GE 301

ENGINEERING ECONOMY
The Money Side of Engineering
3 lecture units

An Introduction by

George Y. Chao Jr.

Assistant Professor
Department of Chemical Engineering
University of Santo Tomas

Engineer X:
"Money matters will be handled by
someone else. It is not something
I need to worry about."

True? ______
False? ______

Which conductor should be used for electrical cables?

Material

Electrical
Conductivity
(Sm-1)

Notes

Silver

6.30 107

Best electrical conductor of any known metal

Commonly used in electrical wire applications
due to very good conductivity and price
compared to silver.
Referred to as 100% IACS or International
Annealed Copper Standard. The unit for
expressing the conductivity of nonmagnetic
materials by testing using the eddy-current
method. Generally used for temper and alloy
verification of aluminium.

Copper

5.69 107

Annealed
Copper

5.80 107

Gold

4.52 107

Gold is commonly used in electrical contacts

because it does not easily corrode.

Aluminum

3.5 107

Commonly used for high voltage electricity

distribution cables

Money also matters for engineers.

An engineer routinely face two

important questions regarding
his design of a process or
equipment:

Does it work?
Is it technically sound?

How much does it cost?

Is it profitable? Is it economically sound?

GE 301
ENGINEERING ECONOMY
The Monetary Side of Engineering
3 lecture units

Textbook: Engineering Economy

by Hipolito Sta Maria, 3rd edition
Interest and Money-Time Relationships
Depreciation
Methods for Making Economy Studies
Comparing Alternatives

Engineering Economy
Definitions
The analysis and evaluation of the factors
that will affect the economic success of
engineering projects to the end that a
recommendation can be made which will
ensure the best use of capital. (Sta Maria 3rd
edition)

Involves the systematic evaluation of the

economic merits of proposed solutions to
engineering problems. (Sullivan 11th edition)

Resources

Land
Labor
Capital

LAND
All gifts of nature, such as: water,
air, minerals, sunshine, plant and
tree growth, as well as the land
itself which is applied to the
production process.

LABOR
The efforts, skills, and knowledge
of people which are applied to the
production process.

CAPITAL
Real Capital (Physical Capital )
Tools, buildings, machinery -- things which
Dollar Bills
have been produced which are used in further
production

Financial Capital
Assets and money which are used in the
production process

Human Capital
Education and training applied
to labor in the production process

Origins of Engineering Economy

Pioneer: Arthur M. Wellington, civil engineer
latter part of nineteenth century;
addressed role of economic analysis in
engineering projects;
area of interest: railroad building

CONSUMER GOODS AND PRODUCER

GOODS AND SERVICES
Consumer goods and services are those
that are directly used by people to satisfy
their wants;
Producer goods and services are those
used in the production of consumer goods
and services: machine tools, factory
buildings, buses and farm machinery are
examples;

Necessities

versus

Products or services
that are required to
support human life and
activities
Purchased in somewhat
the same quantity by
consumers even if the
price varies significantly

Luxuries
Products or services
that are desired by
humans
Purchased only if
money is available after
the required necessities
have been obtained

Demand
the quantity of a certain
commodity that is
bought at a certain
price at a given place
and time.

Elastic demand occurs

when a decrease in
selling price results in a
greater than
proportionate increase
in sales.
Inelastic demand occurs
when a decrease in
selling price results in a
less than proportionate
increase in sales.

Demand
Luxury

Demand

Elastic demand occurs

when a decrease in
selling price results in a
greater than
proportionate increase
in sales.
Inelastic demand occurs
when a decrease in
selling price results in a
less than proportionate
increase in sales.

Necessities

Price

Demand

Supply

the quantity of a certain

commodity that is
bought at a certain
price at a given place
and time.

the quantity of a certain

commodity that is
offered for sale at a
certain price at a given
place and time.

Engineering Economy
Assignment number 1

1. Differentiate competition, oligopoly,

and monopoly.
2. State the law of supply and demand.
Explain briefly.

3. State the law of diminishing returns.

Explain briefly.