WHAT IS ECONOMICS?

 The study of the nature and the causes of national wealth or simply as the study of wealth.
Adam Smith ( 1723 – 1790), a Scottish Professor of philosophy at Glasgow University, whose
writings :” An Inquiry into the Nature and Causes of the Wealth of Nations” in 1776
 The study of man in the ordinary business of life.
Alfred Marshall (1842-1924), an English Professor of political economy at the Cambridge
University who depicted precise mathematical relationship between economic variables in his
textbook “Principles of Economics” in 1890
 The study of economic welfare which can be brought, directly or indirectly, into relationship
with the measuring-rod-money.
Arthur Cecil Pigou (1877-1959), an English student in Professor Albert Marshall, who succeeded
him as professor of political economy at Cambridge University and developed the theory of
welfare economics in his book “The Economics of Welfare” in 1919
 The science which studies human behavior as a relation between ends and scarce means have
other alternative uses.
Lionel Robbins, an economist in the tradition of the English classical school
 The study of the problems of using available factors of production as efficiently as possible so as
to attain the maximum fulfillment of society’s unlimited demands for goods and services.
Collins Dictionary of Economics
 In its simplest definition, economics is the wise use of both money and time.

WHAT IS MONEY?

Anything that is generally acceptable as a means of exchange and at the same time acts as a measure
and a store of value.

The money which is now used a medium of exchange on local, national and international markets has
evolved from shells, elephant tusks, animal skins to metallic money to paper money after the invention
of printing press in 18th century to finally bank money with the development of banking money.

MONEY CAN FULFILL THAE FOLLOWING FUNCTIONS

1. As a medium of exchange
Goods and services can be exchanged for money, which can be exchanged for other good and
services
2. As a unit of account
The units in which money is measured (pesos, dollars, pounds, etc) are used as the units in
which prices, financial assets, debts, accounts, etc. are measured.
3. As a store value
A portion of a person’s income may be used for immediate consumption while the rest may be
held in some in order to yield future consumption. Since the money grows with time, the money
held over a period of time as a store of value or purchasing power.

WHAT IS ENGINEERING ECONOMY?

-Is the analysis and the evaluation of the monetary consequences by using the theories and principles of
economics to engineering applications, designs and projects.
-Is the study of problems involving economic solutions with the concepts of obtaining the maximum
productivity or reward at least cost or risk. It is the desirability of making an investment.

CONSUMER and PRODUCER GOODS and SERVICES

 Good or Commodity is defined as any tangible economic product that contributes directly or
indirectly to the satisfaction of human wants.
 Service is defined as any tangible economic activity that contribute directly or indirectly to the
satisfaction of human wants.
 Consumer goods and services are those products or services that are directly used by people to
satisfy their wants.
  Producer goods and services also satisfy human wants but indirectly in as much as they are used
to produce the consumer goods and services.

NECESSITIES and LUXURIES

 Necessities refer to the goods and services that are required to support human life, needs and
activities.
 Necessity product or staple product is defined as any product that has an income-elasticity of
demand less than one. This means that as income rises, proportionately less income is spent on
such products.
 Luxuries are those goods and services that are desired by human and will be acquired only after
all the necessities have been satisfied.
 Luxury product is defined as any product that has an income-elasticity of demand greater than
one. This means that as income rises, proportionately more income is spent on such products.

MARKET SITUATIONS
MARKET refers to the exchange of mechanism that bring together the sellers and the buyers of a
product, factor of production or financial security. It may also refer to the place or area in which buyers
and sellers exchange a well-defined commodity.
BUYER or CONSUMER is defined as the basic consuming or demanding unit of a commodity. It may be an
individual purchaser of a good or service, a household, or a government.
SELLER is defined as an entity which makes product, good or service available to buyer or consumer in
exchange of monetary consideration.

Market Situation Sellers Buyers

Perfect competition Many Many
monopoly One Many
Monopsony Many One
Bilateral monopoly One One
Duopoly Two Many
Duopsony Many Two
Oligopoly Few Many
Oligopsony Many Few
Bilateral oligopoly Few Few

DEMAND
It is the need, want or desire for a product backed by the money to purchase it. Demand is always based
on “willingness and ability to pay” for a product, not merely want or need for the product.
The demand of the product is inversely proportional to its selling price.

SUPPLY
It is the amount of a product made available for sale.
The relationship between price and supply is that they are directly proportional.

THE LAW OF SUPPLY AND DEMAND

“Under conditions of perfect competition, the price at which any given product will be supplied and
purchased is the price that will result in the supply and the demand being equal”