Principle of Economics
The engineer has to think about the cost of job he is performing. Hence there is limitation of cost consideration for the engineers. Money expenses are important to every design an engineer creates. He has to deal and think carefully and effectively about his design, materials and equipments required, capital investments, tools and other project, plant etc. that are necessary to create jobs.
Engineering economy depends upon a number of monetary and non-monetary factors. It studies the manner in which engineering projects should be undertaken, so as to have the best utilization of available capital, technical knowledge and other non-monetary aspects.
Economic Laws:
Economics is a social science and like other social sciences, it has its own principles or laws. These laws tell us how man behaves under certain conditions. They also give us an idea about the results likely to follow certain conditions. A fall in price is accompanied by extension in demand. In other words ‘Economics laws of economic tendencies are those which relate to branches of conduct in which the strength of the motives chiefly concerned can be measured by a money price’. As the economic phenomenon are complex and varied, a number of factors influence the formulation of the basic principles which are nothing but generalizations and are called as laws.
In other words the fundamental assumption of economic analysis is that every individual acts in a sensible manner and it is sensible for the individual to balance marginal costs and marginal gains. Sensible conduct leads to maximum of money gains.
Thus there are four fundamental and important assumptions on which all economic laws are formulated. They are as follows:
1. Maximum satisfaction: This broadly relates to the human activities or attempts which are concerned with deciding preferences of innumerable wants on the basis of degree of their urgency and allocate available resources which are very scarce.
2. Man is a rational being:It indicates that the person behaves rationally while deciding his preferences. He does not behave on the basis of impulses while making choice between his wants and allocating resources to satisfy those wants.
3. Average man: This is the term which explains the economic motives and activities of a group of persons. If we wish to find out the total market demand for any particular commodity, it is necessary to consider the demand of a rational consumer for that commodity and then multiplying it by the total number of consumers in the market.
4. Other things being constant: The term ‘other things’ refers to income taste, price, fashion, prices of available substitute goods in the market etc. These factors are assumed to be constant, so that the correct economic analysis of the economic activity can be made.
Types of economics:
Basically there are two types of economics:
1. Internal Economics
2. External Economics
Internal economics:
a. Technical Economies: It is concerned with the size of the firm, superior technique or increased specialization.
b. Managerial Economies: It arises by creating special departments or functional specialization. It is useful when production is taken on a large scale.
c. Commercial Economies: Purchase or material and goods, greater bargaining power, in case of large purchases and concessions in transport.
d. Financial Economies: Big firms enjoy the position of better credit worthiness and can borrow money at a favorable rate if interest.
e. Risk Bearing Economies: A big firm can spread the risks over a larger area by diversifying output.
External economics:
a. Economics of concentration (advantages of localization)
b. Economics of information: Publications, technical journals, central research institutes are the examples.
Economics can be further classified on the basis of scope of study as follows,
Macro economics and micro economics:
These terms are derived from the field of physical sciences. Macro economics deals with the study of the whole economic system, while micro economics is the study concerned with innumerable decision-making units which constitute the whole economic system. In other words it can be said micro economics deals with a particular individual, households, and industries or with the problems of individual firms or economic distribution. It tries to explain the economic motive, behavior of individual consumers, the growth and or decline of individual firms and/or the overall dimensions of the economic life of a country, i.e. with the aggregate volume of income, output, consumption, demand, supply, saving, investment and employment in the country. Macro economics is concerned with overall performance of the economy. The basic concept of micro economics is gross national produce, national income, national consumption, expenditure and investment, price and employment etc.
The engineer has to think about the cost of job he is performing. Hence there is limitation of cost consideration for the engineers. Money expenses are important to every design an engineer creates. He has to deal and think carefully and effectively about his design, materials and equipments required, capital investments, tools and other project, plant etc. that are necessary to create jobs.
Engineering economy depends upon a number of monetary and non-monetary factors. It studies the manner in which engineering projects should be undertaken, so as to have the best utilization of available capital, technical knowledge and other non-monetary aspects.
Economic Laws:
Economics is a social science and like other social sciences, it has its own principles or laws. These laws tell us how man behaves under certain conditions. They also give us an idea about the results likely to follow certain conditions. A fall in price is accompanied by extension in demand. In other words ‘Economics laws of economic tendencies are those which relate to branches of conduct in which the strength of the motives chiefly concerned can be measured by a money price’. As the economic phenomenon are complex and varied, a number of factors influence the formulation of the basic principles which are nothing but generalizations and are called as laws.
In other words the fundamental assumption of economic analysis is that every individual acts in a sensible manner and it is sensible for the individual to balance marginal costs and marginal gains. Sensible conduct leads to maximum of money gains.
Thus there are four fundamental and important assumptions on which all economic laws are formulated. They are as follows:
1. Maximum satisfaction: This broadly relates to the human activities or attempts which are concerned with deciding preferences of innumerable wants on the basis of degree of their urgency and allocate available resources which are very scarce.
2. Man is a rational being:It indicates that the person behaves rationally while deciding his preferences. He does not behave on the basis of impulses while making choice between his wants and allocating resources to satisfy those wants.
3. Average man: This is the term which explains the economic motives and activities of a group of persons. If we wish to find out the total market demand for any particular commodity, it is necessary to consider the demand of a rational consumer for that commodity and then multiplying it by the total number of consumers in the market.
4. Other things being constant: The term ‘other things’ refers to income taste, price, fashion, prices of available substitute goods in the market etc. These factors are assumed to be constant, so that the correct economic analysis of the economic activity can be made.
Types of economics:
Basically there are two types of economics:
1. Internal Economics
2. External Economics
Internal economics:
a. Technical Economies: It is concerned with the size of the firm, superior technique or increased specialization.
b. Managerial Economies: It arises by creating special departments or functional specialization. It is useful when production is taken on a large scale.
c. Commercial Economies: Purchase or material and goods, greater bargaining power, in case of large purchases and concessions in transport.
d. Financial Economies: Big firms enjoy the position of better credit worthiness and can borrow money at a favorable rate if interest.
e. Risk Bearing Economies: A big firm can spread the risks over a larger area by diversifying output.
External economics:
a. Economics of concentration (advantages of localization)
b. Economics of information: Publications, technical journals, central research institutes are the examples.
Economics can be further classified on the basis of scope of study as follows,
Macro economics and micro economics:
These terms are derived from the field of physical sciences. Macro economics deals with the study of the whole economic system, while micro economics is the study concerned with innumerable decision-making units which constitute the whole economic system. In other words it can be said micro economics deals with a particular individual, households, and industries or with the problems of individual firms or economic distribution. It tries to explain the economic motive, behavior of individual consumers, the growth and or decline of individual firms and/or the overall dimensions of the economic life of a country, i.e. with the aggregate volume of income, output, consumption, demand, supply, saving, investment and employment in the country. Macro economics is concerned with overall performance of the economy. The basic concept of micro economics is gross national produce, national income, national consumption, expenditure and investment, price and employment etc.