Engineering economics, previously known
as engineering economy, is a subset
of economics concerned with the use and application of
economic principles in the analysis of engineering
decisions. As a discipline, it is focused on the branch of
economics known as microeconomics in that it studies the
behavior of individuals and firms in making decisions
regarding the allocation of limited resources. Thus, it
focuses on the decision making process, its context and
environment. It is pragmatic by nature, integrating
economic theory with engineering practice. But, it is also a
simplified application of microeconomic theory in that it
avoids a number of microeconomic concepts such as price
determination, competition and demand/supply. As a
discipline though, it is closely related to others such
as statistics, mathematics and cost accounting. It draws
upon the logical framework of economics but adds to that
the analytical power of mathematics and statistics.
Engineers seek solutions to problems, and the economic
viability of each potential solution is normally considered
along with the technical aspects. Fundamentally,
engineering economics involves formulating, estimating,
and evaluating the economic outcomes when alternatives
to accomplish a defined purpose are available.
The study includes an introduction to the application of
economic techniques to the evaluation of design and
engineering alternatives, cash flow concepts, interest
factors, comparison of alternatives, benefit - cost analysis,
and conclusions of the study. One of the objectives of the
economic analysis in engineering projects is the good
management which consists primarily of making wise
decisions; wise decisions in turn involve making a choice
between alternatives. Engineering considerations
determine the possibility of a project being carried out and
point out the alternative ways in which the project could
be handled. Economic considerations also largely
determine a project's desirability and dictate ho