Power Economics and Management

2nd Semester, 3rd Year (20EL)

B.E Electrical Engg. Program

Dr. Pervez Hameed Shaikh

Associate Professor

Lecture # 02
Economics Definition and Concepts

Department of Electrical Engineering

Mehran University of Engg. & Technology, Jamshoro
 Defining Economics
3

 Economics
 The study of how people allocate their limited
resources to satisfy their unlimited wants
 The study of how people make choices
 “The study of how people and society choose to
employ scarce resources that could have alternative
uses in order to produce various commodities and to
distribute them for consumption, now or in the future,
…” from Paul Samuelson and William Nordhaus, Economics, 12th Ed., McGrawHill, New York, 1985.
 Defining Economics
4

 Resources
 Things used to produce other
things to satisfy people’s wants

 Wants
 What people would buy if their
incomes were unlimited
 Defining Economics
5

 With limited income

(resources), people must make
choices to satisfy their wants.

 We never have enough of

everything, including time to
satisfy our every desire.
 Defining Economics
6

 Individuals, businesses, and nations face

alternatives, and choices must be made.
 Economics studies how these choices are made.
 Engineering Economics
7

 Engineering economics is the application of economic

techniques to the evaluation of design and engineering
alternatives.
 The role of engineering economics is to assess the
appropriateness of a given project, estimate its value, and justify
it from an engineering standpoint.
 The application of economic principles to engineering
problems, for example in comparing the comparative costs of
two alternative capital projects or in determining the optimum
engineering course from the cost aspect.
5 Economic Questions

 WHAT to produce (make)

 HOW MUCH to produce (quantity)
 HOW to Produce it (manufacture)
 FOR WHOM to Produce (who gets what)
 WHO gets to make these decisions?
What are resources?
 Definition: The things used to make other goods
BUT, there’s a Fundamental Problem:

SCARCITY: unlimited wants and

needs but limited resources
Choices, Choices

 Because ALL resources, goods,

and services are limited – WE
MUST MAKE CHOICES!!!!
Why Choices?

We make choices about how we spend our money,

time, and energy so we can fulfill our NEEDS and
WANTS.

What are NEEDS and WANTS?

Wants and Needs,
Needs and Wants
 NEEDS – “stuff” we must have to survive,
generally: food, shelter, clothing

 WANTS – “stuff” we would really like to have

(Fancy food, shelter, clothing, big screen TVs,
jewelry, conveniences . . . Also known as
LUXURIES
Wants and Needs,
Needs and Wants

VS.
TRADE-OFFS

You can’t have it all (SCARCITY –

remember?) so you have to choose
how to spend your money, time, and
energy. These decisions involve
picking one thing over all the other
possibilities – a TRADE-OFF!
Trade-Offs, cont.
 What COULD you have done instead of coming to
Campus today?

 These are all Trade-Offs! Thanks for being here!

4 Factors of Production
 LAND – Natural Resources
 Water, natural gas, oil, trees (all the stuff we find on, in, and
under the land)
 LABOR – Physical and Intellectual
 Labor is manpower
 CAPITAL - Tools, Machinery, Factories
 The things we use to make things
 Human capital is brainpower, ideas, innovation
 ENTREPRENEURSHIP – Investment $$$
 Investing time, natural resources, labor and capital are all
risks associated with production
 Production Process

Land

Goods

Labor
Production/Manufacturing
“Factory” Consumers

Capital

Services

Entrepreneurship
Capital Goods and Consumer Goods

 Capital Goods: are used

to make other goods

 Consumer Goods: final

products that are
purchased directly by
the consumer
CHANGES IN PRODUCTION

 Division of Labor –
different people perform
different jobs to achieve You do your
greater efficiency job, and I will do
my Job and we
(assembly line). will be more
EFFICIENT
CHANGES IN PRODUCTION
 Consumption – how much
we buy (Consumer
Sovereignty)

The DELL store is

empty because….

Everyone is at the
APPLE STORE!!!
CHANGES IN PRODUCTION

 If we INCREASE land, labor, capital we INCREASE

production
 Many entrepreneurs invest profit back into production

 If we DECREASE land, labor, capital we

DECREASE production

 BUT WHY would we ever DECREASE production?

PRODUCTION, cont. again
 A measure of the production of an entire country in
one year is

GDP
The total $ value of ALL final Goods and Services
produced in a country in a year.
(GROSS DOMESTIC PRODUCT)
The Circular Flow Model
World GDP
 Total GDP 2013
(millions of US dollars)  11 Canada 1,826,769
 1 United States16,768,100  12 Australia 1,560,372
 13 Spain 1,393,040
 2 China 9,240,270
 14 Korea, Rep.1,304,554
 3 Japan 4,919,563  15 Mexico 1,260,915
 4 Germany3,730,261  16 Indonesia868,346
 5 France 2,806,428  17 Netherlands853,539
 6 United Kingdom 2,678,455  18 Turkey 822,135
 7 Brazil 2,245,673  19 Saudi Arabia748,450
 8 Italy 2,149,485
 20 Switzerland685,434
 44 Pakistan 232,287
 9 Russian Federation 2,096,777
 10 India1,876,797
 Q & A,
THANK YOU.