Economy and
Economics
Economy, in a brooder perspective, is a science which deals
about the utilization of scares resources such as land, labor and capital for satisfying
the needs and wants of society. Economy in another term shall be defined as a
social science related to production, distribution, supply and demand of goods
and services required for a society to be supplied in cost effective way,
moreover economy is that science related
to money which establish the tools technique and theories to examine to worth
of the system.
On the other hand economics is a science which focus on
implementations of established tools technique and theories to examine the
worth of smaller system such as economics of firms but we used the terminology for
the industry in simple term economics can answer the following question.
1.
How much to save?, How much to earn?, How much
to expand?, How much to invest?
2.
How much to produces, what should be the selling
price, how much to make as profit?
However, a nation can decide how much to spend for
development, defense work, basic need of public etc. All come under concept of
economy.
This two
terminology shall be differentiated using their principle.
|
Principle of economy |
Principle of economics |
|
Developed the alternatives. |
The instant dollar is much more worthy than a distant dollar. |
|
Focus on difference. |
Marginal revenue must exceed marginal cost. |
|
Use consistent viewpoint. |
No additional risk must be taken if no additional benefit could be made. |
|
Use common unit of measure. |
All that counts only which we have already consider as an
alternative. |
|
Make, explicit for uncertainties and risk. |
|
|
Revisit your decision. |
|
Origin of
engineering economy
In engineering sector(Arthur M. Wellington) American civil engineer
first coined the term economics in railroad construction project in late 19th
century. His area of interest was how society can be benefited by rail
road construction with American congress budget. He developed a railroad
location theory based on societal economy benefit. Then after different scholar
contribute for economic consideration in civil engineering infrastructure
development project. J.C.L Fish and O.B Goldman develop a mathematical model for
infrastructure development through long term and short term investment. Finally
in 1930 Engene L. Grant become a to pervasive. The concept of economics in all
engineering sector through his book in title “principles of engineering economy”.
These theory is currently based used in every engineering sector as a basis of
economic analysis. These is the region, he is often known as father of
engineering economics.
Role of
engineer in decision making
Having knowledge in engineering economics engineer shall
perform fallowing roles as a decision making in any firm/ office/ government organization/
other business venture.
- Cost reduction role for profit maximization.
- Product and service quality assurance role.
- Product and service expansion and diversification.
- Equipment, tools plants and machinery replacement decisive role by when equipment shall be replaced.
- Operation and maintenance facility at reduced or customized cost.
Cash flow
diagram
For a project having life more than 1 year shall be
associated with cash inflow to the project( positive cash) and cash outflow
from project (negative cashflow) at different time line if it represented in graphical
form (+ cash upward and – cash downward) ,it is known as CFD. There are 5
standards cashflow diagram as mention below:
a)
Single payment cashflow
b)
Uniform or equal payment cashflow
c)
Linear gradient cashflow
d)
Geometric gradient cashflow
e)
Random or unequal payment cashflow
