ENG 2010 - Module 1.pdf

Engineering Economics Module 1: Introduction to Engineering Economy 2024 ECONOMICS Basics Terms and Principles of Economics ★ is one of the social sciences, which consists of th...

Engineering Economics Module 1: Introduction to Engineering Economy 2024 ECONOMICS Basics Terms and Principles of Economics ★ is one of the social sciences, which consists of that body of knowledge dealing with people and their assets or Two Kinds of Goods resources. ★ Produce and consume for human satisfaction Engineering Economy ★ Is defined as that branch Economics, which involves the applications of definite laws of economics, theories of investment and business practices to engineering CONSUMER GOODS problems involving cost ★ Are those that are consumed or are used ★ May also beconsidered to mean the study directly by people, or are things and of economic theories and their services which serve to satisfy human applications to engineering problems with needs the concept of obtaining maximum ○ Examples: clothes, shoes, soap, benefit at the least cost food, tape recorders, houses, ★ involves the study of cost features and medical and dental services, other financial data and their applications barber and beauty services in the field of engineering as a basis for PRODUCER GOODS decision ★ are those which produce goods and ★ the analysis and evaluation of the factors services for human consumption, such as that will affect the economic success of electric motors, generators, tools, engineering projects to the end that a concrete mixers, busses, airplanes and recommendation can be made which will ships. insure the best use of capital NECESSITIES ★ are those products or services that are Important Uses of Engineering Economy required to support human life and activities, that will be purchased in 1. Seeking new objectives for the somewhat the same quantity even though applications of engineering. the price varies considerably. 2. Discovery of factors limiting the success LUXURIES of a venture or enterprise. ★ are those products or services that are 3. Comparison of alternatives as a basis for desired by humans and will be purchased decision. if money is available after the required 4. Analysis of possible investments of necessities have been obtained. capital. DEMAND 5. Determination of bases for decision. ★ Is the quantity of a certain commodity that is bought at a certain prce at a given place and time SUPPLY ★ Is the quantity of a certain commodity that is offered for sale at a certain price at a given place and time. ELASTIC DEMAND ★ Occurs when a decrease in sellig price will cause a greater than proportionate increase in the colume of sales. ★ Goods which are considered luxuries is said to have elastice demand because a small decrease in cost will usually result in Price-Demand Relationship for a big increase in sales. Necessities and Luxuries INELASTIC DEMAND ★ Occurs when a decrease in the selling THE LAW OF SUPPLY price will cause a less than proportionate ★ The supply of a commodity varies directly increase in sales. as the price of the commodity, though not proportionally ★ Goods which are classified as necessities usually have inelastic demand because even a big decrease in selling price will not cause a big increase in the volume of sales. UNITARY ELASTICITY OF DEMAND ★ occurs when the mathematical product of volume and price is constant. ○ Thus, PV=C ○ Where: P = Price of the product V = Volume of sales Price-Supply Relationship C = Constant THE LAW OF DEMAND THE LAW OF SUPPLY AND DEMAND ★ The demand for a commodity varies ★ When free competition exists, the price of inversely as the price of the commodity, a product will be that value where supply though not proportionally is equal to the demand. Price-Supply-Demand Relationship Price-Demand Relationship PERFECT COMPETITION ★ Perfect competition occurs in a situation where a commodity or service is supplied by a number of vendors and there is nothing to prevent additional vendors entering in the market MONOPOLY ★ Monopoly is the opposite of perfect competition ★ A perfect monopoly exists when a unique product or service is available from a single vendor and that vendor can prevent the entry of all others into the market. OLIGOPOLY ★ Oligopoly exists when there are so few suppliers of a product or service that action by one will almost inevitably result in similar action by the others. THE LAW OF DIMINISHING RETURNS ★ “When the use of one of the factors of production is limited, either in increasing cost or by absolute quantity, a point will be reached beyond which an increase in the variable factors will result in a less than proportionate increase in output.”