ECON 1

• Economics is the study of how limited resources is used to satisfy unlimited human wants.
• Economics is the study of how individuals and societies choose to use scarce resources that nature and previous generations have provided.
• TYPES OF RESOURCES ARE LAND LABOR CAPITAL
• LAND - All gifts of nature, such as: water, air, minerals, sunshine, plant and tree growth, as well as the land itself which is applied to the production process.
• LABOR - The efforts, skills, and knowledge of people which are applied to the production process.
• Real Capital (Physical Capital ) – Tools, buildings, machinery -- things which have been produced which are used in further production
• Financial Capital – Assets and money which are used in the production process
• Human Capital – Education and training applied to labor in the production process
• Pioneer: Arthur M. Wellington, civil engineer latter part of nineteenth century; addressed role of economic analysis in engineering projects; His area of interest: railroad building. Followed by other contributions which emphasized techniques depending on financial and actuarial mathematics.
• PRINCIPLES OF ENGINEERING ECONOMY 1. Develop the Alternatives 2. Focus on the Differences 3. Use a Consistent Viewpoint 4. Use a Common Unit of Measure 5. Consider All Relevant Criteria 6. Make Uncertainty Explicit 7. Revisit Your Decisions
• DEVELOP THE ALTERNATIVES - Carefully define the problem! Then the choice (decision) is among alternatives. The alternatives need to be identified and then defined for subsequent analysis.
• FOCUS ON THE DIFFERENCES - Only the differences in expected future outcomes among the alternatives are relevant to their comparison and should be considered in the decision.
• USE A CONSISTENT VIEWPOINT - The prospective outcomes of the alternatives, economic and other, should be consistently developed from a defined viewpoint (perspective).
• USE A COMMON UNIT OF MEASURE - Using a common unit of measurement to enumerate as many of the prospective outcomes as possible will make easier the analysis and comparison of alternatives.
• CONSIDER ALL RELEVANT CRITERIA - Selection of a preferred alternative (decision making) requires the use of a criterion (or several criteria). The decision process should consider the outcomes enumerated in the monetary unit and those expressed in some other unit of measurement or made explicit in a descriptive manner
• MAKE UNCERTAINTY EXPLICIT - Uncertainty is inherent in projecting (or estimating) the future outcomes of the alternatives and should be recognized in their analysis and comparison.
• REVISIT YOUR DECISIONS - Improved decision making results from an adaptive process; to the extent practicable, the initial projected outcomes of the selected alternative should be subsequently compared with actual results achieved.