Engineering Economics (ES-4)

Lecture 1.2
TOPIC:
• Engineering Economics and the Design Process
• The General Economic Environment
Engineering Economics and the Design
Process
The General Economic Environment
• Engineering Economy is the analysis and evaluation
of the 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.
Consumer and Producer Goods & Services
• Consumer goods and services are those products
or services that are directly used by people to satisfy
their wants

• Producer goods or services are used to produce

consumer goods and services or other producer
goods.
 Necessities and Luxuries
• 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
• 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.
• Inelastic Demand occurs when a decrease in selling
price result a less than proportionate increase in sales.
• Unitary Elasticity of Demand occurs when the
mathematical product of volume and price is constant.
Demand
 Competition, Monopoly, Oligopoly
• 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.
 Competition, Monopoly, Oligopoly
• 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.
 Competition, Monopoly, Oligopoly
• Oligopoly exists when there are so few suppliers
of a product or service that action by one will
almost inevitably result in a similar action by
others.
 Law of Supply and Demand
• Supply is the quantity of a certain commodity that
is offered for sale at a certain price at a given place
and time.
 Law of Supply and Demand
“Under conditions of perfect competition the
price at which a given price at which a given
product will be supplied and purchased is the
price that will result in the supply and the
demand being equal.”
 Law of Supply and Demand
Explains the interaction between the supply and
the demand for a particular product.

It defines the effect the availability of a particular

product and the desire for that product has on
price.
 Law of Supply and Demand
Effect on Price:

Generally, a low supply and a high demand…

Increases price.

Whereas, the greater the supply and the lower the

demand…
The price tends to fall.
Law of Supply and Demand
Activity 1.2 (Group Quiz: 5 Students per Group)
1. PROBLEM IDENTIFICATION and ALTERNATIVES
The management team of a small furniture-manufacturing company is under pressure to
increase profitability to get a much-needed loan from the bank to purchase a more modern
pattern-cutting machine. One proposed solution is to sell waste wood chips and shavings to a
local charcoal manufacturer instead of using them to fuel space heaters for the company’s
office and factory areas.
a. Define the company’s problem
b. From the above statement, give the alternatives.

2. Give at least 3 examples of each: 3. Determine which curve (A or B) define Elastic

a. Consumer Goods / Service Demand or Inelastic Demand. Explain.
b. Producer Goods / Service
c. Necessities
d. Luxuries Price
A
B
Quantity