Economic Environment

The totality of economic factors, such as employment,income, inflation, interest rates, productivity,
and wealth, that influence the buying behavior of consumers andinstitutions.

Consumer
A person who purchases goods and services for personal use.
Producer goods and services
Producer goods, also called intermediate goods, in economics, goods manufactured and used in further
manufacturing, processing, or resale. Producer goods either become part of the final product or lose their
distinct identity in the manufacturing stream. Producer services are intermediate inputs to further
production activities that are sold to other firms, although households are also important consumers in
some cases.
Necessities and luxuries
Necessity goods are goods that we cannot live without and will not likely cut back on even when times are
tough, for example food, power, water and gas. In economics a necessity good is a type of normal good.
Like any other normal good, when income rises, demand rises. Luxury goods are often synonymous
with superior goods and veblen goods. In economics, a luxury good is a good for
which demand increases more than proportionally as income rises, and is a contrast to a "necessity
good".
Demand
Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity
demanded is the amount of a product people are willing to buy at a certain price; the relationship between
price and quantity demanded is known as the demand relationship.
Competition, Monopoly and Oligopoly
In economics, competition is the rivalry among sellers trying to achieve such goals as increasing profits,
market share, and sales volume by varying the elements of the marketing mix: price, product, distribution,
and promotion. A monopoly is a market structure in which there is only one producer/seller for a product.
In other words, the single business is the industry. In an oligopoly, there are only a few firms that make up
an industry. This select group of firms has control over the price and, like a monopoly, an oligopoly has
high barriers to entry.
Law of supply and demand
The law of supply states that the quantity of a good supplied (i.e., the amount owners or producers offer
for sale) rises as the market price rises, and falls as the price falls. Conversely, the law of demand says
that the quantity of a good demanded falls as the price rises, and vice versa.
Law of Diminishing returns
Diminishing returns, also called law of diminishing returns or principle of diminishing marginal
productivity , economic law stating that if one input in the production of a commodity is increased while all

other inputs are held fixed, a point will eventually be reached at which additions of the input yield
progressively smaller, or diminishing, increases in output.
Simple Returns
The return from investments figured by dividing income plus capital
gains bythe amount of capital invested. The effect of compounding is not taken intoaccount.
Simple Interest
Simple interest is money you can earn by initially investing some money (the principal). A quick method of
calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate by
the principal by the number of periods.//
Compound Interest
Compound interest is interest added to the principal of a deposit or loan so that the added interest also
earns interest from then on. This addition of interest to the principal is called compounding.
continuous compounding
The process of earning interest on top of interest. The interest is earned constantly, and immediately
begins earning interest on itself.
Annuity
a fixed sum of money paid to someone each year. An annuity is an investment which provides the
recipient with an annual income for a fixed period or for the rest of a persons life.
Ordinary annuity
A series of equal payments made at the end of each period over a fixed amount of time. While the
payments in an annuity can be made as frequently as every week, in practice, ordinary annuity payments
are made monthly, quarterly, semi-annually or annually. The opposite of an ordinary annuity is an annuity
due, where payments are made at the beginning of each period.??
Deferred annuity
A type of annuity contract that delays payments of income, installments or a lump sum until the investor
elects to receive them. This type of annuity has two main phases, the savings phase in which you invest
money into the account, and the income phase in which the plan is converted into an annuity and
payments are received.
equivalent annual cost
In finance, the equivalent annual cost (EAC) is the cost per year of owning and operating an asset over its
entire lifespan.
Rate of return
Rate of return is a profit on an investment over a period of time, expressed as a proportion of the original
investment.[2] The time period is typically a year, in which case the rate of return is referred to as annual
return.

Uniform gradient
A uniform gradient cash flow is one wherein the cash flow changes (increases or decreases) by the same
amount in each payment period.
Bonds
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt security,
under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to
pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date.
Depreciation
The monetary value of an asset decreases over time due to use, wear and tear or obsolescence. This
decrease is measured as depreciation.
Straight Line Method
Straight line depreciation is the default method used to gradually reduce the carrying amount of a fixed
asset over its useful life. The method is designed to reflect the consumption pattern of the underlying
asset, and is used when there is no particular pattern to the manner in which the asset is to be used over
time.
Sinking Fund Method
A technique for depreciating an asset in bookkeeping records while also generating money to purchase a
replacement for the asset when it reaches the end of its useful life. Under thesinking fund method, the
business sets aside an amount of money to invest annually so that the principal plus the interest earned
in the fund will be enough to replace the asset.
DECLINING BALANCE METHOD

A common depreciation-calculation system that involves applying the depreciation rate against the nondepreciated balance. Instead of spreading the cost of the asset evenly over its life, this system expenses
the asset at a constant rate, which results in declining depreciation charges each successive period.
Sum of Years Digit Method
An accelerated method for calculating an asset's depreciation. This method takes the asset's expected
life and adds together the digits for each year. So if the asset was expected to last for five years, the sum
of the years' digits would be obtained by adding: 5 + 4 + 3 + 2 + 1 to get a total of 15. Each digit is then
divided by this sum to determine the percentage by which the asset should be depreciated each year,
starting with the highest number in year 1.
Inflation
In economics, inflation is a sustained increase in the general price level of goods and services in
an economy over a period of time. When the price level rises, each unit of currency buys fewer goods
and services.

Depletion
reduction in the number or quantity of something.
present worth method
The Present Worth method evaluates the desirability of an alternative relative to some base point in time
called the present (usually year 0). Basically, it looks at the present equivalent of all the cash flows of an
alternative's study period.
Annual Cost analysis
The Annual Worth method evaluates the desirability of an alternative as an equal. annual series of cash
flows during the study period. Basically, it looks at the annual. equivalent of all the cash flows of an
alternative.
Capitalized cost
An expense that is added to the cost basis of a fixed asset on a company's balance sheet. Capitalized
costs are incurred when building or financing fixed assets. Capitalized costs are not expensed in the
period they were incurred, but recognized over a period of time viadepreciation or amortization.
Breakeven Analysis
Breakeven analysis is used to determine when your business will be able to cover all its expenses and
begin to make a profit. It is important to identify your startup costs, which will help you determine your
sales revenue needed to pay ongoing business expenses.
Perpetuity
A perpetuity is an annuity that has no end, or a stream of cash payments that continues forever.