Economics & Engineering

Economics
Introduction

Lecturer: Alfi Syahrin Syah Putri, S.T,

M.T.
Industrial Engineering
2024
 Week Topic
1 Basic Economic Concepts
2 Microeconomics: supply, demand, and product market
3 Production Theory
Cost Theory
4 Factor Markets & Income Distribution
The Role of Government in the Economy & Business Systems
5 Key Macroeconomic Parameters
6 Economic Growth & Macroeconomic Policy
Syllabus Course Overview; Introduction to Engineering Economics; Problems
in Engineering Economics; The Decision Making Process;
7 Engineering Decision Making
8 Mid Exam
Equivalence and Compound Interest: Time Value of Money,
Equivalence, Compound Interest, Single Payment, Uniform Series
9 Formula, Relationships between Compound Interest Factors
Equivalence and Compound Interest: Arithmetic Gradient,
Geometry Gradient, Nominal and Effective Interest, continouos
10 compounding
Choosing Alternatives; Present Worth Analysis: Economic Criteria,
Applying Present Worth Technique, Assumptions in Solving
11 Economic Analysis
Annual Worth Analysis & Future Worth Analysis: Annual Cash Flow
12 Calculation, Annual Cash Flow Analysis, Analysis Period
Rate of Return Analysis: Rate of Return, Calculating ROR, Rate of
13 Return Analysis 02
14 Choosing best alternative
 Rules
1.Cheating → Failure
2.Open Camera
3.Final Test Requirements: Maximum 3 Absences
4.Actively Asking Questions
5.Join Meet Using Campus Email

03
 Evaluation
1.Mid Test  30%
2.Final Test  40%
3.Assignment/Task  20%
4.Quiz  10%

04
 Reference
1.Samuelson, Paul E. dan William D. Nordhaus.
2005. Economics. Boston: McGraw- Hill.
2. Newnan, Donald G. Eschenbach, Ted G.
Lavelle, Jerome P. 2014. Engineering
Economic Analysis. New York: Oxford
University Press.

05
Economics & Engineering
Economics

Economics
 What is the relevance of
Introduction to Economics for
IE discipline?
Industrial Engineering : AIIE (1922 )🡺 IIE (1981)
Industrial Engineering is concerned with the :

Of integrated systems
• Design
of: • Energy
• Improvemen
• People • Information
t
• Equipment
• Installation
• Materials
It draws upon specialized knowledge and skill in the :
• mathematical * physical * social sciences
together with the principles and methods of engineering analysis
and design
to specify - predict and evaluate the result to be obtained from
such system ECONO MIC S 07
 • Scarcity
How to meet the unlimited and diverse
needs of humans with the limited available
resources.
Economics • Efficiency
How society uses limited (scarce)
resources to produce useful goods and
distribute them to various members of
society.
The above issues will always arise at:
•The individual level
•The company/organization level
•The sectoral/economic level
•The local, regional, national, and global levels

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 Economics is the study of how societies
Economics use scarce resources to produce valuable
goods and services and distribute them
among different individuals.

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 Raising awareness of the existence of:
Scarcity • Economic Goods
• Non-Economic Goods such as: Sand in
and the desert, Seawater at the beach, Etc.

Efficiency

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 Three problems of
Economic Organization
Cheap/Expensive?
1. What commodities are produced and in
what Produce now/
later?
quantities?
2. How are goods produced? How many?
3. For whom are goods produced?
Technology to
produce?
WHAT– HOW – FOR WHOM
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 How the Economics
Works
1. Why do farmers choose to grow rice? Why do they send it to
Jakarta?
These decisions are made naturally, driven by economic factors rather
than external influences.
2. What makes the system above run well and efficiently?
opportunity to earn profit

ECONO MIC S 02
 Microeconomics
1776 : “The Wealth of Nation “ – Adam Smith
(It is not from the benevolence of the butcher, the brewer or the
baker that we expect our dinner, but from their regard to their
own interest - Adam Smith, The Wealth of Nation, 1776)

Invisible Hand Concepts:

• How Price Equilibrium is Formed
• How Price Equilibrium Affects Market Mechanism (The
Invisible Hand)
• Characteristics of Efficient Markets.
Microeconomics:
Basic Theory:
Supply and Studying the behavior of individual entities
Demand
ECONO MIC S
such as markets, firms, households, and etc. 02
 Macroeconomics

1930 - The Great Depression in United States and England.

one-quarter of the American labor force unemployed

There are aspects that are not fully

addressed by 'Invisible Hand' theory.
1935 - General Theory of Employment, Interest & Money,
John Maynard Keynes: Microeconomics:
• What causes unemployment and economic downturns?
study the overall
• How are investment and consumption levels determined?
performance of the
• How should central banks manage money supply and interest
economy
rates?
• Why can country A progress rapidly while country B stagnates?
• What is the role of the government in mitigating the negative
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 Macroeconomi Microeconomics
•cs
National Income Studying the behavior of individual
components of the economy:
• National Output
Industries, Companies, Households,
• Inflation Market Demand, Commodity Supply,
• Unemployment Rate Factors of Production
• Money Supply Economic
• Why does the economy of one Problems:
• Unemployment &
Inflation
• Pollution
country grow rapidly while • Healthcare
• Energy • Poverty, etc
another country's economy • Growth & Productivity
ECONO MIC S 02
stagnates?.
Economics & Engineering
Economics

Engineering
Economics
 Engineering Economics
• Branch of economics known as microeconomics in that it
studies the behavior of individuals and firms in making
decisions regarding the allocation of limited resources.
• An Engineering economics study is accomplished using
structured procedure and mathematical modeling techniques.

Decisi
on

ECONO MIC S 02
 Accounting vs Engineering
Economy
Evaluating past Evaluating and
performance predicting future
events

Accounting Engineering
Economic
Past Future
Present ECONO MIC S 02
 Two Factors in Engineering
Economics Decision

• Question: Would you rather

Receive $1000 today; or
Receive $1000 10 years from today?
• Answer: Of course today!
• Why?
I could invest $1000 today to make more
money Time Uncertainty
I could buy a lot of stuff today with $1000
Who knows what will happen in 10 years

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 Engineering Economics
Decision

Planni Manufacturi Profit

ng ng

Investm
ent Marketing
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 Predicting the Future
1.Estimating a required investment
2.Forecasting a product demand
3.Estimating a selling price
4.Estimating manufacturing cost
5.Estimating product life

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 Role of Engineering in
Business
1.Participate in variety of decision-making
processes, ranging from manufacturing,
through marketing, to financing decisions.
2.Plan for the acquisition (purchase) of
equipment (capital)
3.Design products from the concept to shipping

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 Role of Engineering in
Business
Create & Design
Engineering
Projects

Evaluate Monitor
Analyze • Expected • Impact on
Production Methods Profitability Financial
Environmental • Timing of Cash Statements
Impacts Flows • Firm’s Market
Market Assessment • Degree of Financial Value
Risk • Stock Price

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