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Questions and Answers
What is the primary strategy firms use to achieve market power through product differentiation?
What is the primary strategy firms use to achieve market power through product differentiation?
Which market organization is characterized by having many firms that produce differentiated products?
Which market organization is characterized by having many firms that produce differentiated products?
In which market structure do the actions of one firm significantly influence the actions of others?
In which market structure do the actions of one firm significantly influence the actions of others?
Which of the following is NOT a characteristic of oligopoly?
Which of the following is NOT a characteristic of oligopoly?
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What type of competition allows firms to set prices within certain limits due to market demand?
What type of competition allows firms to set prices within certain limits due to market demand?
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Which of the following is a key factor that distinguishes the behavior of firms in oligopoly from other market structures?
Which of the following is a key factor that distinguishes the behavior of firms in oligopoly from other market structures?
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What defines a firm in a monopoly structure?
What defines a firm in a monopoly structure?
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What is a major characteristic of perfect competition?
What is a major characteristic of perfect competition?
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What happens to the quantity demanded when the price of a product is increased?
What happens to the quantity demanded when the price of a product is increased?
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Which factor affects supply due to changes in the price of inputs required for production?
Which factor affects supply due to changes in the price of inputs required for production?
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How do improvements in technology affect supply?
How do improvements in technology affect supply?
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If the demand for a product increases while supply remains unchanged, what will happen to the equilibrium price?
If the demand for a product increases while supply remains unchanged, what will happen to the equilibrium price?
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Which factor relates to consumer expectations of future income and prices?
Which factor relates to consumer expectations of future income and prices?
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What is the relationship between quantity supplied and price according to the law of supply?
What is the relationship between quantity supplied and price according to the law of supply?
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What happens when additional workers are added beyond the optimal level?
What happens when additional workers are added beyond the optimal level?
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Which of the following is considered a consumer good?
Which of the following is considered a consumer good?
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Which of the following represents a factor affecting demand through trends or popularity?
Which of the following represents a factor affecting demand through trends or popularity?
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What does elasticity of demand measure?
What does elasticity of demand measure?
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What effect does an increase in the size of an industry have on supply?
What effect does an increase in the size of an industry have on supply?
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If price elasticity of demand (PED) equals 1, what is this described as?
If price elasticity of demand (PED) equals 1, what is this described as?
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What is an example of inelastic demand?
What is an example of inelastic demand?
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Which of the following best describes perfectly inelastic demand?
Which of the following best describes perfectly inelastic demand?
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When is demand considered elastic?
When is demand considered elastic?
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Which variables can affect demand?
Which variables can affect demand?
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What is the primary goal of engineering economy?
What is the primary goal of engineering economy?
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Which principle is concerned with identifying different options when solving engineering problems?
Which principle is concerned with identifying different options when solving engineering problems?
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In making a financial decision regarding engineering projects, which principle emphasizes the importance of decision uncertainty?
In making a financial decision regarding engineering projects, which principle emphasizes the importance of decision uncertainty?
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Which of the following statements best reflects the role of engineering economic analysis?
Which of the following statements best reflects the role of engineering economic analysis?
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What does focusing on the differences among alternatives involve in engineering economy?
What does focusing on the differences among alternatives involve in engineering economy?
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When selecting a design for a high-efficiency gas furnace, which principle would be most applicable?
When selecting a design for a high-efficiency gas furnace, which principle would be most applicable?
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Which statement about profitability in engineering economy is accurate?
Which statement about profitability in engineering economy is accurate?
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What characterizes perfectly inelastic demand?
What characterizes perfectly inelastic demand?
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Which principle suggests that decisions should be made while considering potential changes in context?
Which principle suggests that decisions should be made while considering potential changes in context?
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If the price elasticity of demand (PED) is between 0 and 1, what does this imply?
If the price elasticity of demand (PED) is between 0 and 1, what does this imply?
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What happens to total revenue if the price rises and demand is inelastic?
What happens to total revenue if the price rises and demand is inelastic?
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What is a characteristic of unitary elastic demand?
What is a characteristic of unitary elastic demand?
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If the coefficient of PED is greater than 1, what does this indicate?
If the coefficient of PED is greater than 1, what does this indicate?
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What impact does a decrease in supply have on a perfectly inelastic demand scenario?
What impact does a decrease in supply have on a perfectly inelastic demand scenario?
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Which of the following is an example of a product with inelastic demand?
Which of the following is an example of a product with inelastic demand?
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What effect does a price drop have on total revenue in the case of elastic demand?
What effect does a price drop have on total revenue in the case of elastic demand?
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What is the effect on equilibrium price and quantity when supply increases while demand remains unchanged?
What is the effect on equilibrium price and quantity when supply increases while demand remains unchanged?
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When demand decreases and supply remains unchanged, what happens to equilibrium price and quantity?
When demand decreases and supply remains unchanged, what happens to equilibrium price and quantity?
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What phenomenon describes the decrease in output from additional factor usage beyond a certain point?
What phenomenon describes the decrease in output from additional factor usage beyond a certain point?
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If supply decreases and demand remains unchanged, what is the predicted outcome for equilibrium price and quantity?
If supply decreases and demand remains unchanged, what is the predicted outcome for equilibrium price and quantity?
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The principle that defines a situation where adding more of a variable production factor results in smaller outputs is known as?
The principle that defines a situation where adding more of a variable production factor results in smaller outputs is known as?
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What is the relationship between unchanged supply and higher demand regarding equilibrium?
What is the relationship between unchanged supply and higher demand regarding equilibrium?
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Which statement accurately describes the outcome when both demand increases and supply decreases?
Which statement accurately describes the outcome when both demand increases and supply decreases?
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Which concept explains that a factory reaches a production level where adding more workers results in smaller output increases?
Which concept explains that a factory reaches a production level where adding more workers results in smaller output increases?
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Study Notes
Introduction to Engineering Economy
- Engineering Economy involves systematically evaluating the economic merits of proposed solutions to engineering problems (Sullivan)
- It also analyzes and evaluates factors affecting the economic success of engineering projects, ensuring the best use of capital (Sta. Maria)
- The course aims to develop and illustrate principles and methodology to answer the fundamental economic question: Do project benefits exceed costs?
Engineering Economic Analysis Procedure
- Includes problem definition
- Development of alternatives
- Development of prospective outcomes
- Selection of a decision criterion
- Analysis and comparison of alternatives
- Selection of the preferred alternative
- Performance monitoring and post-evaluation of results
Seven Fundamental Principles of Engineering Economy
- Develop the alternatives: Carefully define the problem, identifying and defining choices for analysis. A decision involves choosing amid multiple alternatives.
- Focus on the differences: Only variations in future outcomes are significant; common elements can be ignored. For instance, if house options have the same purchase price, consider other factors like location and maintenance costs.
- Use a consistent viewpoint: Maintain consistent analysis perspective, typically the viewpoint of the decision-maker (i.e., company owners).
- Use a common unit of measurement: Use a common unit like dollars for evaluating economic factors, translating other factors into equivalent monetary values.
- Consider all relevant criteria: The decision-maker prioritizes alternatives that best serve long-term organizational interests and financially benefit owners.
- Make uncertainty explicit: Risks and uncertainty in estimating future outcomes should be recognized and analyzed. The significant impact of uncertainty in estimated outcomes of action courses should be acknowledged.
- Revisit your decisions: Reassess decisions due to potential undesirable outcomes from good decision processes or significantly varying actual outcomes from initial estimates.
Electronic Spreadsheets
- Electronic spreadsheets enhance analysis efficiency by aiding formulation and solution of engineering economy problems.
- Large problems can be solved quickly, key parameters can be adjusted, and graphical outputs are easily created.
Economics and Consumer Demand
- Macroeconomics studies economic behavior and relationships within an entire society.
- Microeconomics investigates the relationship between individual consumers and producers.
Demand and Supply
- Examining product availability and demand strength is crucial.
- Quantity demanded represents the amount consumers are willing and able to buy at a specific price.
- Quantity supplied is the amount producers are willing and able to sell at a specific price.
- Demand pertains to the relationship between price and quantity demanded, holding other factors constant, while supply pertains to the relationship between price and quantity supplied, holding other factors constant.
- Equilibrium exists when quantity demanded equals quantity supplied, determining equilibrium price and quantity.
Factors Affecting Demand
- The strength of need/want and availability of alternatives influence demand.
- Prices of substitute and complementary goods, consumer expectations of future income and prices, income levels, number of consumers, and preferences impact demand.
Factors Affecting Supply
- Productivity levels, input costs, government policies, technology, output prices, and industry size impact supply.
The Law of Demand
- Higher prices lead to lower quantities demanded.
- Demand is inversely related to price (downward sloping).
The Law of Supply
- Higher prices lead to higher quantities supplied.
- Supply is directly related to price (upward sloping).
The Law of Diminishing Returns
- When one production factor is constrained, increasing other factors will yield smaller incremental output increases.
- Adding additional workers, for instance, will successively yield progressively smaller output increases until a point of diminishing marginal returns is reached.
The Economic Environment
- Consumer goods/services—directly used by consumers to satisfy wants.
- Producer goods/services—used to produce other goods/services.
Demand Elasticity
- Elasticity of demand (ED) measures the responsiveness of quantity demanded to changes in a given variable affecting demand (e.g., price).
- The percentage change in quantity demanded divided by the percentage change in the variable on which demand depends. The factors influencing demand may include the price of the product or services, related products, consumer income, and others.
Price Elasticity (PED)
- Elastic Demand (PED > 1): Quantity demanded is significantly responsive to price changes.
- Inelastic Demand (0 < PED < 1): Quantity demanded is relatively unresponsive to price changes.
- Unitary Elastic Demand (PED = 1): Quantity demanded changes proportionally to price changes.
Perfectly Inelastic Demand (PED = 0):
- Quantity demanded does not change in response to price changes.
Income Elasticity of Demand (IED)
- Income elasticity of demand (IED) measures the responsiveness of quantity demanded to changes in consumer income.
- High IED (IED > 1): Increased income leads to a proportionally larger increase in demand.
- Unitary IED (IED = 1): Increased income leads to a proportionate increase in demand.
- Low IED (0 < IED < 1): Increased income leads to a proportionally smaller increase in demand.
- Zero IED (IED = 0): Income changes do not affect demand.
- Negative IED (IED < 0): Increased income leads to a decrease in demand.
Necessity vs. Luxury Goods
- Necessity goods (low IED): essential goods that are demanded irrespective of price fluctuations.
- Luxury goods (high IED): desired goods that consumption increases with income.
Different Market Organizations
- Perfect Competition: Many sellers, homogeneous products, easy entry/exit.
- Monopoly: One seller, unique product, blocked entry.
- Monopolistic Competition: Many sellers, differentiated products, easy entry/exit.
- Oligopoly: Few sellers, differentiated or homogeneous products, interdependent actions.
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Description
This quiz covers the fundamental concepts and analysis procedures within Engineering Economy as described by Sullivan and Sta. Maria. It explores the systematic evaluation of economic merits in engineering solutions and the decision-making process in project evaluation. Test your understanding of the principles and methodologies that guide engineering economic analysis.
