Engineering Economics Terms and Concepts

Vocabulary practice flashcards generated strictly from the Engineering Economics lecture transcript.

Engineering Economics (General Field)

The field of study that applies economic principles and practices in the assessment of projects and options in engineering.

Primary Aim of Engineering Economics

To ensure that engineering projects are not only effective but also economically viable.

Main Goal of Engineering Economics

To optimize the use of resources, minimize costs, and maximize the value of engineering projects.

Annuity

A type of financial contract that, typically in exchange for a lump sum payment or a series of payments, offers a series of periodic payments over a certain length of time.

Buyer

A willing individual who purchases particular products or services.

Capital

Includes buildings, equipment, tools, and other man-made resources that are utilized in the creation of commodities and services.

Deflation

The overall decline in prices for goods and services, which can raise money's purchasing power.

Economics

The study of how individuals, organizations, governments, and society decide how best to divide up resources in order to meet their needs and desires.

Elasticity

The degree to which a change in a good's price or other variables affects how much of it is supplied or desired.

Engineering Economics (Specific Focus)

An area of economics that focuses on the applications of economic concepts, principles and methods in engineering projects.

Goods

Tangible products, material goods or commodities.

Gross Domestic Product (GDP)

Pertains to the entire value of all goods and services produced in a nation.

Inflation

Denotes the rate usually in percentage at which prices for goods and services generally increase, reducing the buying power of money.

Interest

Refers to the cost of borrowing money or the yield on savings or lending, typically presented as a percentage rate over time.

Interest in Loans (Cost of Borrowing)

The additional amount repaid to a lender along with the borrowed principal, compensating for risk and opportunity cost.

Interest on Savings (Return on Investment)

The interest earned when depositing money in a bank or investing in financial instruments like bonds, serving as investment return.

Investment (Capital Goods)

The cost of purchasing capital goods (such as equipment and technology) that will aid in the future production of products and services.

Investment (Assets)

Tangible / intangible assets that are assumed to grow in value / appreciate with time.

Labor

Human effort both manual and mental in the production of goods and service.

Luxuries

Goods or services that people want and will buy only if funds are still available after the required necessities have been obtained.

Market

A location or system that allows buyers and sellers to communicate and trade products, services, or information.

Market Power

A business's relative capacity to control supply, demand, or both in order to change an item's price in the marketplace.

Factors Influencing Market Power

Market Concentration, Barriers to Entry, Product Differentiation, Economies to Scale, and Government Regulation.

Market Concentration

Factor 1 listed in Figure 1.2 influencing a business's market power.

Barriers to Entry

Factor 2 listed in Figure 1.2 influencing a business's market power.

Product Differentiation

Factor 3 listed in Figure 1.2 influencing market power by differentiating products.

Economies to Scale

Factor 4 listed in Figure 1.2 as an influence on market power.

Government Regulation

Factor 5 listed in Figure 1.2 as an influence on market power.

Necessities

Products or services that are necessary to sustain human existence and activities and will be bought in roughly the same number even if prices vary.

Examples of Necessities

Food, clothes, and shelter.

Operating Cost

An expenditure associated with the day-to-day functioning of a project or system (e.g., labor, maintenance).

Opportunity Cost

The worth of the next best option that has to be given up in order to make a choice.

Overhead

Indirect costs (such as rent or utilities) that cannot be linked directly to a particular project or product.

Price

The sum of money needed to buy a commodity or service, determined by supply and demand.

Principal

The initial investment or loan amount, less any interest or profits.

Principal of a Loan

The whole amount borrowed before interest is added.

Production

The process of combining inputs (such as labor, capital, and natural resources) to create goods and services.

Profit

The monetary benefit that results from selling more goods or services than it costs to produce them.

Salvage Value

The anticipated asset's remaining value at the end of its useful life.

Scarcity

The basic economic issue resulting from human demands being limitless while resources are finite.

Finite Resources in Scarcity

Time, money, labor, and raw materials.

Seller

A person or organization that trades any good or service for money.

Services

Useful intangible products that benefit the user.

Tangibility: Goods vs. Services

Goods are tangible, while services are intangible.

Consistency: Goods vs. Services

Goods are homogenous, while services are heterogenous.

Production Place: Goods vs. Services

Goods are produced in a factory, while services are produced in buyer-seller interaction.

Lifecycle Independence: Goods vs. Services

For goods, production, distribution, and consumption are separate and independent; for services, they take place simultaneously.

Consumer Participation: Goods vs. Services

Consumers don't generally participate in producing goods, whereas consumers participate in producing services.

Storability: Goods vs. Services

Goods can be stored, while services cannot be stored.

Transfer of Ownership: Goods vs. Services

Transfer of ownership takes place for goods, but cannot take place for services.

Supply

The amount of goods or services that manufacturers can and are willing to sell at different rates.

Demand

The amount of a product or service that buyers are able and willing to buy at different price points.

Law of Demand

Asserts that the quantity required for an item or service falls as its price rises (when the price is high the demand is low).

Law of Supply

Asserts that a commodity or service's supply grows in proportion to its price (when the price is high the supply is high).

Supply and Demand Balance

The concept depicted in Figure 1.4 representing the balance between SUPPLY and DEMAND.

Time Value of Money (TVM)

The idea that, because of its earning potential, money that is available now is worth more than the same amount in the future.

Project Evaluation (Application)

Applying economic analysis to compare potential solutions, forecast costs, and determine the most cost-effective approach for new engineering projects.

Equipment Selection (Application)

Evaluating and choosing machinery and tools based on capital costs, operating costs, and expected lifespan to maximize economic efficiency.

Investment Analysis (Application)

Using engineering economic principles to predict financial outcomes for prolonged investments such as purchasing facilities or technology.

Process Improvement (Application)

Evaluating the economic impact of modifying or upgrading existing systems to improve performance, reduce costs, or enhance sustainability.

Cost Analysis and Decision Making (Importance)

Evaluating costs of materials, labor, and time to compare alternatives and identify the most cost-effective options.

Resource Optimization (Importance)

Assisting in determining how to maximize returns while minimizing waste across labor, materials, and technology.

Profitability and Budgeting (Importance)

Ensuring financial constraints are met and economic goals (budget/returns) are satisfied along with technical objectives.

Risk Assessment (Importance)

Considering uncertainties and risks that affect costs, such as market volatility or changes in labor costs, to make resilient decisions.

Engineering Economy (Synonym Focus)

Field also referred to as engineering economics that assesses the financial results of engineering solutions using economic principles.

Core Focus of Engineering Economy (AUGMENT)

The formulation, estimation, and assessment of the economic results of available choices to achieve a certain goal.

Mathematical Perspective of Engineering Economy

A group of mathematical methods that make economic comparisons easier.

Lesson Aim 1

Define essential terminologies in economics (Remembering level).

Lesson Aim 2

Compare Goods from Services (Understanding level).

Lesson Aim 3

Determine the different applications of engineering economy (Understanding level).

Lesson Aim 4

Discuss the importance of Engineering Economics in projects (Understanding level).

Average Inflation Rate 2020 (Figure 1.1)

$2.4\%$ according to the Philippine Inflation Rate summary table.

Average Inflation Rate 2021 (Figure 1.1)

$3.9\%$ according to the Philippine Inflation Rate summary table.

Average Inflation Rate 2022 (Figure 1.1)

$5.8\%$ according to the Philippine Inflation Rate summary table.

Average Inflation Rate 2023 (Figure 1.1)

$6.0\%$ according to the Philippine Inflation Rate summary table.

Average Inflation Rate 2024 (Figure 1.1)

$3.2\%$ according to the Philippine Inflation Rate summary table.

Average Inflation Rate 2025 (Figure 1.1)

$2.0\%$ according to the Philippine Inflation Rate summary table.

January 2020 Inflation Rate (Figure 1.1)

$3.0\%$ as listed in the Philippine Inflation Rate table.

Consumer Price Index Base Year (Figure 1.1)

$2018=100$ as reported by the Philippine Statistics Authority.

Philippine Statistics Authority (PSA) Report Date

2025, May 6 (Summary Inflation Report Consumer Price Index: April 2025).

Figure 1.1 Title

Philippine Inflation Rate as of April 2025.

Figure 1.2 Title

Factors Influencing Market Power.

Figure 1.3 Title

Comparison of Goods and Services.

Figure 1.4 Title

The Supply and Demand.

Opportunity Cost Detail

Represents the price of passing up the second-best choice.

Examples of Operating Cost Items

Labor and maintenance associated with day-to-day operations.

Examples of Overhead Items

Rent or utilities that cannot be linked directly to a specific project.

Examples of Services in Transcript

Electric, internet connection, and barber shop.

Homogenous Characteristic

Property of goods indicating uniform standard production in a factory.

Heterogenous Characteristic

Property of services indicating non-uniform output resulting from buyer-seller interactions.