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Engineering Economics: A Prologue

INTRODUCTION Engineering economics is concerned with the formulation, estimation and evaluation of the economic outcomes of alternatives that are available to accomplish a defined purpose. Engineering economics can be defined as a collection of mathematical techniques that simplify economic comparison. Engineers use the knowledge of engineering economics in analyzing, synthesizing and drawing conclusions as they work on projects of different sizes. In other words, the techniques and models of engineering economics assist engineers in making decisions. The success of engineering and business projects is normally measured in terms of financial efficiency. A project will be able to achieve maximum financial efficiency when it is properly planned and operated with respect to its technical, social, and financial requirements. Since engineers understand the technical requirements of a project, they can combine the technical details of the project and the knowledge of engineering economics to study and arrive at a sound managerial decision. The basic economic concepts that are essentially factors to be considered in making economy studies are briefly discussed in this chapter. INTRODUCTION TO ECONOMICS Economics is about choice and is at the heart of all decision-making. Individuals, businesses and governments are all faced with making choices in situations where resources are scarce. The principles of economics are applied to a wide range of fields, including business, finance, administration, law, local and national government and, indeed, in most of the aspects of everyday life. While studying economics, we examine topics of obvious importance to the well-being of all humans. Increasingly, policy debates in all areas are being cast in economic terms and understanding most of the current issues requires an understanding of economics. NEED TO STUDY ECONOMICS Studying economics gives insights into the general environment of resource allocation decisions, opportunity costs and project evaluation which are crucial in many areas. Often, these insights are not obvious, and can be counter-intuitive to those who don't apply economic reasoning. Economics studies economic activities : Humans perform various types of activities in their daily lives like religious, social, political and economic activities. Economics does not deal with all of them. But humans spend the maximum time on economic activities. Therefore, economics is a subject which studies economic activities of humans.