The Economic Environment Market → refers to the exchange mechanism that
brings together the sellers and the buyers of a product,
What is Economics? factor of production or financial security. It may also
-Economics is a science which deals with the refer to the place or area in which buyers and sellers
attainment of the maximum fulfilment of society’s exchange a well-defined commodity.
unlimited demands for goods and services.
Marketing → refers to the distribution of goods and
Two major subdivisions of Economics services.
a. Macroeconomics is the study of the entire system
of economics. Marketing a Product → refers to the advertising, and
b. Microeconomics is the study of how the systems other efforts to promote a products sale.
affect one business or parts of the economic system.
Buyer or Consumer → is defined as the basic
ENGINEERING ECONOMICS consuming or demanding unit of a commodity. It may
→ is branch of economics which deals with the be an individual purchaser of a good or service, a
applications of economic laws and theories involving household (a group of individuals who make joint
engineering and technical projects or equipment. purchasing decisions), or a government.
→ is the analysis and evaluation of the factors that will
affect the economic success of engineering projects Seller → is defined as an entity which makes product,
to the end that a recommendation can be made which good or service available to buyer or consumer in
will ensure the best use of capital. exchange of monetary consideration.
Consumer Goods and Services → refer to the Market Situations The price of any commodity or
products or services that are directly used by people product will depend largely on the following:
to satisfy their wants.
Producer Goods and Services → are those that are
used to produce the consumer goods and services.
Necessity → refers to the goods and services that are
required to support human life, needs and activities.
Necessity Product or Staple Product → is defined as
any product that has an income-elasticity of demand
less than one. This means that as income rises,
proportionately less income is spent on such Perfect Competition → (also known as atomistic
products. Examples: bread, rice, clothing competition) occurs in a situation where a
commodity or service is supplied by a number of
Luxuries → are those goods and services that are vendors and there is nothing to prevent additional
desired by human and will be acquired only after all vendors entering the market.
the necessities have been satisfied.
Characteristics of Perfect Competition
Luxury Product → is defined as any product that has
an income-elasticity of demand greater than one. This
1 Many sellers and many buyers
means that as income rises, proportionately more 2 Homogeneous products
income is spent on such products. Examples: electric 3 Free market-entry and exit
appliances, expensive cars, holidays and 4 Perfect information
entertainments 5 Absence of all economic friction
Monopoly → is the opposite of perfect Factors that Influence Demand
competition. 1 Income
2 Population
Characteristics of Monopoly 3 Taste and preference
1 One seller and many buyers 4 Price Expectation 5 Price of Related Goods
2 Lack of substitute products
3 Blockaded entries Supply → is the amount of a product made
available for sale.
Natural Monopoly → is a market situation where
economies of scale are so significant that costs Supply Curve → is the plot or graph of the quantity
are only minimized when the entire output of an supplied versus the price.
industry is supplied by a single producer so that
supply costs are lower under monopoly than Supply Schedule → is the schedule or table
under perfect competition and oligopoly listing of the quantity supplied with the
corresponding price.
Oligopoly → exists when there are so few supplies
of a product or service that action by one will Factors that Influence Supply
almost inevitably result in a similar action by the 1 Price of Goods
other suppliers. 2 Cost of Production
3 Availability of Resources
Characteristics of Oligopoly 4 Number of Producer and Sellers
1 Few sellers and many buyers 5 Technological Advancement
2 Homogeneous or differentiated products 6 Taxes
3 Difficult market entry 7 Subsidies
Demand → is the need, want or desire for a Relationship of Supply and Demand
product backed by the money to purchase it. In Shortage – the supply is less than the demand.
economic analysis, demand is always based on” Surplus – the supply exceeds the demand.
willingness and ability to pay” for a product, not Equilibrium Point – the supply is equal to the
merely want or need for the product. demand.
Elastic Demand → occurs when a decrease in What is the Law of Supply and Demand?
selling price results in a greater than It states that when there is additional demand
proportionate increase in sales. without an additional supply, a new and higher
price is established.
Inelastic Demand → occurs when a decrease in
selling price produces a less than proportionate What is the Law of Diminishing Returns?
increase in sales. When the use of one of the factors of production
is limited, either in increasing cost or by absolute
Unitary Elasticity → occurs when the quantity, a point will be reached beyond which an
mathematical product of volume and price is increase in the variable factors will result in a less
constant. than proportionate increase in output.
