Sometimes the engineering
students be confused why they have to read economics in completing their engineering course. There is a deep relation between Economics and Engineering. This blog will help these students to learn about this issue…
What is Economics?
The word Economics comes from two Greek words, Eco meaning home and Nomos meaning accounts. Literally Economics means to keep the family accounts.
The term Economics refers to the social science concerned with production, distribution & consumption of goods & services. It studies how individuals, businesses, governments & nations
make choices on allocating resources to satisfy their wants & needs, trying to determine how these groups should organize & coordinate efforts to achieve maximum output.
Economics and Engineering
Engineering Economics is a subset of economics concerned with the use & application of economic principles in the analysis of engineering decision. This subject helps one to understand the need for the knowledge of Economics for being an effective manager and decision maker.
It studies the behavior of individuals & firms in making decisions regarding the allocation of limited resources. It is pragmatic by nature, integrating economic theory with engineering practice. It draws upon the logical framework of economics but adds to that the analytical power of mathematics and statistics.
Special characteristics of Engineering Economics
- Engineering Economics is closely aligned with Conventional Micro-Economics.
- It is devoted to the problem solving and decision making at the operations level.
- It can lead to sub-optimization of conditions in which a solution satisfies tactical objectives at the expense of strategic effectiveness.
- It identifies alternative uses of limited resources & to select the preferred course of action.
- Engineering Economics is pragmatic in nature. It removes complicated abstract issues of economic theory.
- It mainly uses the body of economic concepts and principles.
- Engineering Economics integrates economic theory with engineering practice.
Why Economics is essential in Engineering?
Making Decision: The Economics theories are used to take decisions related to uncertain and changing business environment. Economics theories deal with the principles of demand, pricing, cost, production, competition, trade cycles, national income and so on.
Problem solving: Engineers seek solutions to problems & the economic viability of each
potential solution is normally considered along with the technical aspects. Engineering
economics involves systematic evaluation of the economic benefits of proposed solutions to engineering problems.
Industrial Economics: To be concern about the economics of the management, operation,
growth & profitability of engineering firms as well as the macro-level economic trends & issues.
Choosing alternatives: For each problem, there are usually many possible alternatives.
Fundamentally, engineering economics involves formulating, estimating and evaluating the economic outcomes when alternatives to accomplish a defined purpose are available. The opportunity cost of making one choice over another must also be considered.
Attributes: There are also non-economic factors to be considered, as like- color, style, public image etc.; such factors are termed attributes.
Cost Engineering: Costs as well as revenues are considered, for each alternative, for an analysis period that is either a fixed number of years or the estimated life of the project. Some other topics that may be addressed are inflation, uncertainty, replacements, depreciation, resource
depletion, taxes, tax credits, accounting, cost estimations or capital financing. All these topics are primary knowledge areas in the field of cost engineering.
Marketing & Financing: To understand the engineering product markets & demand influences; the development, marketing and financing of new engineering technologies and products.
Critical Path: The critical paths must be determined and closely monitored by engineers and managers alike. Engineering economics helps provide the Gantt charts and activity-event networks to ascertain the correct use of time and resources.
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