Engineering Economics Overview

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Questions and Answers

What is the primary difference between individual and collective consumption?

Individual consumption is a legal obligation, whereas collective consumption is voluntary.

Individual consumption targets personal satisfaction, while collective consumption addresses group needs. (correct)

Individual consumption involves purchasing more goods, while collective consumption focuses on services.

Individual consumption requires government regulation, while collective consumption does not.

Which sector of the economy is responsible for producing goods and services?

Business sector (correct)

Household sector

Financial sector

Government sector

What does the real flow of income represent in an economy?

The total production output in a fiscal year.

The movement of cash from households to businesses.

The flow of monetary rewards from businesses to households.

The exchange of goods and services for factor services. (correct)

What does investment refer to in an economic context?

The excess of production over consumption in an accounting year. Signup and view all the answers

In the circular flow of income model, what does the monetary flow of income indicate?

The flow of factor income from the producing sector back to households. Signup and view all the answers

What is a primary focus of economics?

The study of production, distribution, and consumption of goods and services Signup and view all the answers

Which criterion is NOT part of economically acceptable engineering solutions?

Encourage excessive risk-taking in innovations Signup and view all the answers

Which of the following best describes the 'circular flow of economic activities'?

A continuous flow with no specific beginning or end Signup and view all the answers

What role does engineering economics play in decision making?

It assists decisions by evaluating the economic merits of proposed solutions Signup and view all the answers

What is considered an economic activity?

A systematic endeavor to satisfy a material need Signup and view all the answers

Which factor is NOT typically considered in production?

Currency exchange rates Signup and view all the answers

What is the primary mission of engineering economics?

To balance trade-offs in the most economical manner Signup and view all the answers

Which statement about the study of economics is false?

It only concerns financial transactions in a closed market Signup and view all the answers

Study Notes

Introduction

Economics is the study of production, distribution, and consumption of goods and services.
Engineering is the profession where mathematical and natural sciences are used to develop ways to utilize materials and forces of nature economically for the benefit of mankind.

Engineering Economics

Engineering economics involves systematic evaluation of proposed solutions to engineering problems.
It's about balancing trade-offs in the most economical manner.
Engineering economy involves technical analysis focused on economic aspects.
It assists in decision making.

Criteria for Economically Acceptable Solutions

Positive balance of long-term benefits over long-term costs.
Promotion of well-being and survival of an organization.
Embodiment of creative and innovative technology and ideas.
Identification and scrutiny of estimated outcomes.
Translation of profitability to the bottom line through a valid and acceptable measure of merit.

Economics Fundamentals

Economics studies economic activities.
It's the study of wants, efforts, wealth, and satisfaction.
Economics is the study of human behavior related to ends and scarce means.
Economics studies the problem of choice.

Circular Flow of Economic Activities

This flow has no defined beginning or end.
An economic activity is a systematic endeavor to satisfy a material need.
Vital economic activities include production, distribution, consumption, and investment.

Vital Economic Activities

These activities are essential for the functioning and survival of an economy.
Production: Creation of utility or value in goods or services.
Distribution: Allocation of total output, income, or wealth among individuals or factors of production.
Consumption: Use of goods and services for individual and collective wants.
Investment: Excess of production over consumption in an accounting year.

Types of Consumption

Individual Consumption: Use of goods and services for personal needs.
Collective Consumption: Use of goods and services for the benefit of the community.

Sectors of the Economy

Household Sector: Includes households consuming goods/services and providing factor services.
Business Sector: Produces goods/services using factor services.
Government Sector: Engages in both consumption and production.

Flow of Income

Real Flow of Income: Flow of factor services from households to producers and the corresponding flow of goods/services from producers to households.
Monetary Flow of Income: Flow of factor income (rent, interest, profit, wages) from producers to households as rewards for their services.

Circular Flow of Income in Different Sectors

Two Sector Model: Simplest model with only households and businesses.
Three Sector Model: Includes households, businesses, and government.
Four Sector Model: Includes households, businesses, government, and foreign sector (international trade).

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Description

This quiz covers the fundamentals of engineering economics, focusing on the systematic evaluation of engineering solutions and the criteria for economically acceptable solutions. Understand how economics integrates with engineering to promote innovation and profitability in organizations.