Economics For Engineers

Economics for
Engineers
Introduction:
 Economics Definition: Economics is the social

science that studies how individuals, households,
businesses, and governments allocate scarce
resources to satisfy unlimited wants and needs.
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Basic Economic Problems:
 Scarcity: Resources are limited in relation to unlimited

human wants and needs.
 Choice: Due to scarcity, individuals and societies must

make decisions about how to allocate resources
efficiently.
 Opportunity Cost: The cost of choosing one option is

the value of the next best alternative foregone.
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Resource
Constraints and
Welfare  Resources such as land, labor, capital,
Maximization: and entrepreneurship are limited,

requiring efficient allocation.
 Welfare maximization aims to achieve

the highest overall well-being or
utility for individuals and society.
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Micro and Macro  Microeconomics:
Economics:  Focuses on the behavior of individual

economic units such as households, firms,
and markets.
 Analyzes how individual decisions

regarding consumption, production, and
pricing affect resource allocation.
 Macroeconomics:
 Examines the overall functioning and

behavior of the entire economy.
 Studies factors such as inflation,

unemployment, economic growth, and
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government policies.

Production Possibility
Curve (PPC):
 The PPC illustrates the different combinations of two goods or

services that an economy can produce efficiently, given its
resources and technology.
 The PPC shows the trade-offs between producing one good over
another, indicating the opportunity cost of producing more of
one good.
 The PPC is concave due to the principle of increasing

opportunity cost.
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Circular Flow of
Economic Activities:
 The circular flow model represents the flow of

goods, services, resources, and income between
households and firms in an economy.
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Circular Flow of Economic Activities:
 Households:
 Own resources and supply them to the factor market (land, labor, capital).
 Consume goods and services and purchase them from the product market.
 Firms:
 Purchase resources from the factor market to produce goods and services.
 Sell products to households in the product market.
 Factor Market:
 Households supply resources to firms in exchange for income (wages, rent, interest, profit).
 Product Market:
 Firms sell goods and services to households in exchange for income.

Basics of Demand,
Supply, and
Equilibrium:
Basics of Demand, Supply, and Equilibrium:
 Demand:
 Quantity of a good or service that

consumers are willing and able to buy at
different price levels, holding other
factors constant.
 Factors affecting demand: Price, income,

preferences, population, consumer
expectations, and advertising.
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This Photo by Unknown Author is licensed under CC BY-SA-NC

Supply:
 Quantity of a good or service that

producers are willing and able to offer for
sale at different price levels, holding other
factors constant.
 Factors affecting supply: Price of inputs,

technology, government regulations,
producer expectations, and the number of
suppliers.
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Elasticity of Demand and Supply:
 Price Elasticity of Demand: Measures the responsiveness of

quantity demanded to a change in price.
 Income Elasticity of Demand: Measures the responsiveness

of quantity demanded to changes in income.
 Cross-Price Elasticity of Demand: Measures the

responsiveness of quantity demanded of one good to changes
in the price of another good.
 Price Elasticity of Supply: Measures the responsiveness of

quantity supplied to a change in price.
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Market Equilibrium:
 Market equilibrium occurs when the

quantity demanded equals the quantity
supplied.
 Equilibrium price is the price at which the

quantity demanded and supplied are equal.
 At equilibrium, there is no tendency for

price or quantity to change.
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Theory of Consumer
Choice:
 Theory of Utility:
 Utility refers to the satisfaction or

happiness a consumer derives from
consuming a good or service.
 Consumers aim to maximize their utility

subject to their budget constraint.
 Utility can be measured using cardinal or

ordinal utility.
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Consumer's
Equilibrium:
 The consumer's equilibrium refers

to the combination of goods and
services that maximizes the
consumer's utility.
 It occurs when the consumer

allocates their income in a way
that the marginal utility per dollar
spent is equal for all goods.
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Indifference Curve
Analysis:
 Indifference curves represent different

combinations of two goods that provide the
consumer with the same level of satisfaction or
utility.
 Properties of indifference curves: downward This Photo by Unknown Author is licensed under CC BY-SA-NC
sloping, convex to the origin, and cannot
intersect.
 Marginal Rate of Substitution (MRS) measures

the rate at which the consumer is willing to trade
one good for another while remaining indifferent.
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Budget Constraints:
 The budget constraint represents the limited

income a consumer has to allocate between
goods and services.
 It is determined by the prices of goods and

the consumer's income.
 The budget constraint can be expressed as

P₁Q₁ + P₂Q₂ = I, where P₁ and P₂ are the
prices of goods, Q₁ and Q₂ are the quantities
consumed, and I is the consumer's income.
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Demand Forecasting:
 Regression Technique:
 Time-Series
 Smoothing Techniques
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Regression Technique:
 Regression analysis is a statistical technique

used to estimate the relationship between a
dependent variable and one or more
independent variables.
 It is used to forecast demand by identifying

the factors that influence it.
 The regression model can be linear or non-

linear, depending on the relationship
between the variables.
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Time-Series:
 Time-series forecasting involves

analyzing historical data to identify
patterns and trends over time.
 It assumes that future values are

influenced by past values and patterns.
 Techniques used in time-series This Photo by Unknown Author is licensed under CC BY-NC
forecasting include moving averages,

exponential smoothing, and ARIMA
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models.

Smoothing Techniques
 Exponential Smoothing: It is a time-series forecasting method

that assigns exponentially decreasing weights to past
observations.
 Moving Averages Method: It involves calculating the average

of a fixed number of past data points to forecast future values.
 Both techniques are used to eliminate random fluctuations and

identify underlying trends in the data.
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This Photo by Unknown Author is licensed u
Cost Theory and
Analysis:
 Nature and Types of Cost:
 Cost refers to the expenses incurred by a

firm in producing goods and services.
• Types of costs include fixed costs (costs that do

not vary with production), variable costs (costs
that change with production), and total costs (the
sum of fixed and variable costs).
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Cost Functions - Short Run
and Long Run:
 Short-run cost functions analyse costs when at least This Photo by Unknown Author is licensed under CC BY-SA
one factor of production is fixed.
 Long-run cost functions examine costs when all

factors of production are variable.
 Average cost measures the cost per unit of output,

while marginal cost represents the change in cost
resulting from producing one additional unit.
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This Photo by Unknown Author is licensed under CC BY-SA

Economies and
Diseconomies of
Scale
 Economies of scale occur when a firm's
average costs decrease as production
increases.
 Diseconomies of scale occur when a

firm's average costs increase as
production expands.
 Economies and diseconomies of scale are

influenced by factors such as
This Photo by Unknown Author is licensed under CC BY-SA-NC
specialization, technological
advancements, and managerial efficiency.
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Market Structure:
 Market Structure and Degree of Competition:
 Market structure refers to the characteristics and organization of a market, including the number and size of firms, entry barriers,
and product differentiation.
 Perfect Competition: Many small firms, homogeneous products, ease of entry, and perfect information.
 Monopoly: A single firm dominates the market, with significant barriers to entry.
 Monopolistic Competition: Many firms selling differentiated products, relatively easy entry and exit.
 Oligopoly: A small number of firms dominate the market, often with interdependence among them.
PERFECT COMPETITION
This Photo by Unknown Author is licensed under CC BY-SA

MONOPOLISTIC
MONOPLOY
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OLIGOPOLY This Photo by Unknown Author is licensed under CC BY-SA-NC
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National Income
Accounting:
 Overview of Macroeconomics:
 Macroeconomics studies the behavior

and performance of the economy as a
whole.
 It focuses on variables such as

national income, unemployment,
inflation, and economic growth.
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Basic Concepts of
National Income
Accounting:  National income accounting measures
the total value of goods and services
produced in an economy during a
specific time period.
 Concepts include gross domestic

product (GDP), gross national product
(GNP), net national product (NNP),
and national income.
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Macroeconomic
Issues:
 Introduction to Business Cycle:

 The business cycle refers to the
fluctuations in economic activity over
time, characterized by periods of
expansion (economic growth) and
contraction (recession).
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 Inflation is the sustained increase in
the general level of prices in an
economy.
 Causes of inflation include excessive

money supply growth, increased
production costs, and demand-pull
factors.
 Consequences of inflation include

reduced purchasing power, uncertainty,
and income redistribution.
Inflation - Causes,  Remedies for inflation include

monetary policy measures (tightening
Consequences, and the money supply) and fiscal policy
actions (reducing government
Remedies: spending or increasing taxes).
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Monetary and  Monetary policy refers to the actions
Fiscal Policy: taken by a central bank to control the

money supply and interest rates to
influence economic activity.
 Fiscal policy involves government

decisions regarding taxation and
spending to stabilize the economy.
 Both policies are used to address issues

such as inflation, unemployment, and
economic growth.
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BEST OF LUCK
06/13/2024

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Economics for

 Economics Definition: Economics is the social

 Scarcity: Resources are limited in relation to unlimited

 Choice: Due to scarcity, individuals and societies must

 Opportunity Cost: The cost of choosing one option is

Maximization: and entrepreneurship are limited,

 Welfare maximization aims to achieve

Economics:  Focuses on the behavior of individual

 Analyzes how individual decisions

 Examines the overall functioning and

 Studies factors such as inflation,

Sample Footer Text 5

 The PPC illustrates the different combinations of two goods or

 The PPC is concave due to the principle of increasing

 The circular flow model represents the flow of

 Sell products to households in the product market.

 Firms sell goods and services to households in exchange for income.

 Quantity of a good or service that

 Factors affecting demand: Price, income,

Sample Footer Text 9

 Quantity of a good or service that

 Factors affecting supply: Price of inputs,

 Price Elasticity of Demand: Measures the responsiveness of

 Income Elasticity of Demand: Measures the responsiveness

 Cross-Price Elasticity of Demand: Measures the

 Price Elasticity of Supply: Measures the responsiveness of

 Market equilibrium occurs when the

 Equilibrium price is the price at which the

 At equilibrium, there is no tendency for

 Utility refers to the satisfaction or

 Consumers aim to maximize their utility

 Utility can be measured using cardinal or

 The consumer's equilibrium refers

 It occurs when the consumer

 Indifference curves represent different

 Marginal Rate of Substitution (MRS) measures

 The budget constraint represents the limited

 It is determined by the prices of goods and

 The budget constraint can be expressed as

 Regression analysis is a statistical technique

 It is used to forecast demand by identifying

 The regression model can be linear or non-

 Time-series forecasting involves

 It assumes that future values are

forecasting include moving averages,

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 Exponential Smoothing: It is a time-series forecasting method

 Moving Averages Method: It involves calculating the average

 Both techniques are used to eliminate random fluctuations and

 Nature and Types of Cost:

 Cost refers to the expenses incurred by a

• Types of costs include fixed costs (costs that do

one factor of production is fixed.

 Long-run cost functions examine costs when all

 Average cost measures the cost per unit of output,

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 Diseconomies of scale occur when a

 Economies and diseconomies of scale are

 Market Structure and Degree of Competition: