ENGINEERING ECONOMY
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Analysis and evaluation of the economic worth of project
Able to learn all that can happen financially
 Is it able to support that project financially?
 Will we make money in that project?
7 PRINCIPLES OF ENGINEERING ECONOMY
1.
2.
3.
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4.
5.
6.
7.
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Know the problem and produces alternatives
Should have made a back-up plan
Compare each alternatives
In order to know their differences
Have a specific point of view
Whose interest will be followed?
 The family who wants the house strong
 Or The boss who wants to save
Do not choose immediately
Use a universal unit of measure
Stick with universal unit of measure use. For example, if you use PHP only, just PHP.
Don’t forget the other criteria
Maintenance
Land
Weather
Location
Consider the risk and uncertainties
Nobody can predict the future accurately. Be ready. Make it calculated.
Review your decisions
Are you sure about your decision? Is it okay with you?
CONSUMER GOODS/SERVICES
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Product that directly consumed by the people
 Rice
 Coffee
 Sugar
PRODUCER GOODS/SERVICES
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The one who make the products
Producers use a raw material to make consumer goods/services
 Wood
 Coffee beans
 Thread
 Clothing fabric
NECESSITIES
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Basic needs of people
 Clothing
 Food
 Water
 Shelter
LUXURIES
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Wants of the people
People can live without it
 Cars
 Cellphone
 Etc.
SUPPLY
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Available product in the market
Number of quantities available
DEMAND
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Consumer’s desire to purchase the product
Number of customer willing to consume that product
LAW OF DEMAND
ELASTIC DEMAND
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When a product or service's demanded quantity changes by a greater percentage than
changes in price.
When the price goes up, the demand goes down
INELASTIC DEMAND
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Whose percentage change is less than a percentage change in price. For example, if the
price of a commodity rises twenty-five percent and demand decreases by only two
percent
As the price increases then the demand also increase
LAW OF SUPPLY
LAW OF SUPPLY AND DEMAND
- BALANCE OF
SUPPLY AND
DEMAND
CLASSIFICATION OF MARKET STRUCTURE
 PERFECT COMPETITION
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Describes a market structure where competition is at its greatest possible level.
There is more seller and buyer
SELLER –---------------------------------------------------------------------------------- BUYER
-sell a product at identical market price
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MONOPOLY
There is one seller with many buyer
They are the one who produce the product
 MONOPSONY
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Many sellers with one buyer
Compatible with labor market
A single buyer controls or dominates the demand for goods and services.
 OLIGOPOLY
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Few sellers with few buyers
The seller is dependent because they are the only one who compete with the other
For example, PETRON, SHELL, AND CALTEX
 OLIGOPSONY
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Many suppliers, few buyers
A market for a product or service which is dominated by a few large buyers. The
concentration of demand in just a few parties gives each substantial power over the
sellers and can effectively keep prices down.
LAW OF DIMINISHING RETURN
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States that adding an additional factor of production results in smaller increases in
output. After some optimal level of capacity utilization, the addition of any larger
amounts of a factor of production will inevitably yield decreased per-unit
incremental returns.