1. What is the differenc differencee between between economics economics and engineeri engineering ng economy? economy? Economics is the social science that describes the factors that determine the production the production,, distribution and distribution and consumption of consumption of goods and services. services. Engineering economy is a subset of economics for economics for application to engineering projects. Engineers seek Engineers seek solutions to problems, and the economic viability of each potential solution is normally considered along with the technical aspects. Engineering economy involves formulating, estimating, and evaluating the economic o utcomes when alternatives to accomplish a defined purpose are available. 2. Reasons Reasons for Stud Studying ying Enginee Engineerin ring g Economy Economy
It is necessary to balance balance the unlimited desire versus the resource-constrained world; to to maximie output !worth" given input !cost" and to take the necessary for maximiing efficiency !output # input or worth # cost". 3. Importan Importantt applica application tionss of Enginee Engineering ring Econ Economy omy • • •
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$eeking of new objectives for the applications of engineering. %iscovery of factors limiting the success of a venture or enterprise. &nalysis of possible investment of capital. 'omparison of alternatives as a basis for decision. %etermination of bases for decision.
. Enginee Engineering ring Econom Economy y !e !echni"ues chni"ues •
Economy &nalysis( 'onsiders all factors affecting the economy of the project which can be reduced to specific monetary values. %etermines the initial cost of the project, the cost for operation and maintenance, the needed working capital, the probable income the project will generate when operational, the rate of return on the investment, and all other cost factors.
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)inancial &nalysis %etermines the methods and sources of financing the project, either through e*uity capital or borrowed capital, or a combination co mbination of both. +ries to discover the best methods of financing the project to the extent of the amount obtained in the economy analysis.
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Intangible &nalysis %etermines all aspects of the project which cannot be reduced to monetary values and considers the uncertainty and the risk inherent in the project. Its scope includes the so-called judgment factor whose analysis depends upon the judgment of responsible persons involved in the project.
#. $efi $efine ne tthe he ffol ollo lowi wing ng
a. !angible %nd Intangible factors& +angible )actor would include the money, land and products that are in the economy which can be depended on to be a part of the decision and can be counted and considered and touched as part of a solution. Intangible )actors would be the value placed on the products in the economy that affect a decision, but that cannot be expressed in monetary terms. Examples include employee morale, safety, system reliability, environmental effects, and politics
b. 'ompetition - is the rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume by varying the elements of the marketing mix( price, product, distribution, and promotion. c. (onopoly - is a situation in which a single company or group owns all or nearly all of the market for a given type of product or service. y definition, monopoly is characteried by an absence of competition, which often results in high prices and inferior products. d. )ligopoly - !is a market structure in which a small number of firms has the large majority of market share. &n oligopoly is similar to a monopoly, except that rather than one firm, two or more firms dominate the market. e. *rice and *roduction rice is the *uantity of payment or compensation given by one party to another in return for goods or services. In modern economies, prices are generally expressed in units of some form of currency. roduction is a process of combining various material inputs and immaterial inputs !plans, know-how" in order to make something for consumption !the output". It is the act of creating output, a good or service which has value and contributes to the utility of individuals. f. +ocal and ,ational (ar-et ocal market includes customers located within the region the product or service is produced or made available. /ational market describes the supply and demand for all securities that are traded in a country. g. 'onsumer and *roducer oods 'onsumer goods are products that are purchased for consumption by the average consumer. 'onsumer goods are the end result of production and manufacturing and are what a consumer will see on the store shelf. roducer 0oods are machinery, raw materials, etc., that are used in the process of creating consumer goods.
h. Elastic $emand is a %emand that increases or decreases as the price of an item goes down or up. i.
Inelastic $emand - & situation in which the demand for a product does not increase or decrease correspondingly with a fall or rise in its price. )rom the supplier1s viewpoint, this is a highly desirable situation because price and total revenue are
directly related; an increase in price increases total revenue despite a fall in the *uantity demanded. &n example of a product with inelastic demand is gasoline. j.
+aw of $iminishing /tility ( a principle in social science( such as one ac*uires successive units of a good, the intensity of desire for additional units declines
k. +aw of $iminishing Returns - & concept in economics that if one factor of production !number of workers, for example" is increased while other factors !machines and workspace, for example" are held constant, the output per unit of the variable factor will eventually diminish. l.
Supply is a fundamental economic concept that describes the total amount of a specific good or service that is available to co nsumers. Supply can relate to the amount available at a specific price or the amount available across a range of prices if displayed on a graph.
m. *hysical and Economic efficiency hysical efficiency compares the volumes delivered and ben eficially consumed, economic efficiency relates the value of output and the opportunity costs used in production to the value applied. Economic efficiency is related to the value !rather than the physical amounts" of all inputs used in producing a given output. +he production of a given output is economically efficient if there are no other ways of producing the output that use a smaller total value of inputs. )or example, a firm may have several alternative production methods that it could use. 2ne may re*uire a lot of labour but only a little capital whereas another re*uires a lot of capital and only a little labour. & third production method may re*uire a lot of land but relatively little of both labour and capital. In order to maximie its profits, the firm should choose the production method that costs the least.
n. *resent Economy are economic analyses where alternatives for accomplishing a specific task are being compared over one year or less and the influence of time on money can be ignored.
