INTRODUCTION TO ENGINEERING ECONOMICS

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DEFINITIONS OF ECONOMICS
ECONOMICS: Economics is a social science . Its basic function is to study how people individual house holds, firms and nations maximizing their gains from their limited resources and opportunities.

In economic terminology it is called as maximizing behaviour or more approximately optimizing behaviour . Optimization means selecting best out of available resources with the objective of maximizing gains from 2/23/13 given resources.

The term economics is derived from two Greek words OIKOS(a house) and NEMEIN(to manage). Prof. Samuleson remarks economics as the oldest of arts and newest of science, indeed the queen of the social science.
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Economics is thus a social science, which studies human behaviour in relation to optimizing allocation of available resources to achieve the given goals.

Eg : individual household behaviour, firm, industry and nation Economics is also a study of choice-making behaviour of the people.
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ECONOMIC ACTIVITY:

Activities are classified into two Economic Activities & Non economic Activities. Activities which are carried out with the purpose of earning an income or making money, they are called economic activities. These activities involve money. We use this money to buy necessary 2/23/13 goods & services that satisfy our needs

SUBJECT MATTER OF ECONOMICS

WANTS

EFFORT S

MONEY

SATISFATI ON

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NON-ECONOMIC ACTIVITIES:

Activities that are performed out of love, affection or, perhaps, social concern, but not for money. For example, if a doctor gives free treatment to the patients of a village out of social concern, he is performing a non-economic activity.

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Why Economics for Engineers

Engineers has to necessarily possess knowledge of economic aspects of engineering so that he can design the products and services at an affordable price. Engineering is closely associated with economics for the reason that the engineering activities of analysis & design constitute means for satisfying human wants.
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Why Economics

Engineering Economics deals with the concepts & techniques of analysis useful in evaluating the worth of systems, products & services in relation to the cost. The prerequisite of successful engineering application is economic feasibility. Engineering Economics focuses both on physical and economic efficiency.
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Basic Problems in Business & Economics

What to produce How much to produce How to produce Where to produce

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NATURE OF ECONOMICS:
1. Assumptions-Based: there are two assumptions in economic analysis

Ceteris paribus: we want to analyse the effect of the price of a commodity on its demand. Apart from price, there can be a host of other factors like income of the consumers, prices of related commodities, tastes,etc that may affect the demand for that commodity.
2/23/13 Rationality: It implies that consumers

Nature of Economics contd..,

2. Two branches of study: Economics consists of two branches: Micro economics & Macro Economics Micro Economics looks at the smaller picture of the economy and is the study of the behaviour of the small units. Macro Economics is that branch of economic analysis that deals with the study of aggregates.
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3. Positive & Normative: Positive Economics is concerned with the study of things as they are. It studies how the economic system works, & how prices rise. and Normative economics is concerned with value judgements about what ought to be. (What should have been the price) For example, 1. The distribution of income in india is unequal 2/23/13

SCOPE & SIGNIFICANCE OF ECONOMICS:

The problem of scarcity & Choice: It focuses on the problem of scarcity & choice. Resources are scarce. Economics tells us how best to use the scarce resources to derive the greatest amount of satisfaction

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SCOPE & SIGNIFICANCE OF ECONOMICS:

Allocation of Resources: It explains how scarce resources can be allocated efficiently. Because resources are scarce, individuals, firms and nations have to make careful choices. Any misallocation will lead to inefficiency & consequently, losses.

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Scope contd..,

A prerequisite for problem solving: An understanding of Economics is a prerequisite to solve economic problems such as unemployment, inflation and so on.

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Scope contd..,

What to produce: It explains how price determines the kind of goods and services that are to be produced in an economy.

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Scope contd..,

How to produce: Firms produce goods & services choosing efficient methods of production. There are two methods of production are available to firms- capital Intensive & Labour intensive If capital is available at a lower rate, firms adopt capital-intensive methods of production or if labour is cheap, firms can adopt labour-intensive techniques. 2/23/13

Scope contd..,

For whom to produce: In a market economy, this is decided by the markets. Generally, members of the society who have a greater purchasing power can influence the kinds of goods that are produced.

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BRANCHES OF ECONOMICS:

MICRO ECONOMICS: It offers a detailed measurement of individual decisions about particular commodities. It is concerned with, How the individual consumer determines the distribution of his total spending among the many products & services available to him What determines the prices of
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BRANCH OF ECONOMICS

MACRO ECONOMICS: Macro economics looks at the economy as a whole. It is concerned with the overall performance of the economic system rather than individual parts such as individuals, firms and industries. It deals with total aggregates, for eg., total NI, total employment, total output & total Invt., It is concerned with the level of 2/23/13 employment in the economy.

POINTS OF DIFFERENCE NATURE

DISTINCTION BETWEEN MICRO & MACRO ECONOMICS:

MICRO MACRO ECONOMICS ECONOMICS Micro means Macro means small. It studies large.it studies the behaviour of the economy as individual a whole consumers, firms It covers individual units such as individuals & firms It covers aggregates of individuals, firms in the economy as 2/23/13 a whole

COVERAGE

DISTINCTION BETWEEN MICRO &MICRO MACRO MACRO POINTS OF DIFFERENCE ECONOMICS ECONOMICS ECONOMICS:
SCOPE OF THE STUDY

Demand & NI, business Supply, cycles, inflation production & cost & analysis, market unemployment, structure & banking & competitive credit,internation conditions,pricingal trade etc., policies & methods At the firm level At the level of a 2/23/13 nation or state

UTILITY OF THE STUDY

Scope of Engineering Economics

In the process of managing organizations, the managers at different levels should take appropriate economic decisions which will help in Minimising investment, Operating and maintenance expenditures Savings & other related gains of the organisation.
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Definition of Engineering Economics:

Engineering Economics deals with the methods that enable one to take economic decisions towards minimizing costs and /or maximizing benefits to business organizations.

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THANK YOU

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