Engineering Economy
- Involves a systematic process of evaluating
the economical merits of the proposed
solution to an engineering problem.
Basic Term and Principle of Economics
- Competition
Perfect Competition Exists when a certain
product offered for sale by many vendors or
suppliers and there is no restriction against
other vendors from entering the market.
- Monopoly
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 marker.
- Oligopoly
Occurs when there are few suppliers and
any action taken by anyone of them will
definitely affect the course of action of the
others.
- Price and Production
The Price of a good or commodity is
defined to be the amount of money or its
equivalent which is given in exchange for it.
Price therefore regulates Production. If
the prices go up, production will increase. If
prices decrease, production will also
decrease or cease altogether.
Local and National Market Principles of Engineering Economy
- Local Market - Develop the alternatives
A limited locality where certain amount - Focus on the differences
such as those which are perishable are sold. - Use a consistent viewpoint
- Use common unit of measure
- Consider all relevant criteria
- National Market - Make uncertainty explicit
Certain goods sold all over the country - Revisit your decisions
- World Market
Goods that are exported to the other
countries.
Consumer and Producer Good and Services
- Products are presented I a form of Goods
and Services.
- Consumer Goods and Services
Are products that are goods and served
directly to the people or consumer, desires
and satisfy their wants.
- Producer Goods and Services
These are products that used and services
that are rendered, to produce consumer
goods and services or other producer goods.
Necessities and Luxuries
Both goods and serves to used by consumers.
- Necessities
Are those good and services used to
offered to consumers in order to support
their products.
 - Interest
The amount of money paid for the use of
borrowed capital or the income produced by
money which has been loaned.
- Simple Interest
If the interest to be paid is directly
proportional to the length of time, the
amount or the principal is borrowed.
- Principal
Is the amount of money borrowed and on
which interest is changed.
- Rate of Interest
Is the amount earned by one unit of
principal during unit of time.
I – Total Interest
P – Amount of Principal
- Cash Flow Diagram
Simple a graphical representation of cash
flow on at time scale.
Receipt( positive cash flow)
Disbursement( negative cash flow)
- Compound Interest
The interest for an interest period is
calculated on the present total amount of
interest accumulated in previous periods.
- Effective rate of interest
Is the actual or exact rate of interest on
the principal during one year.
- Nominal rate of interest
Specifies the rate of interest and a
number of interest period in one year.

i – rate of interest expressed in decimal

n – number of interest periods

F – accumulated amount or future worth

𝐼=𝑃𝑥𝑖𝑥𝑛
- Ordinary simple Interest
Computed on the basis of one banker’s
year which is, 1 = 12months, consisting of
30days.

- Exact simple Interest

Based on the exact number of days in a
year, 365 days for the ordinary year and 366
for a leap year ( leap is divisible by 4)