Pamantasan ng Lungsod ngMaynila
College of Engineering and Technology
ENGINEERING
ECONOMICS
Chapter 1
Introduction
Prepared by:
Engr. Jenalyn Macarilay
Electronics Engineering Department
Understand and
Define Identify and Use
Identify
Define engineering Understand and identify Identify and use
economics and describe the steps in an engineering economic
its role in decision engineering economy terminologies and
making. study. concepts.
LEARNING OUTCOMES
uses mathematical formulas
to account for the time value
of money and to balance
current and future revenues
and costs
ENGINEERING involves formulating,
estimating, and evaluating the
expected economic outcomes
ECONOMICS
of alternatives designed to
accomplish a defined purpose
a subset of economics for
application to engineering
projects
ECONOMICS
oa social science
concerned with man’s
problem of issuing
scarce resources to
satisfy unlimited
wants
o comes from
the ancient Greek
words(oikos, "house")
+ (nomos, "custom" or
"law"), hence "rules of
the house(hold)
A. Macroeconomics
the study of the entire system
of economics(from Greek
prefix "makros-" meaning
"large" + "economics")
Two Types of
Economics
B. Microeconomics
study how the system affect
one business or parts of the
economic system.
WHY ENGINEERING ECONOMY IS
IMPORTANT TO ENGINEERS
o Engineers design and create
o Designing involves economic decisions
o Engineers must be able to incorporate economic
analysis into their creative efforts
o Often engineers must select and implement from
multiple alternatives
o Understanding and applying time value of money,
economic equivalence, and cost estimation are vital
for engineers
o A proper economic analysis for selection and
execution is a fundamental task of engineering
TIME
VALUE OF
MONEY
•
(TVM)
explains the change in the
amount of money over time
for funds owed by or owned
by a corporation (or
individual)
• Corporate investments
are expected to earn a
return
• Investment involves
money
• Money has a ‘time
value’
The time value of money is the
most important concept in
engineering economy
GENERAL STEPS FOR
DECISION MAKING
PROCESSES
UNDERSTAND THE COLLECT RELEVANT DEFINE THE SET OF IDENTIFY THE CRITERIA
PROBLEM – DEFINE INFORMATION FEASIBLE ALTERNATIVES FOR DECISION MAKING
OBJECTIVES
EVALUATE THE SELECT THE “BEST” IMPLEMENT THE
ALTERNATIVES AND ALTERNATIVE ALTERNATIVE AND
APPLY SENSITIVITY MONITOR RESULTS
ANALYSIS
STEPS IN AN
ENGINEERING
ECONOMY
STUDY
Some
Important
Terms And
Concepts
Necessities
• products or services that are
required to support human life
and activities that will be
NECESSITI purchased in somewhat the
same quantity even though the
ES prices vary considerably.
VERSUS
Luxuries
LUXURIES
• products or services that are
desired by humans and will be
purchased if money is available
after the required necessities
have been obtained.
Goods
• anything that anyone
GOOD wants or needs
S AND
Services
SERVI
CES • performance of any
duties or work for
another, helpful of
professional activity
A. Consumer Goods
such as food and clothing
that satisfy human wants or
needs
DIFFER B. Producer Goods
ENT such as raw materials and
tools, used to make
consumer goods
KINDS
OF C. Capital Goods
machinery used in the
GOODS production of commodities
or producer goods. Include
educational, health,
communication,
transportations and social
services.
oStates that at higher
prices, producers are
willing to
offer more products for
sale than at lower prices
THE
oStates that the supply
increases as prices
LAW OF
increase and decreases as
prices decrease
SUPPLY
oStates that those already
in business will try to
increase productions as a
way of increasing profits.
oStates that people will buy
more of a product at a lower
price than at a higher price, if
nothing changes
THE
oStates that at a lower price,
more people can afford to buy
LAW OF
more goods and more of an
item more frequently, than
DEMAN
they can at a higher price
D
oStates that at lower prices,
people tend to buy some
goods as a substitute for
others more expensive
1. Elastic Demand – exists when
there is a greater change in
quantity demanded as a response
to a change in price.
TYPES
OF 2. Inelastic Demand – exists when
there is a lesser change in quantity
demanded in response to a
DEMAN change in price.
D Unitary- exist when there is an
equal change in price and in
quantity demanded (increase or
decrease)
FACTORS
THAT
INFLUENC
E DEMAND
1. income
2. population
3. taste and
preference
4. price
expectation
5. price of
related goods
FACTORS
THAT
INFLUENC
E SUPPLY
1. price of goods
2. cost of production
3. availability of resources
4. number of producers and
sellers
5. technological advancement
6. taxes
7. subsidies
MARKET
othe place where the vendors
and buyers meet to transact.
1. PERFECT
2. MONOPOLY 3. OLIGOPOLY
COMPETITION
occurs in a situation opposite of perfect there are so few
where a commodity competition. Single suppliers of a
or service is person or enterprise product or service
supplied by a as a supplier of that action by one
number of vendors particular will almost inevitably
and there is nothing commodity result in similar
to prevent additional action by the others
vendors entering the
market.
MARKET
STRUCTURES
REFERENCES
oEngineering
Economy, Blank and
Tarquin, 7th Edition,
McGraw-Hill, 2012
oEngineering
Economy, Hipolito
Sta. Maria
oVarious online
materials
THANK
YOU
