GET 323 / GEC 321 Engineering Economics - Introduction

Vocabulary terms and definitions from the introductory lecture on Engineering Economics, covering fundamental principles, cost types, and financial concepts.

Engineering Economics

The application of economic principles to engineering decision-making to evaluate the financial viability of projects, systems, and investments.

Develop Alternatives

A fundamental principle of engineering economic analysis that requires identifying multiple possible solutions for a problem.

Focus on Differences

A guideline stating that alternatives should be compared based on their incremental costs and benefits.

Use a Consistent Viewpoint

Adopting a clear perspective, such as that of a company, investor, or government, when performing analysis.

Time Value of Money (TVM)

The concept that money available today is worth more than the same amount in the future due to its earning potential.

Interest

The cost associated with borrowing money or the return generated from an investment.

Interest Rate

The percentage charged for borrowing or earned on an investment over a specific period.

Cash Flow

The movement of money into (inflows) and out of (outflows) a project over time, such as revenue, operating costs, and maintenance expenses.

Fixed Costs

Costs that do not change in relation to production levels, such as rent.

Variable Costs

Costs that change in direct proportion to the level of output or production, such as materials.

Sunk Costs

Costs that have already been incurred and cannot be recovered, thus they should not affect future decisions.

Opportunity Cost

The value of the next best alternative that is given up when a specific choice is made.

Economic Decision Making

The process of choosing the best alternative based on factors like cost-benefit analysis, rate of return, and payback period.

Simple Interest

A type of interest calculated only on the original amount (principal) borrowed or invested.

Compound Interest

A type of interest calculated on the principal amount as well as the accumulated interest from previous periods.