Engineering Economy

Bert Briones
What is Economics?
Economics
• Is a science which deals with the attainment of
the maximum fulfilment of society’s unlimited
demands for goods and service
• Is a social science which consist of that body
or knowledge dealing with people and their
assets or resources.
Economics
• Economics has also been defined as the sum
total of knowledge which treats of the
creation and utilization of goods and services
for the satisfaction of human wants
What is Engineering Economics?
Engineering Economics
• Is the branch of economics which involves the
application of definite laws of Economics,
theories of investment and business practice
to engineering problems involving cost.
Engineering Economics
• Engineering economy may also be considered
to mean the study of economic problems with
the concept of obtaining the maximum
benefits at the least cost
• It also involves the study of cost features the
other financial data and their applications in
the field as bases for decisions
Reasons why we need to study
Engineering Economics
Reasons why we need to study Engineering
Economics
1. Study of ECON will benefit mankind in general
due to the more efficient use of wealth
2. In the professional life of engineers, it is readily
observed that the most successful ones are
those who gradually divorce themselves from
the technical aspects of engineering and who
devote their time and efforts to financial
problems related to engineering work.
Important Applications of
Engineering Economy
 Important Applications of Engineering
Economy
1. Seeking of new objectives for the application
of engineering
2. Discovery of factors limiting the success of a
venture or enterprise
3. Analysis of possible investment capital
4. Comparison of alternatives as a basis for
decision
5. Determination of bases for decision
 Engineering Economy Technique
1. The economy analysis
2. The financial analysis
3. The intangible analysis
GOODS VS SERVICES
What are Consumer and Producers Goods
and Services?
• Consumer Goods and Services
– Refer to the products or services that are directly
used by people to satisfy their wants.
• Producer goods and services
– Are those that are used to produce the consumer
goods and services
Necessity Vs Luxury
 Necessity Vs Luxury
• Necessity
– Refers to the goods and services that are required
to support human life, needs and activities

• Luxuries
– Are those goods and services that are desired by
human and will be acquired only after all the
necessities have been satisfied
Market Situations
Market
• The term “market” refers to the exchange
mechanism that brings together the sellers
and the buyers of a product, factor of
production or financial security.
• It may also refer to the place or area in which
buyers and sellers exchange a well-defined
commodity
 What is inside the Market?
• Buyers or Consumers
– Basic consuming or demanding unit of a
commodity. It may be an individual purchaser of a
good or service, a household ( a group of
individuals who make joint purchasing decisions)
or a government
 What is inside the Market?
• Seller
– Is defined as any entity which makes product,
good or service available to buyer or consumer in
exchange of monetary consideration.
– The price of any commodity or product will
depend largely on the market situation
 MARKET SITUATIONS
1. Perfect Competition
– Also known as atomistic competition
– refers to the market situation in which any given
product is supplied by a very large number of
vendors and there is no restriction against
additional vendors from entering the market.
Types of Perfect Competition
• A. Many sellers and many buyers:
– Since there is a large number of sellers and a large
number of buyers, each seller and buyer will
become sufficiently small to be unable to
influence the price of the product transacted
Types of Perfect Competition
• B. Homogeneous Products:
– The products offered by the competing sellers are
identical not only in physical attributes but are
also regarded as identical by the buyers who have
no preference between the products of various
producers.
Types of Perfect Competition
• C. Free market-entry and exit
– There are no barriers to entry or impediments to
the exit of the existing sellers.
Types of Perfect Competition
• D. Perfect Information
– All buyers and sellers have complete information
on the prices being asked and offered in all other
parts of the market.
Types of Perfect Competition
• E. Absence of all economic friction:
– There is a total absence of economic friction
including transport cost from one part of the
market to another.
 MARKET SITUATION
• 2. Monopoly
– Is the opposite of perfect competition.
Types of Monopoly
• A. One seller and many buyers
– A market comprised of a single supplier selling a
multitude of small, independently –acting buyers
Types of Monopoly
• B. Lack of substitute products
– There are no close substitutes for the monopolist’s
products
Types of Monopoly
• C. Blockaded entry
– Barriers to entry are so severe that it is impossible
for other sellers to enter the market
 MARKET SITUATION
• 3. Oligopoly
– Exists when there are so few suppliers of a
product or service that the action of one will
inevitably result in a similar action by other
suppliers.
Types of Oligopoly
• A. Few seller and many buyers
– The bulk of market supply is in the hands of a
relatively few sellers who sell to many small
buyers
Types of Oligopoly
• B. Homogeneous of differentiated products
– The products offered by the suppliers may be
identical or more commonly, differentiated from
each other in one or more aspects
– These differences may be of physical nature,
involving functional features, or may be purely “
imaginary” in the sense of the artificial differences
created through advertising and sales promotion.
Types of Oligopoly
• C. Difficult market entry
– High barriers of entry which make it difficult for
new sellers to enter the market