Lecture 1: Engineering Economy Introduction + The Economic Environment

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One of the social sciences, which consists of that body of knowledge dealing with people and their assets or resources.

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Economics

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Defined as that branch of Economics, which involves the applications of definite laws of economics, theories of investment and business practices to engineering problems involving cost.

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Engineering Economy

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Engineering Economy may also be considered to mean the study of __ to engineering problems with the concept of obtaining maximum benefit at the least cost.

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economic theories and their applications

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5 Important uses of Engineering Economy

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- Seeking new objectives for the applications of engineering.

- Discovery of factors limiting the success of a venture or enterprise.

- Comparison of alternatives as a basis for decision.

- Analysis of possible investments of capital.

- Determination of bases for decision.

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2 Kinds of Goods

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- Consumer Goods

- Producer Goods

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Consumed or are used directly by people, or things and services which serve to satisfy human needs.

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Consumer Goods

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Examples of consumer goods

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Clothes

Shoes

Soap

Food

Tape Recorders

Houses

Medical and dental services

Barber and beauty services

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Produce goods and services for human consumption.

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Producer goods

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Examples of producer goods

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Electric motors

Generators

Tools

Concrete mixers

Busses

Airplanes

Ships

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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.

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Necessities

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Products or services that are desired by humans and will be purchased if money is available after the required necessities have been obtained.

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Luxuries

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Quantity of a certain commodity that is bought at a certain price at a given place and time.

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Demand

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Quantity of a certain commodity that is offered for sale at a certain price at a given place and time.

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Supply

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Occurs when a decrease in selling price will cause a greater than proportionate increase in the volume of sales.

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Elastic Demand

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Elasticity demand of luxuries - __

__ in cost -> __ in sales

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Elastic Demand

Small decrease in cost -> Big increase in sales

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Occurs when a decrease in the selling price will cause a less than proportionate increase in sales.

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Inelastic Demand

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Elasticity demand of necessities - __

__ in selling price __ __ in sales

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Inelastic Demand

Big decrease in selling price WILL NOT CAUSE big increase in sales

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Occurs when the mathematical product of volume and price is constant

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Unitary Elasticity of Demand

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Formula in Unitary Elasticity of Demand

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PV = C

P - price of the product

V - volume of sales

C - constant

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State the Law of Demand

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The demand for a commodity varies inversely as the price of the commodity, though not proportionally.

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State the Law of Supply

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The supply of a commodity varies directly as the price of the commodity, though not proportionally.

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State the Law of Supply and Demand

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When free competition exists, the price of a product will be that value where supply is equal to the demand.

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Price-Demand Relationship Curve

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Price-Demand Relationshipfor Necessities & Luxuries

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Price-Supply Relationship

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Price-Supply-Demand Relationship

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Occurs in a situationwhere a commodity or service is supplied bya number of vendors and there is nothing toprevent additional vendors entering in themarket.

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Perfect Competition

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Opposite of perfect competition.

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Monopoly

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A perfect monopoly exists when __.

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A unique product or service is available from a single vendor and that vendor can prevent the entry of all others into the market

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Exists when there are so fewsuppliers of a product or service that actionby one will almost inevitably result in similaraction by the others.

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Oligopoly

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State the Law of Diminishing Returns

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“When the use of one of the factors ofproduction is limited, either in increasingcost or by absolute quantity, a point willbe reached beyond which an increase inthe variable factors will result in a lessthan proportionate increase in output.”