Engineering

Economics
Introduction
Topics to be covered
1. Introduction to Engineering Economics
2. Economics vs. Engineering Economics typical problems
addressed by engineering economy
3. Basic terms and concepts of costs
4. Demand, Supply and Market Equilibrium
5. Consumption Theory
6. Production Theory
7. Time value of Money
8. Public Sector Engineering Economics
9. Private Sector Engineering Economy
10. Comparing alternatives
11. Cash flows
Economics is everywhere,
and understanding
economics can help you
make better decisions and
lead a happier life. 
Economics
• In simplest terms Economics is the study of how humans make
decisions in the face of scarcity. These can be individual
decisions, family decisions, business decisions or societal
decisions.
• If you look around carefully, you will see that scarcity is a fact of
life. Scarcity means that human wants for goods, services and
resources exceed what is available.
• Resources, such as labor, tools, land, and raw materials are
necessary to produce the goods and services we want but they
exist in limited supply.
• the ultimate scarce resource is time- everyone, rich or poor, has
just 24 hours in the day to try to acquire the goods they want. At
any point in time, there is only a finite amount of resources
available.
• Economics is a social science concerned with the production,
distribution, and consumption of goods and services. It studies
how individuals, businesses, governments, and nations make
choices
• The principle (and problem) of economics is that human
beings have unlimited wants and occupy a world of limited
means.
• For this reason, the concepts of efficiency and productivity are
held paramount by economists. Increased productivity and a
more efficient use of resources could lead to a higher standard
of living.
Types of Economics
• Microeconomics focuses on how individual consumers and firms
make decisions; these individual decision making units can be a
single person, a household, a business/organization, or a
government agency. 
•  Analyzing certain aspects of human behavior, microeconomics
tries to explain how they respond to changes in price and why
they demand what they do at particular price levels.
• Microeconomics tries to explain how and why different goods
are valued differently, how individuals make financial decisions,
and how individuals best trade, coordinate, and cooperate with
one another.
• Microeconomics' topics range from the dynamics of supply and
demand to the efficiency and costs associated with producing
goods and services.
• Macroeconomics studies an overall economy on both a
national and international level, using highly aggregated
economic data and variables to model the economy.
• Its focus can include a distinct geographical region, a
country, a continent, or even the whole world.
• Its primary areas of study are recurrent economic
cycles and broad economic growth and development.
Topics studied include foreign trade, government fiscal
and monetary policy, unemployment rates, the level of
inflation and interest rates, the growth of total
production output as reflected by changes in the Gross
Domestic Product (GDP), and business cycles that result
in expansions, booms, recessions, and depressions. 
Engineering Economics
• Engineering is the profession in which knowledge of the
mathematical and natural sciences gained by study experience
and practice is applied with judgment to develop ways to
utilize economically the material and forces of nature for the
benefit of mankind.
• Engineering economics, previously known as engineering
economy, is a subset of economics concerned with the use and
application of economic principles in the analysis of
engineering decisions. As a discipline, it is focused on the
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. Thus, it
focuses on the decision making process, its context and
environment.
• Engineering Economics is a subject of vital importance to
Engineers. This subject helps one understand the need for the
knowledge of Economics for being an effective manager and
decision maker.
• The Economics theories are used to take decisions related to
uncertain and changing business environment. Economics
theories deal with the principles of demand, pricing, cost,
production, competition, trade cycles, and national income
and so on.
• As the design and manufacturing process become more
complex, the engineer is making decisions that involve money
more than ever before.
• The competent and successful engineer at present must have
an improved understanding of the principles of economics.
• The engineering economics is concerned the systematic
evaluation of the benefits and costs of projects involving
engineering design and analysis.
• Engineering economics quantifies the benefits and costs
associating with engineering projects to determine if they
save enough money to secure their capital investments.
• Engineering economics requires the application of
engineering design and analysis principles to provide goods
and services that satisfy the consumer at an affordable cost.
Engineering economics is also relevant to the design engineer
considers while material selection.
• Engineers are planners and builders. They are also problem
solvers, managers and decision makers. In the beginning of
the 20th century, engineers were mainly concerned with the
design, construction, operation of machines structures and
processes.
• Apart from the conventional work, now engineers are
expected not only to create novel technological solutions but
also to make skillful financial analysis of the effects of
implementation.
• Engineering economics involves the systematic evaluation of
the economic benefits of proposed solutions to engineering
problems. The engineering economics involves technical
analysis with emphasis on the economic aspects and has the
objective of assisting decisions.
• Engineering economics is closely aligned with Conventional
Micro-Economics. It is devoted to problem solving and
decision making at the operational level. Thus “Engineering
Economics refers to those aspects of economics and its tools
of analysis most relevant to the Engineer’s decision making
process”.
Characteristics of Engineering
Economics
1. Engineering Economics is closely aligned with
Conventional Micro-Economics.
2. Engineering Economics is devoted to the problem
solving and decision making at the operations level.
3. Engineering Economics can lead to sub-optimization of
conditions in which a solution satisfies tactical
objectives at the expense of strategic effectiveness.
4. Engineering Economics is useful to identify alternative
uses of limited resources and to select the preferred
course of action.