LESSON 1: THE BASICS OF ENGINEERING

ECONOMICS

ECONOMICS
➢ a science which deals with the attainment of the
maximum fulfillment of societies unlimited
demands for goods and services
➢ “The study of how societies manage their
resources to satisfy their unlimited wants and
demands.”

ENGINEERING ECONOMICS
➢ the discipline concerned with the economic
aspects of engineering
➢ involves the systematic evaluation of the costs
and benefits of proposed technical and business
projects and ventures
ENGINEERING ECONOMICS ensures:
1. cost-effective solutions
2. optimized design
3. resources are allocated wisely
4. meets market demand
LUXURIES
5. long-term planning
➢ those products or services that are desired by
humans and will be purchased if money is available
CONSUMER AND PRODUCER GOODS AND after the required necessities have been obtained
SERVICES
➢ those products that have an income-elasticity of
CONSUMER GOODS AND SERVICES demand greater than one
➢ those products or services that are directly used ➢ as income increases, more income will be spent
by people to satisfy their wants on these products
➢ ex: food, clothing, shelter, or home ➢ ex: appliances, entertainment, vacations

PRODUCERS GOODS AND SERVICES UTILITY

➢ used to produce consumer goods and services or ➢ refers to the satisfaction or pleasure derived from
other producer goods the consumer goods and services
➢ ex: buildings, machines, factories ➢ also means the power to satisfy human needs
and wants

NECESSITIES AND LUXURIES

NECESSITIES DEMAND

➢ products or services that are required to support ➢ quantity of a certain commodity that is bought at
human life and activities, that will be purchased in a certain price at a given place and time
somewhat the same quantity even though the price ➢ the want or desire or need for a product using
varies considerably money to purchase it
➢ 3 types of demand are elastic demand, inelastic DIFFERENT MARKET SITUATIONS:
demand and unitary elastic demand

1. ELASTIC DEMAND
➢ a situation where a small change in price results
in a relatively large change in quantity demanded
➢ consumers are very responsive to changes in
price
➢ typically happens when there are many
substitutes for a product or a product is called non-
essential 1. PERFECT COMPETITIONS
➢ when a commodity or services is supplied by
numerous vendors, and there are no barriers to
prevent other vendors from entering the market
➢ each vendor’s product is identical to the other,
2. INELASTIC DEMAND and prices are determined solely by supply and
demand forces
➢ occurs when a change in price results in a
proportionally smaller change in quantity
demanded
➢ consumers are less sensitive to change in price 2. MONOPOLY
➢ usually happens with essential goods ➢ a perfect monopoly arises when a single vendor
controls the entire supply of a unique product or
service and can prevent the entry of any competitors
into the market
➢ vendor has significant control over prices and can
operate without fear of competition
3. UNITARY ELASTICITY OF DEMAND
➢ occurs when the percentage changes in quantity
demanded is equal to the percentage change in
price
3. MONOPSONY
➢ responsiveness of consumers to price changes is
exactly proportional ➢ The coconut industry is one of the oldest and
most significant agricultural sectors in the
Philippines. However, many of the farmers rely on a
small number of buyers for their coconuts. For
example, major coconut oil producers like San
Miguel Corporation or Philippine Coconut Authority
(PCA) control much of the purchasing of coconuts in
COMPETITION many regions.

➢ a form of market structure where the number of

suppliers is used to determine the type of market 4. BILATERAL MONOPOLY
➢ where a labor union representing workers
MARKET negotiates wages and working conditions with a
single employer, such as major manufacturing plant
➢ the place where the vendors or the sellers and in a rural area where employment options are
vendees or the buyers come together limited
 price of a product increases, consumers tend to buy
less of it because it becomes less affordable.”
➢ often represented by a downward-sloping
demand curve on a graph
5. DUOPOLY ➢ Note: This may not be applicable to seasonal
➢ competition between Smart Communications goods. (Holiday season)
and Globe Telecom in the mobile
telecommunications market. These two companies
LAW OF SUPPLY
dominate the industry and compete fiercely for
market share ➢ describes how the supply of a product or service
changes in response to changes in its price,
assuming all other factors remain constant
6. DUOPSONY
➢ “When the price of a product increases, suppliers
➢ Two major supermarket chains, SM Supermarket tend to produce more of it because they can earn
and Robinsons Supermarket, dominate the grocery higher profits. Conversely, when the price of a
retail sector in a specific region. Local farmers who product decreases, suppliers tend to produce less
supply produce to these supermarkets have limited of it because the lower price makes it less profitable
bargaining power. to produce.”
➢ often represented by an upward-sloping supply
7. OLIGOPOLY curve on a graph

➢ The banking sector in the Philippines, where a few

major banks (BDO, Metrobank, and Bank of the
Philippine Islands (BPI)) control the majority of the
market share and influence interest rates and
lending practices.

8. OLIGOPSONY
➢ A few large seafood processing companies that
dominate the market for purchasing fish from local
fishermen in coastal areas. These companies can
dictate prices and terms to the fishermen due to
limited alternative buyers.

9. BILATERAL OLIGOPOLY LAW OF SUPPLY AND DEMAND

➢ A scenario where a handful of pharmaceutical ➢ “When free competition exists, the price of the
companies negotiate drug prices and terms with a product will be that value where supply is equal to
few large hospital chains in the Philippines. Both the demand.”
sides have significant market power, leading to
➢ asserts that in a market characterized by perfect
negotiations that heavily influence pricing and
competition, the price of a product will settle at a
distribution.
point where the quantity supplied by producers
matches the quantity demanded by consumers
LAW OF DEMAND ➢ equilibrium is reached when supply equals
➢ describes how the demand for a product or demand, leading to an optimal price for the product
service changes in response to changes in its price, ➢ equilibrium price is where the forces of supply
assuming all other factors remain constant and demand are balanced, leading to market
➢ “When the price of a product decreases, stability
consumers tend to buy more of it because it
becomes more affordable. Conversely, when the
LESSON 2: PRINCIPLES OF ENGINEERING EXAMPLE:
ECONOMY Mrs. Navarro and her family lives in an old apartment
in Cavite. Their family is growing and needed a bigger
space. Given the following, apply the 7 principles of
1. DEVELOP ALTERNATIVES engineering economy.
➢ the choice (decision) is among the alternatives CONDOMINIUM CONDOMINIUM
➢ the alternatives need to be identified and 1 2
defined for subsequent analysis
LOCATION Tagaytay Dasmarinas
DIMENSION 60sqm 66sqm
2. FOCUS ON DIFFERENCES
NO. OF 3 3
➢ only the differences in expected future BEDROOM
outcomes among the alternatives are relevant to
their comparison and should be considered in RENTAL PRICE Php10,000 Php10,000
the situation ANNUAL DUES Php3,500 Php3,000
MAINTENANCE Php2,000 Php2,000
3. USE A CONSISTENT VIEWPOINT EXPENSES
➢ the prospective outcomes of the alternatives,
economic and other, should be consistently
developed from a different viewpoint
(perspective)

4. USE A COMMON MEASURE

➢ using a common unit of measurement to
enumerate as many of the prospective
outcomes as possible will simplify the analysis
of alternatives

5. CONSIDER ALL RELEVANT CRITERIA

➢ selecting a preferred alternative requires the use
of several criteria
➢ decision process should consider both
outcomes enumerated in monetary unit and
those expressed in some other unit of
measurement or made explicit in a descriptive
manner

6. MAKE RISK AND UNCERTAINTY EXPLICIT

➢ risk and uncertainty are inherent in estimating
the future outcomes of the alternatives and
should be recognized
➢ the analysis of the alternatives involves
projecting or estimating the future
consequences associated with each of them

7. REVISIT YOUR DECISION

➢ improved decision-making results from an
adaptive process; to the extent practicable, the
initial projected outcomes of the selected
alternatives should be subsequently compared
with actual results achieved