Engineering and
Engineering Economy
Engineering Economy
Spring, 2025
Are you an engineer?
Then, who the heck is a scientist?
What is efficiency?
Physical vs. Economic
Do you know “Economics” ?
Is transportation a “Public Good” ?
• A public good is a good that is both nonexcludable and non-rivalrous in that individuals cannot
be effectively excluded from use and where use by one
individual does not reduce availability to others.
Rivalrous
Non-rivalrous
Excludable
Private Goods
food, clothing, cars,
parking spaces
Club Goods
cinemas, private
parks, satellite
television
Non-excludable
Common-pool
resources
fish stocks, timber,
coal
Public Goods
free-to-air television,
air, national defense
• Tragedy of the commons: a situation in a sharedresource system where individual users acting
independently according to their own self-interest
behave contrary to the common good of all users by
depleting or spoiling that resource through their
collective action
• Free-rider problem: those who benefit from resources,
public goods, or services do not pay for them, which
results in an underprovision of those goods or services
Externalities
• An externality is the cost or benefit that affects a party
who did not choose to incur that cost or benefit.
• A negative (positive) externality is any difference between
the private cost (benefit) of an action or decision to an
economic agent and the social cost (benefit).
• Economists often urge governments to adopt policies
that will "internalize" an externality, so that costs and
benefits will affect mainly parties who choose to incur
them.
Welcome to the world of
Engineering Economy!!
Thank you
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