Lecture# 01

Introduction

1.

Economics is the study of choices

under conditions of scarcity.
(Introduction to Economics Lieberman, Robert)

2.

Economics is the study of how

societies use scarce resources to produce valuable commodities and distribute them among different people.
(Economics Samuelson, Nordhaus)

3.

Economics is the study of the

society

production, distribution and consumption of wealth in human

(The Economist's Dictionary of Economics)

4.

Scarcity: A situation in which the

amount of something available is insufficient to satisfy the desire for it.

1. 2.

What Commodities are produced

and in what quantities How are goods produced?

Who will do the production? What are the resources? What production techniques will be used? 3. For whom are goods produced?

1. 2. 3. 4. 5. 6. 7.

Develop the Alternatives Focus on the Differences Use a Consistent Viewpoint Use a Common Unit of Measure Consider All Relevant Criteria Make Uncertainty Explicit Revisit Your Decisions

 The

final choice (decision) is among alternatives. The alternatives need to be identified and then defined for subsequent analysis.

Only the differences in expected future outcomes among the alternatives are relevant to their comparison and should be considered in the decision.

The prospective outcomes of the alternatives, economic and other, should be consistently developed from a defined viewpoint (perspective).

Using a common unit of measurement to enumerate as many of the prospective outcomes as possible will make easier the analysis and comparison of alternatives.

Selection of a preferred alternative (decision making) requires the use of a criterion (or several criteria). The decision process should consider the outcomes enumerated in the monetary unit and those expressed in some other unit of measurement or made explicit in a descriptive manner.

Uncertainty is inherent in projecting (or estimating) the future outcomes of the alternatives and should be recognized in their analysis and comparison.

Improved decision making results from an adaptive process; to the extent practicable, the initial projected outcomes of the selected alternative should be subsequently compared with actual results achieved.

An engineering economy study is accomplished using a structured procedure and mathematical modeling techniques. The economic results are then used in a decision situation that involves two or more alternatives and normally includes other engineering knowledge and input.

1. Problem recognition, formulation, and evaluation. 2. Development of the feasible alternatives. 3. Development of the cash flows for each alternative. 4. Selection of a criterion ( or criteria). 5. Analysis and comparison of the alternatives. 6. Selection of the preferred alternative. 7. Performance monitoring and post-evaluation results.

Modern cost accounting may satisfy any or all of the following objectives: 1. To determine the cost of products or services 2. To provide a rational basis for pricing goods or services 3. To provide a means for controlling expenditures 4. To provide information on which operating decisions may be based and the results evaluated

1.

Introduction:
Basic concept and principles of Economics Microeconomic theory The problems of scarcity Concept of Engineering Economy.

2.

Economic Environment:
Consumer and producer goods Goods and services, Demand & supply concept. Equilibrium, elasticity of demand and supply Price-supply-demand relationship. Theory of production, factors of production laws of returns break-even charts and relationships. Perfect competition, monopoly, monopolistic competition and oligopoly, Fundamentals of Marketing.

3.

Elementary Financial Analysis:

Basic accounting equation. Development and interpretation of financial statement-Income statement, Balance sheet and cash flow. Working capital management.

4.

Break Even Analysis:

o o o o o Revenue/cost terminologies Behaviour of costs. Determination of costs/revenues. Numerical and graphical presentations. Break Even Analysis as a management tool for achieving financial/operation efficiency

5.

Selection Between Alternatives:

Time value of money Internal rate of return. Present value, future value and annuities Concepts. Cost-benefit analysis selection amongst materials, techniques, design. Investment philosophy.

6.

Value Analysis/Value Engineering:

Value analysis procedures. Value engineering procedures. Value analysis versus value engineering.

7.

Linear Programming:
Mathematical statement of linear programming problems, graphic solution simplex procedure. Duality problem. Depreciation concept and Taxes Profit and returns on capital, Productivity of capital gain (loss) on the disposal of an asset, Depreciation as a tax shield.

8.

Business Organization:
Type of ownership, single ownership, partnerships, corporation, Type of stocks and joint stock companies banking and specialized credit institutions.

9.

Capital Financing & Allocation:

Capital budgeting, allocation of capital among independent projects, Financing with debt capital, Financing with equity capital trading on equity Financial leveraging.

is finished, but then the benefits continue for a long time. In fact nearly everything that engineers design calls for spending money in the design and building stages, and after completion revenues or benefits occur-usually for years. Thus the economic analysis of costs, benefits, and revenues occurring over time is called

engineering economic analysis. Which engineeringprojects are worthwhile? Has the mining or petroleum engineer

Engineering economic analysis is used to answer many different questions.

shown that the mineral or oil deposit is worth developing?

Which engineering projects should have a higher priority? Has the industrial engineershownwhichfactoryimproveme ntprojectsshouldbe
fundedwiththeavailabledollars?