ECON MODULE 1

wants

Engineering activities of analysis and design are not an end in them but are a

means for satisfying human ______

Two aspects of Engineering

concerned with materials and forces of nature, concerned with the needs of people

Engineering

an application of science.

Engineering

an art composed of skill and ingenuity in adapting knowledge to the uses of humanity.

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 materials and forces of nature for the benefit of

mankind.

scientist

The role of the _______ is to add to mankind’s accumulated body of systematic knowledge and to discover universal laws of behaviour.

engineering

The role of ______ is to apply this knowledge to particular situations to produce products and services.

Engineering

involves the determination of the combination of materials, forces, and human factors that will yield a desired result.

Engineering activities

their use is confined to satisfying human wants.

Science

is the foundation upon which the engineer builds toward the advancement of mankind.

Physical, Economic

Engineers are confined with two important interconnected environments:

Physical Environment

Their success is altering the ___________ to produce products and services depend upon knowledge of physical laws.

Economics

Since _____ is involved with the actions of people, it is apparent

that economic laws be based upon their behavior.

Economic laws

can be no more exact than the description of the behavior of people acting singly and collectively.

Want Satisfaction, Engineering proposals

___________ in the economic environment and _____________ in

physical environment are linked by the production or the construction process.

Construction Process

Want satisfaction in the economic environment and engineering proposals in

physical environment are linked by the production or the ___________

High Efficiency

Both individuals and enterprises possess limited resources. This makes it

necessary to produce the greatest output for a given input – that is, to operate at

__________.

Engineering Application

The objective of ___________ is to get the greatest end result per unit of resource input.

efficiency (physical) =output/input

The objective of engineering application is to get the greatest end result per

unit of resource input. This statement is an expression of physical efficiency, which

may be stated as

Physical efficiency

is always be less than unity or less than 100%.

Economic Efficiencies

These are expressed in terms of economic units of output divided by economic units of input, each expressed in terms of a medium of exchange such as money.

efficiency (economic) =worth/cost

Economic efficiency may be stated as

Economic Efficiency

exceeds 100% and must dos so for economic

undertakings to be successful.

Economic Efficiency

In the final evaluation of most ventures, even those in which engineering plays a leading role, ______________ must take precedence over physical efficiencies.

utility

the function of engineering is to create _____ in the economic environment by altering elements of the physical environment.

Determination of objectives, Identification of strategic factors, Determination of means, Evaluation of engineering proposals, Assistance in decision making

The Engineering Process

The creative step, The definition step, The conversion step, The decision step

Plan for Engineering Economy Studies

Economy

______ the attainment of an objective at low cost in terms of resource input,

has always been predominantly physical.

Economics

deals with the behaviour of people individually or collectively,

particularly as their behaviour relates to the satisfaction of their wants.

Responsive, Creative

Since economic factors are the strategic consideration in most engineering

activities, engineering practice may be either:

Engineering Economy

is the analysis and evaluation of the factors that will affect the economic success of engineering projects to the end that a recommendation

can be made which will insure the best use of capital.

Engineering Economy

deals with the concepts and techniques of analysis useful in evaluating the worth of systems, products, and services in relation to their cost.

Engineering Economy

involves the systematic evaluation of the economic merits of proposed solutions to engineering problems.

benefits, cost

To be economically acceptable (i.e.,

affordable), solutions to engineering problems must demonstrate a positive balance of

long-term ___ over long-term ____, and they must also

19th Century, Arthur M. Wellington

In the ______, ______a civil engineer address the role of economic analysis in engineering projects and his particular area of interest was

railroad building in the United States in which the emphasis was on techniques that

depended primarily in financial and actual mathematics.

1930, Eugene Grant

In _____, ________

published the first edition of his textbook and his emphasis on developing an economic

of view in engineering and this point of view involves a realization that quite as

definite a body of principles govern the economic aspects of an engineering decision

as governs its physical aspects.

1942, Woods and De Garmo

In ____ , _____ wrote the first edition

of Engineering Economy.

Develop the Alternative, Focus on the Difference, Use a Consistent Viewpoint, Use a common Unit of Measure, Consider all Relevant Criteria, Make Uncertainty Explicit, Revisit your decision

Principles of Engineering Economy

Develop the Alternatives

The choice (decision) is among alternatives. The alternatives need to be

identified and then defined for subsequent analysis.

Focus on Differences

Only the differences are expected for future outcomes among the

alternatives are relevant to their comparison and should be considered in the

decision.

Use a Consistent Viewpoint

The prospective outcomes of the alternatives, economic and other, should

be consistently developed from a defined viewpoint (perspective).

Use a Common Unit of Measure

to enumerate as many of the prospective

outcomes as possible will make easier the analysis and comparison of the

alternatives.

Consider All Relevant Criteria

Selection of a preferred alternative (decision making) requires the use

of a criterion (or several criteria). The decision process should consider both

the outcomes enumerated in the monetary unit and those expressed in some other

unit of measurement or made explicit in a descriptive manner.

Make Uncertainty Explicit

Uncertainty is inherent in projecting (or estimating) the future outcomes

of the alternatives and should be recognized in their analysis and comparison.

Revisit Your Decision

Improved decision making results from an adaptive process; to the extent

practicable, the initial projected outcomes of the selected alternative should

be subsequently compared with actual results achieved.

Problem Definition, Development of Alternative, 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

Engineering Economy and the Design Process

Concepts

are crystallized thought that have withstood the test of time.

Concepts

They are usually qualitative in nature and not necessarily universal in application.

conceptual

understanding

The ability to arrive at correct decisions depends jointly upon a sound______ _______ and the ability to handle the quantitative aspects of the problem.

Value

designates the worth that a

person attaches to an object or service.

Value

is inherent not

in the object but in the regard that a person has for it.

Utility

is the power to satisfy human wants.

Utility

_____ of an object has for

an individual is determined by him or her.

Utility

inheres not in the object itself but in the regard that a person has for it.

Utility

The _______ that

an object for a person is the satisfaction he or she derives from it.

Value

is an

appraisal of utility in terms of a medium of exchange.

Good or commodity

is defined as any tangible economic product (soap, car,

shirts, tools, machines, etc.) that contributes or indirectly to the satisfaction of

human wants.

Service

is defined as any tangible economic activity (hairdressing, insurance,

banking, catering, etc.) that contribute directly or indirectly to the satisfaction

of human wants.

Consumer goods and services

are those products or services that are directly

used by people to satisfy their wants.

Producer goods and services

also satisfy human wants but indirectly in as much

as they are used to produce the consumer goods and services.

Economy of exchange

occurs when utilities are exchange by two or more people.

Manual Benefits in Exchange, Persuasion in Exchange

Economic Aspects of Exchange

Manual Benefits in Exchange

A buyer will purchase an article when money is available and when he or she

believes that the article has equal or greater utility than the amount required to

purchase it. Conversely, a seller will sell an article when he or she believes that

the amount of money to be received for the article has greater utility than the

article.

Exchanges

are made when they are thought to

result in mutual benefit.

Persuasion in Exchange

the salesperson may be able to induce the prospect to listen

to further sales talk, during which the prospect may decide to buy on the basis of

the original offer. Because there was no change in the machine or the price at which it was offered, there must be a change in the customer’s attitude or regard for the machine. The pertinent fact to grasp is that a proposition at first undesirable now has become desirable as a result of a change in the customer, not in the proposition.

satisfaction of human wants

The ultimate objective of engineering application is the

First cost, Operation and maintenance cost, Fixed and variable cost, Incremental and marginal cost, Sunk cost

Classifications of Cost

First cost

the initial cost of a capitalized property, including transportation,

installation for service, taxes and other related initial expenditure in order

to make the property or asset or equipment functional.

First cost

This is sometimes called

investment cost.

Operating costs

are incurred by the operation of physical plant or equipment

needed to provided service – examples include items such as labor and raw

materials.

Maintaining costs

occur over time until the structure, system, or equipment

item is retired from service.

Fixed cost

is a cost that remains constant over a wide range of activity as

long as the business does not permanently discontinue operations. This

includes property taxes, overhead, interest of borrowed capital, etc.

Fixed cost

It also refers to the cost that is not a function of the independent variable.

Variable cost

is a cost that varies more or less directly with the volume of

output. This includes labor, material, power, etc.

Incremental cost

the additional cost that will result from increasing the

output of a system by one or more units.

Marginal cost

the cost of an additional unit of a product.

Sunk cost

refers to the cost in the past. This may include any past expenditure,

the uncovered balance of an investment and capital already invested that cannot

be retrieved.

Necessities, Luxuries

Goods and services are divided into two types,

Necessities

are those products or services that are required to support human

life and activities, that will purchased in somewhat the same quantity even though

the price varies considerably.

Luxuries

are those products or services that are desired by humans and will be

purchased if money is available after the required necessities have been obtained.

Necessity product

or staple product is defined as any product that has an

income-elasticity of demand less than one. This means that as income arises, proportionately less income is spent on such products. It include basic foodstuffs like bread and rice, clothing, etc.

Luxury product

any product that has an income-elasticity of demand

greater than one. This means that as income rises, proportionately more income is spent on such products. Examples include consumer durables like

electric appliances, expensive cars, holidays and entertainment, etc.

Demand

is the quantity of a certain commodity that is bought at a certain price

at a given place and time.

Elastic demand

occurs when a decrease in selling price result in a greater than

proportionate increase in sales.

Inelastic demand

occurs when a decrease in selling price produces a less than

proportionate increase in sales.

Unitary elasticity of demand

occurs when the mathematical product of volume and

price is constant.

Market

refers to the exchange mechanism that brings together the

sellers and buyers of a product, factor of production or financial security.

Market

It may also refer to the place or area in which buyers and sellers exchange a well-defined commodity.

Buyer

or consumer is defined as the basic consuming or demanding unit of a

commodity.

Buyer

It may be an individual purchaser of a good service, a household (a group

of individuals who make joint purchasing decisions), or a government.

Seller

is defined as an entity which makes product, good or service available

to buyer or consumer in exchange of monetary decision.

Market situation

The price of any commodity or product will depend largely on the

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 the market.

Perfect Competition

Many sellers, many buyers

Atomistic competition

Perfect competition also known as

Monopoly

One seller, many buyers

Duopoly

Two sellers, many buyers

Oligopoly

Few sellers, many buyers

Many sellers and many buyers, Homogeneous products, Free market-entry and exit, Perfect information, Absence of all economic friction

Perfect competition is a type of market situation characterized by the

following:

Homogeneous products

The products offered by the competing sellers are

identical or not only in physical attributes but are also regarded as identical

by the buyers who have no preference between the products of various producers.