Economics- one of the social sciences which consists of that body of knowledge dealing with

people and their onsets or resources.

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Sum total of knowledge which treats of the creation and utilization of goods and services
for the satisfaction of human wants.

Engineering Economy- branch of economics which involves the application of definite laws of
economics, theories of investment and business practices to engineering problem involving cost.
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Study of economics problems with the concept of obtaining the maximum benefit at the
least cost.
Also involves the study of cost features and other financial data and their applications in
the field of engineering as basis for decision.
Important uses and functions of Engineering Economy

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Seeking of new objectives

Discovery of factors
Investment of capital
Comparison of alternatives
Bases for decision
The complete analysis of a proposed project involves three basic steps as follows:
1. The economy analysis
2. The financial analysis
3. The intangible analysis
Basic types of factors considered in many economic studies:
1. Tangible factors- those which can be expressed in terms of monetary values.
2. Intangible factors- those which are difficult or impossible to express definitely in
terms of monetary values.

Competition- occurs when a certain product is offered for sale by many vendors or suppliers and
is no restriction against other vendors and entry of all other possible suppliers is prevented.
Monopoly- occurs when a unique product or service is available only from a single supplier and
entry of all other possible suppliers is prevented.
Oligopoly- occurs when there are few suppliers and any action taken by anyone of them will
definitely affect the course of action of the others.
Price- the amount of money or its equivalent which is given in exchange for a good commodity.
Market- a place where seller and buyers come together.

Local market- a limited locality where certain goods such as those which are perishable are
sold.
National market- certain goods are sold all over the country.
World market- goods that are exported to other countries.
Kinds of Goods
1. Consumer goods- are those that are consumed or used directly by people.
2. Producer goods- are those which produce goods and services for human consumption.
Demand- is the quantity of a certain commodity that is bought at a certain price at a given
place and time.
Law of Demand- the demand for a commodity varies inversely as the price of the
commodity, though not proportionately.
Price- Demand relationship when the price of a commodity is low, the demand is great,
for then many people will be able to afford the price of the commodity. However, as the price
increases, the demand decreases.
Elastic- Demand occurs when a decrease in selling price will cause a less than
proportionate increase in sales.
Utility- the capacity of a commodity to satisfy human want.
Law of Diminishing Utility- An increase in the quality of any good consumed or acquired
by an individual will decrease the amount of satisfaction derived from that good.
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The utility of a commodity decreases with an increase in the quantity available.

Marginal Utility- the marginal utility of a commodity is the utility of the last unit of the
same commodity which is consumed or acquired.
Marginal Unit- the last unit of similar commodities consumed or acquired.
Supply- is the quantity of a certain commodity that is offered for sale at a certain price at a
given place and time.
Law of supply- the supply of a commodity varies directly as the price of the commodity,
though not proportionately.
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As the price increases, the supply also increases. Likewise, as price decreases the supply
will also decrease.

Law of Supply and Demand- When free competition exists, the price of a product will be
that value where supply is equal to the demand.
Marginal Revenue- amount received from the sale of an additional unit of a product.
Marginal cost- the additional cost of producing one more unit
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When free competition exsist, the number of units produced that will give the maximum
profit is that for which the marginal revenue and marginal cost are equal.

Present Economy- involves the analysis of problems for manufacturing a product or

rendering a service based on present or immediate costs.
Present Economy studies occur in the following situations:
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Selection of materials
Selection of method to be used
Selection of design
Selection of site location for a project
Comparison of proficiency among workers
Economy of tool and equipment maintenance
Economy of number of workers

Interest is the amount of money paid for the use of borrowed capital.
Simple Interest- the interest on borrowed money is said to be simple interest if the interest to
be paid is directly proportional to the length of time the amount or principal is borrowed.
Principal- is the amount of money borrowed and on which interest is charged.
Rate of Interest- is the amount earned by one unit of principal during a unit of time.
Compound Interest- in compound interest, the interest earned by the principal is not paid at
the end of each interest period, but is considered as added to the principal, and therefore will
also earned interest for the succeeding periods.