Nature Of Engineering Economics

Nature Of Engineering Economics

Again considering the definition, economics has to deal with the limited resources to satisfy the wants of the society The word 'want' does not mean only basic needs (shelter, food and clothing) but many more than that. Even wealthy nations do not have enough resources to satisfy the needs of all persons. 

So, it is necessary to reduce the gap between more wants and limited resources. There are two ways to reduce the gaps either reduce the wants or increase the resources availability. Economist does not prefer to reduce the wants but they believe to increase the availability of resources.

Since many things such as zeal to work, potential to work, mental ability can't be exchanged with others. Economics limits its field up to exchangeable goods and these goods are called economic goods. All other goods are called non-economic goods. However, most people seem to prefer some combination of economic goods and non-economic goods, economics limits its study up to economic goods.

Further, these resources are of two classes, human and natural. Human beings apply physical strength and intelligence to the natural resources. This process of creating something which satisfies human needs is called production.

Each step, including the final sale of the product or service to the consumer, is part of the process of production. If resources were so ample or wants so few that we could not have economics, but this happy situation can never happen. Resources are always scarce relative to the wants for the goods and services produced by using resources.

Hence, in every society, critical decisions have to be made such as what to produce, how much to produce, how to produce, when to produce and who gets it, how much producer gets from production. There must be some arrangement which can decide about all these parameters.

The arrangements used to enforce these decisions in any society constitute the economic organizations, or economic system, of that society having nature of providing scare resources to satisfy maximum needs of the society.