation and use of goods and services. The two major
subdivisions of economics are:
a. Macroeconomics is the study of the entire system of economics.
b. Microeconomics is the study of how the systems affect one business or parts of the economic system.

DEFINITION OF TERMS

Consumer goods and services are those products or services that are directly used by people to satisfy their
wants.

Producer goods and services are used to produce consumer goods and services or other producer goods.
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Necessities are those 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.

Luxuries are those products or services that are desired by humans and will be purchased if money is available
after the required necessities have been obtained.

Demand is the quantity of a certain commodity that is bought at a certain price at a given place and time.

Elastic demand occurs when a decrease in selling price result in a greater than proportionate increase in sales.
BES02 - ENGINEERING ECONOMICS

Inelastic demand occurs when a decrease in the selling price produces a less than proportionate increase in sales.

Unitary elasticity of demand occurs when the mathematical product of volume and price is constant.

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 the market.

Monopoly is the opposite of perfect competition. 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.

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.

1.1 Why Engineering Economy is Important to Engineers

 Engineers design and create
 Designing involves economic decisions
 Engineers must be able to incorporate economic analysis into their creative efforts
 Often engineers must select and implement from multiple alternatives
 Understanding and applying time value of money, economic equivalence, and cost estimation are vital for
engineers
 A proper economic analysis for selection and execution is a fundamental task of engineering

1.2 Engineering Economics: Description and Role in Decision Making

Decisions are made routinely to choose one alternative over another by individuals in everyday life; by engineers
on the job; by managers who supervise the activities of others. Most decisions involve money, called capital or
capital funds, which is usually limited in amount. The decision of where and how to invest this limited capital is
motivated by a primary goal of adding value as future, anticipated results of the selected alternative are realized.

Engineers play a vital role in capital investment decisions based upon their ability and experience to design,
analyze, and synthesize. The factors upon which a decision is based are commonly a combination of economic and
noneconomic elements. Engineering economy deals with the economic factors.

People make decisions; computers, mathematics, concepts and guidelines assist people in their decision-making
process. Since most decisions affect what will be done, the time frame of engineering economy is primarily the
future. Therefore, the numbers used in engineering economy are best estimates of what is expected to occur.
The estimates and the decision usually involve four essential elements:

 Cash flows
 Times of occurrence of cash flows
 Interest rates for time value of money
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 Measure of economic worth for selecting an alternative

Exercise/Assessment

To be uploaded in a separate file

Resources and Additional Resources

Engineering Economy by Hipolito Sta. Maria

BES02 - ENGINEERING ECONOMICS

Engineering Economy by Blank and Tarquin, 7th Ed.

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