ENGINEERING

ECONOMY
2024 AUTUMN
Lecturer: Research Assistant Dr. İsmail ÖZTANIR
WEEK I
4th October, 2024
 LECTURE 1
WHAT IS ECONOMICS AND ENGINEERING ECONOMY?
 ➢ Human needs and wants are infinite, but the goods
and services that could satisfy these needs are limited
or scarce.
What is ➢ Natural resources cannot be used by themselves and
must be processed with various technologies and
Economics? production methods before they are used to satisfy
unlimited human needs.
➢ Not all people have all the resources they need to
meet their needs and wants.
➢ Some people have more resources, goods, or services,
and some have less of them.
➢ Therefore, they exchange them with each other in
return for some value like goods, services, resources,
or money.
➢ Thus, economics is a science that investigates the
production and Exchange activities of goods and
services to satisfy human needs and wants.
 ➢ The goods and services are limited because the
economic resources used in their production are
scarce.
Economics is ➢ Thus, a choice must be made for the usage of
a social available resources to decide which goods and
services will be produced in what amounts, in what
science and a ratio they will be allocated to whom, and how they
will be allocated.
science of ➢ In other words, economics is a social science that
scarcity. investigates how people, societies, individuals,
firms, governments, and institutions use
limited/scarce resources to produce goods and
services to satisfy their wants and needs now and
in the future, how they allocate them, what choices
they make to reach maximum satisfaction, utility,
profit, and welfare by using scarce resources,
goods, and services.
➢ Economics is the study of scarcity and its implications for the use of
resources, production of goods and services, growth of production and
welfare over time, and a great variety of other complex issues of vital
concern to society.
➢ Economics is a social science, and social sciences are concerned with the
study of human behavior.
➢ Therefore, human is at the center of economics. Economics is concerned
with how humans make decisions as consumers or producers; how these
decisions affect each other and society.
➢ The resources humans can use are limited, in other words scarce, and
humans have unlimited or infinite needs and wants according to economics.
➢ Because of this, there is a need to decide how these scarce resources will
be used to produce goods and services that will be consumed now and in
the future, and who will produce and consume these goods and services. As
science economics tries to make these decisions about the allocation of
scarce resources.
3 Main Questions of
Economics:
Economics tries to find answers to three
main questions:
1) Which goods and services will be
produced?
2) How the goods and services will be
produced?
3) Who will get the goods and services?
 ➢ Price stability: One of the significant aims of the
economy is the stability of the general price
Objectives of levels. The steady increase in price levels
(inflation), economic stagnation, and similar
Economics problems have to be overcome, and policies on
this subject are needed to be developed as the
price stability objective.
➢ Full employment: Having a job for everyone who
wants to and can work and having all these
people work in these jobs is the full-
employment objective.
➢ Fair income distribution: One of the most
important aims of the economy is the fair
distribution of the national income and having
the difference between low-income and high-
income groups not be very large.
Objectives of ➢ Economic freedom: To carry out the economic activities
of the producer and consumer units in the economy
freely and according to the rules of the economy is a
Economics significant aim of the economy. The freedom of
economic action, freedom of religion and beliefs, and
(cont.) freedom of thought are complementary freedoms that
empower the society’s structure and make individuals
more productive and efficient.
➢ Protection of the natural environment: If economic
activities are harming nature and the environment,
there will be consequences for humans that will create
social costs. Destruction of nature and the
environment will cause the already scarce resources to
diminish more. Therefore, nature and the environment
must be protected while engaging in economic
activities.
Branches of Economics
➢ Economics is divided into branches/disciplines according to the economic problems
studied and the systems of thought. The most commonly well-accepted
classifications are macroeconomics, microeconomics, and positive and normative
economics.
➢ Macroeconomics is a discipline that investigates the economy and the economic
behaviors of society as a whole. Macroeconomics studies macro subjects such as
aggregate production, supply and demand, employment, general price level, national
income, monetary and financial policies, banking, capital markets, economic growth,
and income distribution.
➢ Microeconomics investigates the behavior of and the relationship between the
individual decision-making units in the economy, such as consumers, producers,
resource holders, and firms. For instance, while microeconomics is interested in the
supply and demand of one good or service, macroeconomics is interested in the
aggregate supply and demand of all goods and services. Likewise, while
microeconomics dwells upon only one price for a good or service, macroeconomics
emphasizes the general price level.
■ Positive economics tries to identify what the economy is. Positive economics does
not contain value judgements. Positive economics focuses on the cause-and-effect
relationships that can be tested with some real-life data.
■ Normative economics examines what the economy should be to maximize social
welfare. For instance, investigating the effects of minimum wage practice on the
young population is positive economics. If the research is about the necessity of
minimum wages, it is part of normative economics.
■ The economics also can be classified according to
– Economic sectors or similar activities: e.g., agricultural economics,
international economics, education economics, health economics, etc.
– Aims of the economy: e.g., managerial economics, business economics,
engineering economics, etc.
– The historical research of economics: e.g., economic history, history of
economic thought, etc.
■ Managerial economics covers subjects like how a production process should be
done in a firm, what should be produced from what, identification of costs and
prices, employment of personnel, investments, optimal decision-making in
marketing operations, production and cost analyses, game theory and
determination of competitive strategies, decision-making under risk and uncertainty,
tax policies, etc.
■ Business economics includes subjects from managerial economics but also covers
firm organization, pricing, financing, production types, etc.
■ Engineering economics covers subjects like investment decisions in a firm,
investigation of the feasibility of investment, valuation criteria of investment
analyses, purchasing and renting analyses, time value of money, making investment
decisions under risk and uncertainty, etc.
What is ➢ Engineering is the profession in which a
knowledge of mathematical and natural
Engineering sciences gained by study, experience, and
practice is applied with judgement to develop
Economy? ways to utilize, economically, the materials and
forces of nature for the benefit of humans
(definition by USA Accreditation Board of
Engineering and Technology, 1998).
➢ This definition emphasizes the economic
aspects of engineering as well as its physical
aspects. Engineers use knowledge to find new
ways of doing things economically.
 ➢ Engineering economy is the monetary
Engineering side of decisions that engineers make or
economy is recommend as they work to position a
firm to be profitable in a highly
the monetary competitive marketplace. Decisions
made have trade-offs inherently among
side of the different types of costs and the
engineering performance (e.g., response time,
safety, weight, reliability, etc.) provided
decisions. by the proposed design or problem
solution.
➢ The mission of the engineering economy
is to balance these trade-offs most
economically.
■ Engineering economy involves systematic evaluation of the
economic merits of proposed solutions to engineering
problems. To be economically acceptable (i.e., affordable),
the engineering problem solutions must demonstrate a
positive balance of long-term benefits over long-term costs,
and they must also
– promote the well-being and survival of the organization,
– embody creative and innovative technology and ideas,
– permit identification and scrutiny (analysis) of their
estimated outcomes, and
– translate profitability to the «bottom line (critical decision
factor)» through a valid and acceptable measure of
merit.
References

■ Okka, Osman (2020). Onikinci Bölüm: Genel Ekonomi ve Temel Kavramlar, 517-567.
Mühendislik Ekonomisi: Prensipler ve Uygulamalar (8. Basım). Ankara: Nobel
Akademik Yayıncılık.
■ Sullivan, W. G., Wicks, E. M. & Koelling, C. P. (2015). Chapter 1: Introduction to
Engineering Economy, 1-20. Engineering Economy (16th Edition). USA: Pearson
Higher Education.