CARAGA STATE UNIVERSITY

Ampayon, Butuan City

ES 10
ENGINEERING ECONOMY
 THE
ECONOMIC ENVIRONMENT
 What
is
ENGINEERING ECONOMY?
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 ensure the best use of
capital.
 Difference between Consumer and Producer
Goods and Services

• Consumer goods and services

– are those products or services that are
directly used by people to satisfy their wants.

• Producer goods and services

– are used to produce consumer goods and
services or other producer goods.
Definition of Competition, Monopoly
and Oligopoly
• 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.
• Monopoly
– is the opposite of perfect competition. A perfect competition
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
– 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.
 Necessities and Luxuries
Necessities are those products
or services that are required to
support human life and activities
that will be purchased in somewhat
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.
 Demand Vs. Supply

• Demand is the quantity of a certain

commodity that is bought at a certain
price 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.
The Law of Supply

The Law Of Supply states

that the quantity of a
good supplied rises as the
market price rises, and falls as
the price fall.
Producers supply more at
a higher price because selling
a higher quantity at a higher
price increase revenue.
 Law of Demand
The Law Of Demand says that the
quantity of a good demanded falls as
the price rises, and vice versa.
The amount of a good that buyers
purchase at a higher price is less
because as the price of a good goes
up, so does the opportunity cost of
buying that good. As a result, people
will naturally avoid buying a product that
will force them to forgo the consumption
of something else they value more.
 Other Cases Of Demand:
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 the

selling price produces a less than proportionate
increase in sales.

Elasticity of demand occurs when the

mathematical product of volume and price is constant.
 Supply and Demand Relationship

“Under conditions of perfect competition the price at which a

given product will be supplied and purchased is the price that will
result in the supply and the demand being equal.”
 This means, when supply and demand are equal (i.e.
when the supply function and demand function intersect) the
economy is said to be at equilibrium.
At this point, the allocation of goods is at its most efficient
because the amount of goods being supplied is exactly the
same as the amount of goods being demanded. Thus,
everyone (individuals, firms, or countries) is satisfied with the
current economic condition. At the given price, suppliers are
selling all the goods that they have produced and consumers
are getting all the goods that they are demanding.
 If there’s equilibrium, there is also a case exists called
disequilibrium. Disequilibrium occurs whenever the price
or quantity is not equal.
Factors that will result in Disequilibrium:
1. Excess Supply
If the price is set too high, excess supply will be
created within the economy and there will be allocative
inefficiency.
2. Excess Demand
Created when price is set below the equilibrium price.
Because the price is so low, too many consumers want
the good while producers are not making enough of it.
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.”
 The effect of the law of diminishing returns on the performance
of an electric motor is illustrated in Fig. 1-5. For the early increase
input through input of 4.0 kw, the actual increase in output is greater
than proportional; beyond this point the output is less than
proportional. In this case the fixed input factor is the electric motor.
References

1. Sta. Maria, H. B. (2000). Engineering Economy (Third Edition ed.).

National Book Store.
2. www.econlib.org/library/Enc/Supply.html
3. http://www.investopedia.com/university/economics/economics3.asp
THANK YOU !