Introduction to

Engineering Economics.
Shivaji M. Sarvade
 Introduction
Economy refers to the conditions under which goods are produced in a society and

the manner in which the people are gainfully employed.

In other words, economy may be defined as the system of production, distribution,

and consumption of goods and services that a society uses to tackle the problem of

scarcity of resources and multiple usage they can be put to.

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 Essential Process of Economy
Production.

Consumption.

Investment.

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 Fundamental Problem
What to produce?

How to produce?

For whom to produce?

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 Basic Concepts
Goods.
Anything that can satisfy the wants and needs of its consumers is called a good in
economics. Another way to look at it is as product that is bought and sold in a
marketplace, i.e., as an article of trade.
Services also satisfy human wants, with the only difference that they are
intangible. Some texts use the term 'goods and services' and some just use 'goods',
which are deemed to include services.
The consumption of goods increases the utility of the consumer. Goods are
something that are valuable and useful.

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 Basic Concepts
Utility.

Utility is the want satisfying quality of a good. It, in a sense, is a measure of

worthiness.

The economic theory assumes that people do things if it provides them utility, i.e.,

if they find it worth doing, the consumer derives satisfaction of wants and needs

from the use of goods.

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 Basic Concepts
Value.
Value is the amount of consumer satisfaction that a good provides. It is the
exchange power of one good in relation to the other. The value of a good denotes
the goods that we can have in exchange of it.
The more of the other good that one needs to sacrifice in order to have a good, the
more valuable it is, In other words, value is directly related to the satisfying ability
of a good.
A good is said to have value if it is desired by a consumer and can be obtained
only by the consumers efforts. Both the attributes are essential for a good to have
a value.

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