Engineering Economy and Accounting (BES 334) Vocabulary - Weeks 1–3

Vocabulary terms and their definitions drawn from Weeks 1–3 notes on engineering economy, economics, supply and demand, market structures, and basic financial mathematics.

Engineering Economy

A field that uses mathematical formulas to account for the time value of money, balance current and future revenues and costs, and evaluate alternatives designed to achieve a defined purpose.

Economics

The science of production, allocation, and use of goods and services; subdivided into macroeconomics and microeconomics.

Macroeconomics

The study of the overall economy and large-scale economic factors.

Microeconomics

The study of individual markets, firms, and consumers within the economy.

Necessities

Goods or services required to support human activities; purchased in relatively stable quantities regardless of price variations.

Luxuries

Desirable goods or services purchased if money is available after necessities are secured.

Goods

Anything that can be bought or sold; tangible items.

Services

Performance of duties or work for another; intangible economic activities.

Marketing

The distribution and promotion of goods and services.

Marketing a Product

Advertising and other efforts to promote a product’s sale.

Consumer Goods

Goods that satisfy human wants and needs (e.g., food, clothing).

Producer Goods

Raw materials and tools used to make consumer goods.

Capital Goods

Machinery and equipment used in the production of goods.

Supply

The quantity of a good or service that producers are willing to offer for sale at various prices.

Demand

The quantity of a good or service that buyers are willing to purchase at various prices.

Law of Supply and Demand

In a competitive market, price adjusts so that supply equals demand.

Demand Curve

A graph showing the relationship between quantity demanded and price.

Demand Schedule

A table showing the quantity demanded at various prices.

Elastic Demand

Demand that changes significantly with price changes.

Inelastic Demand

Demand that changes little with price changes.

Unitary (Unit Elastic) Demand

Demand where percentage change in price and quantity demanded are equal.

Income

A factor that influences demand; higher income can increase demand for goods and services.

Population

A factor influencing demand; larger populations can raise overall demand.

Taste and Preference

Organizational or consumer preferences that affect demand.

Price Expectation

What buyers expect future prices to be, influencing current demand.

Price of Related Goods

Prices of substitutes or complements that affect demand for a good.

Supply Curve

A graph showing the relationship between quantity supplied and price.

Supply Schedule

A table listing the quantity supplied at different prices.

Price of Goods (Cost Factors for Supply)

The selling price and related costs that influence supply decisions.

Cost of Production

Expenses incurred to produce goods or services.

Availability of Resources

Access to inputs (labor, materials, capital) affecting supply.

Number of Producers and Sellers

Market participants; more sellers typically increase supply.

Technological Advancement

Improvements that can increase supply by reducing costs or increasing efficiency.

Taxes

Government charges that can affect supply decisions.

Subsidies

Government financial support that can increase supply.

Shortage

Condition where demand exceeds supply.

Surplus

Condition where supply exceeds demand.

Equilibrium Point

Price-quantity point where supply equals demand.

Market

The arena where buyers and sellers meet to transact goods and services.

Perfect Competition

A market with many vendors, free entry, and identical products.

Perfect Monopoly

A market with a single vendor who can restrict entry of others.

Oligopoly

A market with a few dominant sellers whose actions affect each other.

Alternatives

Independent options considered when evaluating a project or decision.

First Cost

The initial investment required to start a project.

Useful Life (Life)

The period over which an asset is expected to be usable.

Working Cost (Operating Cost)

Ongoing costs of operating a project or asset.

Salvage Value

Estimated residual value of an asset at end of its life.

Financing Cost

Costs associated with obtaining funds for a project.

Cash Flows

Assessments of money inflows and outflows over time in an investment.

Alternative Selection

Choosing the best option among alternatives based on evaluation criteria.

Evaluation Criteria

Measures used to determine the best option (e.g., cost, benefit, risk).

Intangible Factors

Non-monetary considerations that can influence decision making.

Present Worth (Present Value)

The current value of future cash flows discounted at an appropriate rate.

Future Worth (Future Value)

The value at a future date of current cash flows accumulated at a given rate.

Interest

The cost of borrowing or the return on capital; compensation for the use of money.

Simple Interest

Interest calculated on the principal only, not on accumulated interest.

Principal

The initial amount of money invested or borrowed.

Future Worth

The value of money at a future date after applying interest over time.

Rate of Interest (i)

Interest rate per period used in calculations.

Number of Interest Periods (n)

Total number of compounding or interest periods.

Ordinary Simple Interest

Simple interest assuming 30 days per month and 360 days per year.

Exact Simple Interest

Simple interest using the exact number of days in each month.

Cash Flow Diagram

A graphical representation of cash flows over time, used in planning.

Nominal Rate of Interest

Annual rate shown without adjusting for compounding; i = r/m.

Rate per Interest Period (i)

Interest rate applied to each compounding period.

Compounding Periods (m)

The number of times interest is compounded per year.

Effective Rate of Interest (ER)

The actual annual rate earned after compounding, ER = (1 + r/m)^m − 1.

Equivalent Nominal Interest Rate

Two or more nominal rates whose effective rates are equal.

Compound Interest

Interest earned on both the principal and previously accumulated interest.

Economic Equivalence

Different money amounts at different times that are economically equal given a particular interest rate.

Discount Rate

Rate used to discount future cash flows to present value.

Continuously Compounded

Compounding that occurs continuously rather than at discrete intervals.

Present Value of a Series (Annuitized) Payments

Value today of a series of equal payments to be received in the future.