Topic 1

Scope and Significance of Economics

Course Instructor:
Dr Oum Kumari R
Assistant Professor,
Department of Economics
Manipal University Jaipur
Learning Outcomes

TO UNDERSTAND THE TO UNDERSTAND THE TO KNOW THE RELEVANCE

SUBJECT MATTER OF SCOPE AND SIGNIFICANCE OF ECONOMICS IN
ECONOMICS ENGINEERING.
 •  Economics is the social
science that studies the 
• production, 
• distribution, and 

What is • consumption of goods and

services
Economics?
• Economics focuses on the
behaviour and interactions
of economic agents and
how economies work. 
Definition
According to Alfred Marshall “Economics is a study of
man in the ordinary business of life. It enquires how
he gets his income and how he uses it. Thus, it is on
the one side, the study of wealth and on the other
and more important side, a part of the study of man”
According to Lionnel Robbins “Economics is a science
which studies human behaviour as a relationship
between ends and scarce means which have
alternative uses”.
Significance of Economics

Economics is a field that addresses the dynamic

environment of economic calculations and principles
through the prism of engineering.

It is a fundamental skill that all successful firms employ in

order to retain competitive advantage and market share.

Economics provides significant knowledge of various

tools that help the businesses to optimize profits,
minimize costs, analyze various scenarios, forecast
fluctuations in business cycles, and more.
 Cont..
Economics studies various financial and economic problems
pervasive to engineers in a variety of industries.

• Economics-based engineering course have a strong

quantitative component that requires extreme elasticity in
learning style that is conducive towards understanding
interdisciplinary material.
Concepts of Economics
Time value of money is the idea that money has a
different value now than it will in the future. This is due
to a number of dynamic variables, such as inflation and
interest rates. These values are standardized through
present and future value calculations, thereby
equalizing the time dependent variables.

This is very important for engineers because these

calculations provide an intuition as to how money
should be spent and saved, how cash flow should be
negotiated in contracts, and how interest rates can
affect the present and future values.
Cont..
• Cost analysis is a key tenant for
balancing a business’s budget, as
well as for calculating the viability
of a project. Engineers can
compare the costs and benefits of
a project, and determine whether
the benefits outweigh the costs
enough to entertain the project.
Cont..
Interest is another concept that is important to
engineers. Firms take out significant loans to
finance construction of projects. Having a clear
understanding of the cost of borrowing money
is crucial to making appropriate business
decisions.
For example; if the costs of a five-year long
project (after accounting for the annually
compounded interest rate) exceed the
revenues collected, then it would be unwise to
pursue the project
Cont.
• Economic fluctuations characterize the
changes in the market economy as
peaks, recessions, troughs, or
expansions. Each of these four stages
has a direct impact on the choices
made by businesses, particularly
construction companies.
• Depreciation plays a major influence
on engineering firms; it is important for
engineers to calculate the “wear and
tear” that activities have on their
expensive equipment.
Cont..
John Hayford a renowned engineer was of
the opinion that engineering and
economics combinedly help to develop the
very valuable habit of thinking in terms of
groups rather than of individuals.
By understanding and implementing the
outcomes, framework, and tools of
engineering economics, future engineers
can continue to evolve as problem solvers
and innovators.
Cont.
Depreciation is loss of value in the asset over time.

During 2008 housing market in US collapsed, many

homeowners saw the value of their homes depreciate
tremendously, leading them to go underwater on their
mortgages – many to a point where their loans exceeded the
values of their homes.

Opportunity Cost: The cost involved in its next best

alternative use.
 A student spends three hours
and $20 at the movies the
some night before an exam. The
opportunity cost is time spent
examples studying and that money to
spend on something else.
of
opportunit A farmer chooses to plant
wheat; the opportunity cost is
y cost planting a different crop, or an
alternate use of the resources
(land and farm equipment). 
• Thank You