CE40-2/A71

11/17/2023
CANCIO, Julia C.
2019135789 BSCE - 3
M1-CPR
MODULE 1 - CLASS PRODUCED REVIEWER

SOLUTION

Terminologies to be defined:

Term Definition

1. Economics Economics delves into the analysis of decision-making processes when

resources are limited and explores the motivations guiding human behavior
within such constraints.

2. Engineering Economy Engineering economy encompasses the methodical assessment of the economic
viability of proposed resolutions to engineering challenges. Viable engineering
solutions must exhibit a favorable ratio of long-term benefits outweighing long-
term costs to be considered economically feasible or affordable. Eugene Grant,
regarded as the father of engineering economy, authored the book "Principles of
Engineering Economy," published by The Ronald Press Company in New York
in 1930.

3. Engineering Economic Engineering economic analysis refers to the utilization of both quantitative and
Analysis qualitative methodologies to scrutinize the economic distinctions among various
engineering design options, aiding in the selection of the most favorable design.
Engineering economic analysis came about fairly recently. During the latter part
of the 19th century, Arthur M. Wellington, a civil engineer, emerged as a
trailblazer in the domain, focusing on the significance of economic analysis
within engineering projects. His primary focus was on railroad construction, and
subsequently, he made further contributions that highlighted methodologies
reliant on financial and actuarial mathematics.

4. Consumer Consumer goods encompass products directly purchased by customers,

Goods/Services representing tangible items visible on store shelves at the conclusion of the
 production cycle. They signify the culmination of extensive manufacturing and
research efforts, tailored to fulfill the convenience and market demands of
customers. Conversely, services, though intangible, also fall under the category
of consumer goods. Unlike physical products, services do not yield a tangible
object but provide a specific service or expertise. These could involve
engagements with professionals such as licensed mechanics for car repairs,
hairstylists for haircuts, or hiring a landscaper for outdoor aesthetics. Services
also extend to skilled individuals offering assistance in various domains.

5. Producer Goods/Services Producer goods refer to items utilized by enterprises either for the manufacturing
of other goods or for facilitating service provision. These goods play a vital role
in the operational process of businesses. Machinery and tools stand as exemplary
instances of producer goods, essential in various industries to produce goods or
in aiding the delivery of services. For instance, machinery used in manufacturing
plants or specialized tools employed by service providers are quintessential
examples within this category.

6. Necessities Within economics, a necessity good, considered a subtype of normal goods,

encompasses products or services that consumers continue to purchase
irrespective of alterations in their income levels. Consequently, these goods
display lower sensitivity to fluctuations in income, as their demand remains
relatively consistent regardless of changes in financial circumstances.

7. Luxuries Luxury items denote goods or services that experience a greater surge in
consumption compared to the proportionate rise in income. This suggests that as
income increases, the demand for these particular goods or services increases at
a relatively faster rate. Such products are often associated with high-end or
premium categories, including lavish items like designer clothing, luxury cars,
upscale vacations, and high-end electronics.

8. Demand Demand in economics pertains to a consumer's inclination to buy goods and

services, linked with their readiness to pay a particular price for these items.
Generally, when the price of a product or service rises, the quantity demanded
typically decreases.

9. Supply The economic principle defining the overall quantity of a particular product or
service accessible to consumers is termed 'supply.' It maintains a close and
interdependent association with demand. When the supply surpasses the demand
for a given product or service, prices tend to decrease.

10. Elastic Demand Demand elasticity, known as the measure of how consumer demand reacts to
alterations in price or income, typically focuses on price changes, hence termed
as the price elasticity of demand. An elastic demand refers to a product or
service wherein a change in price notably influences demand. Moreover, the
availability of substitutes plays a crucial role in determining the elasticity of a
 good – the greater the availability of substitutes, the higher the elasticity of the
good.

11. Inelastic Demand When demand for a product or service remains constant despite fluctuations in
its price, it demonstrates demand inelasticity. Inelastic goods typically represent
essential items lacking viable substitutes. Common goods exhibiting inelastic
demand include utilities, prescription drugs, and tobacco products.

12. Unitary Elastic In unit elastic situations, a percentage change in one variable corresponds
precisely to the same percentage change in another variable, highlighting a
balanced and proportionate relationship between the two factors—a key aspect
within the broader field of economics.

13. Perfect Competition In economic theory, perfect competition depicts a scenario where firms sell
indistinguishable goods, where market share doesn't affect pricing, and
businesses can freely enter or exit without obstacles. Buyers possess complete
information, and companies lack the ability to control prices, making the market
entirely subject to market forces. This stands in stark contrast to imperfect
competition, which better mirrors the existing market structures prevalent in
reality.

14. Monopoly A monopoly represents a market configuration wherein a single seller or

producer dominates. This control restricts the presence of alternatives for its
product and establishes impediments that deter competitors from entering the
market. Monopolistic conditions can result in unjust consumer practices.
Notably, certain monopolies, particularly those within the utility sector, are
subject to government regulations.

15. Oligopoly An oligopoly represents a specific market arrangement within an economy

wherein a small group of firms holds sway. In this setup, none of these firms
possess the capacity to prevent others from exerting substantial influence over
the market. While there isn't a specific maximum threshold for the number of
firms within an oligopoly, it must be limited enough that the decisions and
behaviors of one firm considerably impact the others.

16. Law of Supply and

The law of supply and demand represents the principle where prices are shaped
Demand
by the interplay between supply and demand. When the supply of a product or
service surpasses its demand, prices tend to decrease. Conversely, if the demand
surpasses the available supply, prices tend to increase. This fundamental law
stems from two other economic principles: the law of supply and the law of
demand. The law of supply affirms that as prices increase, businesses perceive
greater profit opportunities and thus amplify the supply of goods and services.
On the other hand, the law of demand dictates that as prices escalate, consumer
purchases decrease.
17. Law of Diminishing The principle of diminishing marginal returns in economics posits that beyond a
Returns certain optimal level of capacity, incorporating an extra factor of production will
yield diminished increments in output. In simpler terms, while initially,
increasing input leads to a rise in output, eventually, the additional output gained
from each extra unit of input diminishes, signaling decreasing marginal returns.

18. Valuation Economic valuation seeks to offer a factual assessment of the value attributed to
services, amenities, or the advantages and drawbacks associated with proposed
actions, such as projects or policies, that could potentially alter the provision of
services and amenities.
Enumerate and give a brief description for each:

1. Functions and uses of Engineering Economy

Engineering economics involves employing economic methodologies to appraise various design and engineering
choices. Its purpose is to evaluate the suitability of a particular project, ascertain its worth, and substantiate its
viability based on engineering principles.

2. Engineering Economy Techniques

Economic analysis involves evaluating all aspects impacting the project's economy, quantifying these factors into
specific monetary values. It encompasses assessing the initial project cost, operational expenses, required working
capital, anticipated project-generated income, return on investment, and other related cost components.

Financial analysis focuses on determining suitable methods and sources for financing the project. This could
involve utilizing equity capital, borrowed funds, or a combination of both. The objective is to identify the optimal
financing approach aligned with the findings of the economic analysis.

Intangible analysis delves into project aspects that cannot be precisely measured in monetary terms. It considers
uncertainties, risks, and non-monetary factors. This broader scope includes evaluating judgment-based factors,
reliant on the insights and assessments of project stakeholders and experts involved in the endeavor.

3. Engineering Economic Analysis Procedures’

The systematic economic analysis technique (SEAT) comprising seven steps is employed for engineering
economic analysis and can be outlined as follows:
a. Identify the investment alternatives: the recognition of investment options, identifying various potential choices
for investment.
b. Define the planning horizon: determining the planning duration, defining the specific timeframe over which the
analysis will be conducted.
c. Specify the minimum attractive rate of return (MARR), also known as the discount rate: establishing the
minimum acceptable rate for investment return.
d. Estimate the cash flows: evaluation of cash flows. estimating and analyzing the incoming and outgoing cash
flows associated with each investment alternative.
e. Compare the alternatives: assessing and contrasting the various investment options to identify their relative
strengths and weaknesses.
f. Perform supplementary analyses: performing additional assessments or analyses to further understand the
implications or nuances of the investment options.
g. Select the preferred investment: making a decision based on the analyses performed to choose the most
favorable investment alternative.

4. Intangible Values
 Despite efforts to assign monetary value to all advantages, certain intangible factors or qualities may not be easily
quantified in terms of dollars. For instance, aspects like enhanced safety, decreased cycle times, better quality,
heightened flexibility, improved customer service, boosted employee morale, pioneering the use of specific
technology within an industry, and increased market exposure may not be straightforward to measure
economically. While some of these factors can be assessed more tangibly in economic terms, others pose
challenges in terms of precise monetary valuation.

5. Costs

Economics encompasses various definitions of costs. For instance, when someone buys a candy bar for a dollar at
a store, that expenditure represents the explicit cost, also known as the accounting cost. However, because the
dollar was spent on the candy bar, it cannot be utilized for purchasing a drink, representing the opportunity cost.
Opportunity cost refers to the foregone alternative that could have been obtained instead. It extends beyond mere
numerical value, encompassing aspects like time, effort, and other variables. For instance, if an individual spends
an hour playing a video game, the opportunity cost is an hour that could have been spent reading a book or
engaging in any other activity during that time frame.

6. Overlapping Costs

In engineering economics, overlapping costs refer to the expenses associated with concurrent activities in
construction projects, allowing project managers to expedite project completion ahead of schedule. Time-cost
benefit analysis serves as a tool for project managers to hasten the project's pace before making a decision. This
approach aims to offset the expenses incurred by expediting activities with the benefits gained from finishing the
project earlier than the specified deadline. The various types of overlapping costs encompass expenses linked to
predecessor and successor activities, implementation of new plans, and safety costs attributed to the acceleration
process.

7. Payments

In the context of engineering economics, "payments" denote the monetary transactions connected to projects,
investments, or financial choices. These payments encompass the outgoing or incoming cash flows, involving initial
investments, operational costs, generated revenues, and other financial dealings associated with the particular project
or investment under scrutiny.
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