Engineering Economics
13 Engineering Economics
1.0 INTRODUCTION
The broad field of economics may be divided into macro and micro economics. Macroeconomics involves problems associated with nations such as trade, trade deficits, monetary policy, national productivity, growth of the economy, inflation, budget deficits, national debt, unemployment, tariffs, etc. Microeconomics involves problems of firms and of individuals. Engineering economics is a special branch of microeconomics largely involved with the analysis of engineering alternatives and their performance. The two most important macroeconomic theories are those espoused by Adam Smith (1723–1790) and J. M. Keynes (1883–1946): • Smith suggested (Wealth of Nations, 1776) that a free economy driven by market forces and free of government intervention is best. • Keynes suggested (General Theory of Employment, Interest, and Money, 1936) that government intervention is important, particularly in times of economic stagnation and inflation. His views had a strong influence on actions taken by President Roosevelt in formulating “The New Deal” of the 1930s. 357
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Engineering Problem Solving: A Classical Perspective
Debate continues today, fueled by those two points of view, on the basic question of whether the nation is better served by a big or small federal government? The cost of designing, producing, or using an engineering structure or device is an extremely important engineering variable and should be quantitatively treated just as carefully as strength, rigidity, output, or efficiency. There is no more compelling reason for basing the solutions to engineering economic problems on hunch than there is for adopting such an approach in making any other type of engineering decision. Many engineering economics problems involve the choice, based upon cost, between two or more alternative solutions. When the alternatives are not exactly identical, it is necessary to assign a money value to differences which exist. When these
1.0 INTRODUCTION
The broad field of economics may be divided into macro and micro economics. Macroeconomics involves problems associated with nations such as trade, trade deficits, monetary policy, national productivity, growth of the economy, inflation, budget deficits, national debt, unemployment, tariffs, etc. Microeconomics involves problems of firms and of individuals. Engineering economics is a special branch of microeconomics largely involved with the analysis of engineering alternatives and their performance. The two most important macroeconomic theories are those espoused by Adam Smith (1723–1790) and J. M. Keynes (1883–1946): • Smith suggested (Wealth of Nations, 1776) that a free economy driven by market forces and free of government intervention is best. • Keynes suggested (General Theory of Employment, Interest, and Money, 1936) that government intervention is important, particularly in times of economic stagnation and inflation. His views had a strong influence on actions taken by President Roosevelt in formulating “The New Deal” of the 1930s. 357
358
Engineering Problem Solving: A Classical Perspective
Debate continues today, fueled by those two points of view, on the basic question of whether the nation is better served by a big or small federal government? The cost of designing, producing, or using an engineering structure or device is an extremely important engineering variable and should be quantitatively treated just as carefully as strength, rigidity, output, or efficiency. There is no more compelling reason for basing the solutions to engineering economic problems on hunch than there is for adopting such an approach in making any other type of engineering decision. Many engineering economics problems involve the choice, based upon cost, between two or more alternative solutions. When the alternatives are not exactly identical, it is necessary to assign a money value to differences which exist. When these