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Lec 13

The document discusses the concepts of consumer and producer goods, highlighting their roles in satisfying human wants directly and indirectly. It explains the notions of value and utility in economics, emphasizing that utility is subjective and varies between individuals. Additionally, it addresses the importance of mutual benefit in exchanges and the role of persuasion in enhancing the salability of goods.

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16 views22 pages

Lec 13

The document discusses the concepts of consumer and producer goods, highlighting their roles in satisfying human wants directly and indirectly. It explains the notions of value and utility in economics, emphasizing that utility is subjective and varies between individuals. Additionally, it addresses the importance of mutual benefit in exchanges and the role of persuasion in enhancing the salability of goods.

Uploaded by

Osii C
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ENGINEERING ECONOMICS

LECTURE - 13 ASST PROF. ENGR

ALI SALMAN
alisalman@
DEPARTMENT ceme.nust.edu.pk
DEPARTMENT
OF
OF
ENGINEERING
ENGINEERING MANAGEMENT
MANAGEMENT
NUST
NUSTCOLLEGE
COLLEGEOF
OFEE&&ME
ME

ALI SALMAN 1
CONSUMER AND PRODUCER GOODS
CONSUMER GOODS:

ARE THE GOODS AND SERVICES THAT DIRECTLY SATISFY


HUMAN WANTS.

EXAMPLES ARE HOUSES, BOOKS, SHOES AND HEALTH


SERVICES ETC

2
CONSUMER AND PRODUCER GOODS

PRODUCER GOODS:

ARE THE GOODS AND SERVICES THAT SATISFY THE HUMAN


WANTS INDIRECTLY AS PART OF THE PRODUCTION OR
CONSTRUCTION PROCESS.

EXAMPLES ARE MACHINE TOOLS, BULLDOZERS ETC

3
VALUE
IN ECONOMICS,

VALUE IS A MEASURE OF THE WORTH THAT A PERSON


ASCRIBES TO A GOOD OR SERVICE.

• THE VALUE OF AN OBJECT IS INHERENT NOT IN THE OBJECT BUT


IN THE REGARD THAT A PERSON HAS FOR IT.

• VALUE SHOULD NOT BE CONFUSED WITH COST OR PRICE OF AN


OBJECT.

• THERE MAY BE LITTLE OR NO RELATION BETWEEN THE VALUE A


PERSON ASCRIBES TO AN ARTICLE AND THE COST OF PROVIDING
IT, OR THE PRICE THAT IS ASKED FOR IT.

4
UTILITY
UTILITY IS A MEASURE OF THE POWER OF A GOOD OR
A SERVICE TO SATISFY HUMAN WANTS.

 THUS, THE UTILITY OF AN OBJECT INHERES NOT IN THE OBJECT


ITSELF BUT IN THE REGARD THAT A PERSON HAS FOR IT.

5
THE CONSUMER UTILITY OF RAW MEAT CAN BE INCREASED BY
ALTERING ITS PHYSICAL CONDITION BY AN APPROPRIATE
APPLICATION OF HEAT.

IN THE AREA OF PRODUCER UTILITIES THE MACHINING OF A BAR


OF STEEL TO PRODUCE A DRIVE SHAFT FOR A TRACTOR IS AN
EXAMPLE OF CREATING UTILITY BY MANIPULATION OF PHYSICAL
ENVIROMENT.

THE PURPOSE OF MOST ENGINEERING EFFORT IS TO DETERMINE


HOW PHYSICAL FACTORS MAY BE ALTERED TO CREATE THE MOST
UTILITY FOR THE LEAST COST IN TERMS OF THE UTILITIES THAT
MUST BE GIVEN UP. 6
UTILITY OF CONSUMER GOODS

– THE UTILITY OF GOODS AND SERVICES THAT PEOPLE


INTEND TO CONSUME PERSONALLY FOR THE SATISFACTION
THEY GET OUT OF THEM.
– THE UTILITY A PERSON ASCRIBES TO GOODS AND
SERVICES THAT ARE CONSUMED DIRECTLY IS IN LARGE
MEASURE A RESULT OF SUBJECTIVE, NON LOGICAL MENTAL
PROCESSES.
– THIS MAY BE INFERRED FROM THE FACT THAT SELLERS OF
CONSUMER GOODS APPARENTLY FIND EMOTIONAL
APPEALS MORE EFFECTIVE THAN FACTUAL INFORMATION.

7
– EARLY AUTOMOBILE ADVERTISING TOOK THE FORM OF
OBJECTIVE INFORMATION RELATED TO DESIGN AND
PERFORMANCE, BUT MORE RECENT PRACTICE STRESSES
SUCH SUBJECTIVE ASPECTS AS BEAUTY, COMFORT AND
PRESTIGE VALUES.

8
UTILITY OF PRODUCER GOODS

– THE SECOND KIND OF UTILITY THAT AN OBJECT OR SERVICE


MAY HAVE FOR A PERSON IS AS A MEANS TO AN END.

– PRODUCER GOODS ARE NOT CONSUMED FOR DIRECT


SATISFACTION BUT AS A MEANS OF PRODUCING CONSUMER
GOODS, USUALLY BY FACILITATING ALTERATION OF
PHYSICAL ENVIRONMENT.

– THE UTILITY OF PRODUCER GOODS ARE USUALLY


CONSIDERED OBJECTIVELY.
9
UTILITY AND VALUE, IN THE SENSE USED HERE ARE
CLOSELY RELATED. THE UTILITY THAT AN OBJECT HAS
FOR A PERSON IS THE SATISFACTION HE OR SHE DERIVES
FROM IT. VALUE IS AN APPRAISAL OF UTILITY IN TERMS OF
A MEDIUM OF EXCHANGE.

10
ECONOMIC ASPECTS OF EXCHANGE

ECONOMY OF EXCHANGE OCCURS WHEN UTILITIES ARE


EXCHANGED BY TWO OR MORE PEOPLE.

IN THIS CONNECTION, A UTILITY MEANS ANY THING THAT A


PERSON MAY RECEIVE IN AN EXCHANGE THAT HAS ANY
VALUE WHATSOEVER—FOR EXAMPLE, AN APPLIANCE FOR
THE HOME, A PAIR OF SHOES, A MEAL OR A FRIENDLY
GESTURE.

11
MUTUAL BENEFIT IN EXCHANGE

A BUYER WILL PURCHASE AN OBJECT WHEN MONEY IS


AVAILABLE AND WHEN HE OR SHE BELIEVES THAT THE GOOD
HAS EQUAL OR GREATER UTILITY THAN THE AMOUNT
REQUIRED TO PURCHASE IT.

CONVERSELY, A SELLER WILL SELL AN OBJECT WHEN HE OR


SHE BELIEVES THAT THE AMOUNT OF MONEY TO BE RECEIVED
FOR THE OBJECT HAS GREATER UTILITY THAN THE OBJECT.

12
THUS, AN EXCHANGE WILL NOT BE EFFECTED UNLESS AT THE
TIME OF EXCHANGE BOTH PARTIES BELIEVES THAT THEY WILL
BENEFIT. ECHANGES ARE MADE WHEN THEY THOUGHT TO
RESULT IN MUTUAL BENEFIT. THIS IS POSSIBLE BECAUSE THE
OBJECTS OF EXCHANGE ARE NOT VALUED EQUALLY BY THE
PARTIES TO THE EXCHANGE.

WHAT MAKES IT POSSIBLE FOR EACH PERSON TO GAIN IN AN


EXCHANGE OF PRODUCER UTILITIES?

THE ANSWER IS THAT THE PARTICIPANTS ARE IN DIFFERENT


ECONOMIC ENVIROMENTS.

EXAMPLE OF LAWN MOWERS (FOR DETAIL --P19 PARA 1&2 OF


THUESEN)
13
EACH PARTY IN AN EXCHANGE SHOULD SEEK TO GIVE SOMETHING
THAT HAS LITTLE UTILITY FOR HIM BUT THAT WILL HAVE GREAT
UTILITY FOR THE RECEIVER. IN THIS MANNER EACH EXCHANGE
CAN RESULT IN THE GREATEST GAIN FOR EACH PARTY.

WHEN A CAR BECOMES STUCK IN SNOW, ONLY A SLIGHT PUSH MAY


BE REQUIRED TO REMOVE / SHIFT IT.

THE SLIGHT EFFORT INVOLVED IN THE REMOVAL PUSH MAY HAVE


VERY LITTLE UTILITY FOR THE PERSON GIVING IT, SO LITTLE THAT
HE EXPECTS NO MORE COMPENSATION THAN A FRIENDLY
GESTURE.

14
ON THE OTHER HAND, IT MIGHT HAVE VERY GREAT UTILITY FOR
THE PERSON WHOSE CAR WAS REMOVED, SO GREAT THAT HE
MAY OFFER A TIP.

THE AIM OF MUCH SALES AND OTHER RESEARCH IS TO FIND


PRODUCTS THAT NOT ONLY WILL HAVE GREAT UTILITY FOR THE
BUYER BUT THAT CAN BE SUPPLIED AT LOWER COST---THAT IS,
HAVE LOW UTILITY FOR THE SELLER.

15
THE DIFFERENCE BETWEEN THE UTILITY THAT A SPECIFIC
GOOD OR SERVICE HAS FOR THE BUYER AND THE UTILITY
IT HAS FOR THE SELLER REPRESENTS THE PROFIT OR NET
BENEFIT THAT IS AVAILABLE FOR DIVISION BETWEEN
BUYER AND SELLER. THIS DIFFERENCE MAY BE CALLED
THE RANGE OF MUTUAL BENEFIT IN EXCHANGE.

16
PERSUASION IN EXCHANGE
IT IS NOT UNCOMMON FOR AN EQUIPMENT SALESPERSON
TO CALL ON A PROSPECTIVE CUSTOMER, DESCRIBE AND
EXPLAIN A PIC OF EQUIPMENT, STATE ITS PRICE, OFFER IT
FOR SALE, AND HAVE THE OFFER REJECTED.

THIS IS CONCRETE EVIDENCE THAT THE EQUIPMENT ITEM


DOES NOT POSSESS SUFFICIENT UTILITY AT THE MOMENT
TO INDUCE THE PROSPECTIVE CUSTOMER TO BUY IT.

Persuade: Win approval or support for


17
IN SUCH A SITUATION, THE SALES PERSON MAY BE ABLE TO
INDUCE THE PROSPECT TO LISTEN TO FURTHUR SALES TALK,
DURING WHICH THE PROSPECT MAY DECIDE TO BUY ON THE
BASIS OF THE ORIGINAL OFFER.

THIS IS CONCRETE EVIDENCE THAT THE MACHINE NOW


POSSESSES SUFFICIENT UTILITY TO INDUCE THE PROSPECTIVE
CUSTOMER TO BUY. BECAUSE THERE WAS NO CHANGE IN THE
EQUIPMENT OR THE PRICE AT WHICH IT WAS OFFERED, THERE
MUST HAVE BEEN A CHANGE IN THE CUSTOMER’S ATTITUDE OR
REGARD FOR IT.

18
WHAT BROUGHT ABOUT THE CHANGE? A NUMBER OF REASONS
COULD BE ADVANCED. IT IS USUALLY SAID THAT THE SALES
PERSON PERSUADED THE CUSTOMER TO BUY. IN OTHER WORDS,
THE SALES PERSON INDUCED THE CUSTOMER TO BELIEVE
SOMETHING NAMELY, THAT MACHINE HAS SUFFICIENT UTILITY TO
JUSTIFY ITS PURCHASE.

THERE ARE MANY ASPECTS TO PERSUASION. IT MAY AMOUNT


ONLY TO CALLING ATTENTION TO THE AVAILABILITY OF AN ITEM. A
PERSON CAN NOT PURCHASE AN ITEM HE DOES NOT KNOW
EXISTS.

IT IS OBSERVED THAT PERSUASIVE ABILITY IS MUCH IN DEMAND,


AND IS USUALLY RICHLY REWARDED. 19
PERSUASION AS IT APPLIES TO THE SALE OF GOODS IS OF
ECONOMIC IMPORTANCE TO INDUSTRY.

MANUFACTURERS MUST DISPOSE OF THE GOODS THEY


PRODUCE.

THEY CAN INCREASE THE SALABILITY OF THEIR PRODUCTS BY


BUILDING INTO THEM GREATER CUSTOMER APPEAL IN TERMS OF
GREATER USEFULNESS, GREATER DURABILITY, GREATER
BEAUTY, OR

THEY MAY ELECT TO ACCOMPANY THEIR PRODUCTS TO MARKET


WITH GREATER PERSUASIVE EFFORT IN THE FORM OF
ADVERTISING, AND SALES PROMOTION.
20
EITHER PLAN WILL REQUIRE EXPENDITURE, AND BOTH ARE
SUBJECT TO LAW OF DIMINISHING RETURNS. IT IS AN
INTERESTING STUDY IN ECONOMY TO DETERMINE WHAT
LEVELS OF PERFECTION OF PRODUCT AND SALES EFFORT
WILL BE MOST PROFITABLE.

21
Discussion

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