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Dedication
This presentation is dedicated to

Students
Of BICSE -7
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Non-technical skills and knowledge areas that an engineer should

acquire

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Adapted from Redmill : 133
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 Engineering
Economics
Course Code: BS 242

(BICSE-7)

Credits : 2+0

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 Engineering
Economics

 Engineering Economics is the

application of economic techniques
to the evaluation of design and
engineering alternatives.

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Lecture Headlines
1)Introduction to engineering economics

2) Basic cost concepts

3) Time value of money and discounted cash flow

calculations

4) Comparing alternatives

5) Public sector engineering economy

6)Private
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1) Introduction to Engineering Economics

 Economics vs. Engineering economics;

 typical problems addressed by engineering

economy studies - public sector,

 private sector,

 personal;

 engineering economics studies

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2) Basic cost concepts
Basic terms and concepts –

 fixed costs,
 variable costs,
 average cost,
 marginal cost,
 revenue, profit,
 depreciation,
 sunk costs;
 typical characteristics of cost functions;
 break-even analysis
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3) Time value of money and
discounted cash flow calculations
What is interest;
 simple interest;
 compound interest –
 nominal vs. effective interest;
 continuous compounding;
time-value equivalencies;
compound interest factors;
the functional notation system;
cash flow diagrams;
solving interest problems
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4) Comparing alternatives
Identifying and defining alternatives;

present worth comparisons;

equivalent annual worth comparisons;

rate of return comparisons

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5) Public sector and Private Sector
Engineering Economy

studies the public sector;

sources and costs of capital;
income tax considerations
the discount rate question;
incentives for private sector investment
benefit-cost analysis and applications

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Text book
Donald E. Newnan, Engineering Economic
Analysis, 9th Ed.
Reference book
Contemporary Engineering Economics: by
Park et al, Pearson
Principles of Economics by Sameulson 13th
Edition
Applied Mathematics for Business Economics
and the Social Sciences by Frank S Budnick
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Weightage
One Hour Tests : 30 %
Quizzes : 10%
Assignments : 5%
Project : 10%
Final Test : 45 %

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 INTRODUCTION TO ECONOMICS
 DEFINITION OF ECONOMICS

– ACCORDING TO ADAM SMITH

– ACCORDING TO DR.MARSHALL
– ACCORDING TO PROF.ROBBINS
 ECONOMIC CIRCLE
 IMPORTANCE OF ECONOMICS

 DEFINITION OF ENGINEERING

ECONOMICS

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 INTRODUCTION TO
ECONOMICS
The word economics is derived from
the Greek word “Oikonomos” which
means to manage the house. So it
means the management of a
household specially in those matters
which are relating to the income and
expense of the family. After
sometimes the term political
economy was also used for this topic
and slowly political economy
adopted
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 DEFINITION OF
ECONOMICS
 “Economics is the study of our
behavior in producing, distributing
and consuming material goods and
services in a world of scarce
resources”

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 DEFINITION OF
ECONOMICS

There are numerous definitions of

economics but there are three important
definitions given as below.
 ACCORDING TO ADAM SMITH
 ACCORDING TO ALFERED MARSHALL
 ACCORDING TO PROF.ROBBINS

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 ACCORDING TO ADAM
SMITH
“Science of Wealth”
He was the founder of classical school of
thought. Adam smith wrote the book”An
enquiry into the nature and causes of wealth
of nations in 1776.” He was called “Father
of Economics”
Economics is a science of wealth:
He divided his book into four parts like
1. Consumption of wealth
2. Production of wealth
3. Exchange of wealth
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4. Distributing of wealth
 DR.MARSHALL
“Science of Material
Welfare”
 Dr.Marshall is the founder of neo classical school
of thought. He wrote a book “Principles of
Economics”in 1878 and defined economics in
the following words.
”Economics is a study of Man,s action in the
ordinary business of life it enquires how he gets
his income and how he uses it. It examines that
part of an individual and social actions which is
mostly closely connected with the attainment and
with the use of material requisites of well being.
Thus economics is on one side a study of wealth
and on the other and more important side apart of
the study of man.”
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 PROF. ROBBINS
“Science of Scarcity”
 Prof.Robbins criticized the Marshalls
definition and offered the most precise and
scientific definition of economics.
”The science which studies human
behavior as a relationship between
ends and scarce means, which have
alternative uses.”

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 Engineering
Economics
 “Engineering Economy is the discipline
concerned with the economic evaluation of the
costs and benefits of proposed technical
projects. The principles and methodology of
engineering economy are an integral part of
the daily management and operation of
private-sector companies and corporations,
regulated public utilities, govt. unit or
agencies, and non profit organizations.”
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 Engineering Economy
 “These principles are utilized to analyzed
alternative uses of financial resources,
particularly in relation to the physical assets
and the operation of an organization.”
So Engineering Economy will prove to be
invaluable to you in assessing the economic
merits of alternative uses of your personal
funds.

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 Economy
 “In other words we may say that the
Engineering Economy is the application of
economic techniques to the evaluation of
design and engineering alternatives.
The Role Of Engg. Eco.
The role of engineering economy is to
assess the appropriateness of a given
project, estimate its value, and justify it from
an engineering standpoint.
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 Wants

Non Economic Economic

Wants Wants

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 Economic Wants

Necessities Comforts Luxuries

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 Necessities

Food Cloth Shelter

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 ECONOMIC CYCLE
Economic Wants

Economic Activity

Satisfaction (UTILITY)

Wealth
Goods and services

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 IMPORTANCE OF ECONOMICS IN LIFE:
Now a day no body can deny the importance of
economics in our real life. Our social cultural
and religion values are deeply affected by the
economics circumstances of the people. All the
people living anywhere in the world are doing
economic efforts for solving their economic
problems.
IN THE WORDS OF DURBIN:
“ Economics is the intellectual religion of
the day”

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 Branches of Economics

 Micro economics

 Macro economics

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 Micro economic
“The study of decision making
undertaking by individual”
Individual may be any one
 Consumer. (Rational person)

 Producer. (Wise)

 Firms. (Making decision about

products)

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 MACROECONOMICS
“It is the study of the behavior of
economy as a whole”
 National income.

 Economic development and planning.

 Unemployment.

 International trade.

 Balance of payment.

 Public sector.

 Inflation
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 Some other issues
 Agriculture/Industrial Sector
 Banking System

 Islamic Banking System

 Privatization

 Time Value of Money

 Alternative Analysis

 Cost Benefit Analysis

 Theory of Interest

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 Some other issues
 Nationalization
 Devaluation

 Economic Systems

 Islamic Economic System

 Theory of Exchange Rate

 Globalization

 Discount Cash Flows

 Poverty

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 Scar ce Resour ces

Natural Physical Human Organization

Land Capital Labor Entrepreneur

Rewards Rent Wages

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35
 Concepts of

Public Sector
Private Sector

Personal

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 Typical
Pr oblems

What to How to For Whom

Produce Produce to Produce

Quality, Strategy Rich, Poor or

Kind etc. Some others
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 Scar city
 These three questions create theory of
Choice but the resources are scarce and
so concept of scarcity arises.
 “The amount of something which is less
than the amount required to meet the
demand of the people at market price.”
 So Scarcity forces us to make choices.

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 Oppor tunity Cost
 It creates another concept called
Opportunity Cost.
 “Things which we sacrifice to get
something”
 Example
 Opportunity cost of Bicse is ____________.

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 Possibility Lines
 Opportunity Cost concept helps us to
develop possibility lines as follows
 Consumption Possibility Line
 Production Possibility Line

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 Line

For an increase in quantity of

Commodity Y Y, amount of x will be
Y1 sacrificed for consumption.

Consumption
Possibility Frontier.

Y0
X2 X1
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 Line

Commodity Y For an increase in quantity of

Y1 Y, amount of x will be
sacrificed for Production.

Production Possibility
Frontier.

Y0
X2 X1
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Commodity42X
 Factor s
consider ations

 Why this course?

 Factors that an engineer will consider for any technical
project after having the knowledge of this subject.
– Ease of maintenance
– Aesthetics (appearance)
– Quality
– Environmental concerns
– Production method
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 consider ations
– Capital and Interest
– Time value of money and cash flows
– Cost Analysis
– Materials used
– Revenue Analysis
– Cost Benefit analysis either in Public
or Private Sector
– Comparing other alternatives

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 Any Question ?

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