ENGINEERING ECONOMY

BASIC TERMS:

Economics is a science which deals with the attainment of the

maximum fulfillment of societys unlimited demands for goods and
services.
Engineering Economy is the branch of economics which deals with
the application of economic laws and theories involving engineering
and technical projects or equipment.
Consumer goods and services refers to the products or services
that are directly use by people to satisfy their wants. Examples are
food, clothing, shelter or home etc.
Producer goods and services are those that are used to produce
consumer goods and services. Examples are buildings, machines,
factories, etc.
Utility refers to the satisfaction or pleasure derived from the consumer
goods and services. This also means the power to satisfy human wants
and needs.
Luxury products are those products that have an income-elasticity of
demand greater than one. This implies that as income increases, more
income will be spent on these products. Examples are appliances,
entertainment, vacations, etc.
Supply is the amount of goods or products that are available for sale
by the suppliers.
Demand the want or desire or need for a product using money to
purchase it.
Law of Supply and Demand: when free competition exists, the
price of the product will be that value where supply is equal to
demand.
Competition is a form of market structure where the number of
suppliers is used to determine the type of the market.
Perfect Competition a market situation wherein a given product is
supplied by a very large number of vendors and there is no restriction
of any additional vendor from entering the market.
Market is the place where the vendors or the sellers and vendees or
the buyers come together.
Different Market situations
Market Situation
Buyers
Perfect Competition
Many
Monopoly
One
Monopsony
Many
Bilateral monopoly
One
Duopoly
Two
Duopsony
Many
Oligopoly
Few

Sellers
Many
Many
One
One
Many
Two
Many

Oligopsony
Bilateral Oligopoly

Many
Few

Few
Few

SIMPLE INTEREST
Interest is the amount of money or payment for the use of borrowed money or
capital.
Simple Interest ( I ) is defined as the interest on a loan or principal that is based
only on the original amount of the loan or principal. This means that the interest
charges grow in a linear function over a period of time. It can be calculated using
the formula

I=Pin
Where: P = Principal i = Interest per period n = number of interest period
Ordinary Simple Interest is based on one bankers year. One bankers year is
equivalent to 12 months of 30days each. Also, 1 bankers year=360 days.

n=

d
d
I =Pi
360
360

Exact Simple Interest is based on the exact number of days in a given a year. An
ordinary year has 365 days while a leap year (which occurs once every 4 years) has
366 days.

d
FOR ORDINARY NORMALYEAR
365
d
n=
FOR LEAP YEAR
366
n=

COMPOUND INTEREST
Compound Interest is defined as the interest of loan or principal which is based not
only on the original amount of the loan or principal plus the previous accumulated
interest. This means that the interest charges grow exponentially over a period of
time.
Compound Interest is used frequently in commercial practices than the simple
interest.
A. Total Amount, F