CONCEPT OF ECONOMICS

PILLARS OF ECONOMICS
FACTOR OF PRODUCTION
IMPLICATION OF ECONOMICS IN
ENGINEERING
LINKING ECONOMICS AND
ENGINEERING

THE FOUNDATION OF
ECONOMICS
SOCIETY HAS VIRTUALLY
UNLIMITED WANTS...

THE FOUNDATION OF
ECONOMICS
SOCIETY HAS VIRTUALLY
UNLIMITED WANTS...

BUT LIMITED OR SCARCE

PRODUCTIVE RESOURCES!

GOODS & SERVICES PROVIDE...

UTILITY

GOODS & SERVICES PROVIDE...

UTILITY
LUXURIES

GOODS & SERVICES PROVIDE...

UTILITY
LUXURIES vs. NECESSITIES

SCARCE RESOURCES
ECONOMIC RESOURCES
PROPERTY RESOURCES
LAND

SCARCE RESOURCES
ECONOMIC RESOURCES
PROPERTY RESOURCES
LAND
CAPITAL

SCARCE RESOURCES
ECONOMIC RESOURCES
PROPERTY RESOURCES
LAND

Notes...

INVESTMENT
REAL
CAPITAL
CAPITAL
FINANCIAL
CAPITAL

SCARCE RESOURCES
ECONOMIC RESOURCES
PROPERTY RESOURCES
LAND
CAPITAL
HUMAN RESOURCES

SCARCE RESOURCES
ECONOMIC RESOURCES
PROPERTY RESOURCES
LAND
CAPITAL
HUMAN RESOURCES
LABOR

SCARCE RESOURCES
ECONOMIC RESOURCES
PROPERTY RESOURCES
LAND

A/K/A
Factors
CAPITAL
Of
HUMAN RESOURCES
Production
LABOR
ENTREPRENEURIAL ABILITY

ENTREPRENEURIAL
ABILITY

Takes The Initiative

Makes Policy Decisions
Innovator
The Risk Bearer

RESOURCE PAYMENTS
PROPERTY RESOURCES
RENTAL
LAND
INCOME
INTEREST
CAPITAL
INCOME
HUMAN RESOURCES
LABOR
ENTREPRENEUR

WAGES
PROFIT &
LOSS

ECONOMICS & EFFICIENCY

Full Employment
Full Production
Productive Efficiency
Allocative Efficiency

PRODUCTION POSSIBILITIES

Robots (thousands)

Q 14
13
12
11
10
9
8
7
6
5
4
3
2
1

Unattainable
B
C

Attainable
& Efficient

Attainable
but
Inefficient
1

E
4

Pizzas (hundred thousands)

PRODUCTION POSSIBILITIES

Robots (thousands)

Q 14
13
12
11
10
9
8
7
6
5
4
3
2
1

Notes...

LAW OF INCREASING
Unattainable
A OPPORTUNITY
COSTS
B
The amount
of other
C
W
products that must be
forgone or sacrificed
to
D
Attainable
obtain 1 unit of a specific
& Efficient
product
is called the
Attainable
opportunity
cost of that
but
good.

Inefficient
1

E
4

Pizzas (hundred thousands)

PRODUCTION POSSIBILITIES

Robots (thousands)

Q 14

Notes...

13
12
LAW OF INCREASING
11 A
OPPORTUNITY
COSTS
B
10 A graph of the production
C
9
W
possibilities
curve
will be
8
7 CONCAVE -Dbowed out from
6 the origin.
5
Attainable
4 Economic resources are
but
3
completely adapt2 not
Inefficient
able
to other uses.
1
E

Unattainable
Attainable
& Efficient

Pizzas (hundred thousands)

PRODUCTION POSSIBILITIES

Applications
Unemployment and
...
Productive Inefficiency

PRODUCTION POSSIBILITIES

Applications
Unemployment and
...
Productive Inefficiency
Tradeoffs and
Opportunity Costs

PRODUCTION POSSIBILITIES

Applications
Unemployment and
...
Productive Inefficiency
Tradeoffs and
Opportunity Costs
Shifts and the Production
Possibilities Curve

CIRCULAR FLOW MODEL

RESOURCE
MARKET

BUSINESSES

HOUSEHOLDS

PRODUCT
MARKET

CIRCULAR FLOW MODEL

RESOURCE
MARKET

RESOURCES

INPUTS

BUSINESSES

HOUSEHOLDS

PRODUCT
MARKET

CIRCULAR FLOW MODEL

$ COSTS

$ INCOMES
RESOURCE
MARKET

RESOURCES

INPUTS

BUSINESSES

HOUSEHOLDS

GOODS &
SERVICES

GOODS &
SERVICES
PRODUCT
MARKET

CIRCULAR FLOW MODEL

$ COSTS

$ INCOMES
RESOURCE
MARKET

RESOURCES

INPUTS

BUSINESSES

HOUSEHOLDS

GOODS &
SERVICES

GOODS &
SERVICES
PRODUCT
MARKET

CIRCULAR FLOW MODEL

$ COSTS

$ INCOMES
RESOURCE
MARKET

RESOURCES

INPUTS

BUSINESSES

HOUSEHOLDS

GOODS &
SERVICES

GOODS &
SERVICES
PRODUCT
MARKET

$ REVENUE

$ CONSUMPTION

Pillars of Economics
1. There ain't no such thing as a free lunch.
2. Incentives matter.
3. Economic thinking is thinking on the margin.
4. The only way to create wealth is to move it from a lower
valued to a higher valued use. Corollary: Both sides gain
from exchange.
5. Information is valuable and costly.
6. Every action has unintended consequences.
7. The value of a good or service is subjective.
8. Costs are a bad, not a good.
9. The only way to increase a nation's real income is to
increase its real output.
10. Competition is a hardy weed, not a delicate flower.

It deals with the concepts

and techniques of
ENGINEERING
ECONOMIC
analysis useful in evaluating the worth of
STUDIES
systems,
products, and services in relation to
their costs

It is the frame work under which we analysis the profitability of

any project, construction or innovation, hence a cost benefit
analysis from physical level to economic level.

It is used to answer many different

questions
Which engineering projects are
worthwhile?
Has the mining or petroleum engineer
shown that the mineral or oil deposits
is worth developing?
Which engineering projects should have
a higher priority?
Has the industrial engineer shown
which factory improvement projects
should be funded with the available
dollars?
How should the engineering project be
designed?

Engineering
. Physical Environment

Produce products and services

depending on physical laws.( e.g.
Newtons law)

2. Economic Environment
Assessing worth of those products
and services in economic terms

First Assignment
In what ways economics can help engineering? Write
80 to 100 words or you can have bullets as well.
Real world examples from Pakistan will be
appreciated.