Economic Environment The totality of economic factors, factors, such as employment employment,,income income,, inflation inflation,, interest rates, rates, productivity productivity,, and wealth wealth,, that influence the buying behavior of behavior of consumers consumers andinstitutions andinstitutions..
Consumer A person who purchases goods and services for personal personal use. Producer goods and services Producer goods, also called intermediate intermediate goods, in economics, goods manufactured 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 f irms, although households are also important consumers in some cases. Necessities and luxuries Necessity goods are goods that we cannot live without and will not liely cut bac on even when times are tough, for example food, power, water and gas. !n economics economics a a necessity good is a type of normal good. good. "ie any other normal good, when income rises, demand rises. "uxury goods are often synonymous with superior goods and goods and veblen goods. goods. !n economics economics,, a luxury good is a good good for for which demand increases more than proportionally as income income rises, rises, and is a contrast to a # necessity good#. good #. $emand $emand refers to how much %&uantity' of a product or service is desired by buyers. The &uantity demanded is the amount of a product people are willing to buy at a certain price( the relationship between price and &uantity demanded is nown as the demand relationship. Competition, )onopoly and *ligopoly !n economics, competition is the rivalry among sellers trying to achieve such goals as increasing profits, maret share, and sales volume by varying the elements of the mareting mix+ price, product, distribution, and promotion. A monopoly monopoly is is a maret structure in which there is only one producerseller for a product. !n other words, the single business is the is the industry. !n an oligopoly oligopoly,, there are only a few firms that mae up an industry. This This select group of firms has control over the price and, lie a monopoly, an oligopoly has high barriers to entry. "aw of supply and demand The law of supply states that the &uantity of a good supplied %i.e., the amount owners or producers offer for sale' rises as the maret price rises, and falls as the price falls. Conversely, the law of d emand says that the &uantity of a good demanded falls as the price rises, and vice versa. "aw of $iminishing returns $iminishing returns, also called law of diminishing returns or principle of diminishing marginal productivity , economic law stating that that if one input in the production of a commodity 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. -imple eturns The return from investments figured by dividing income plus capital gains bythe amount of capital invested. The effect of compounding is not taen intoaccount. -imple !nterest -imple interest is money you can earn by initially investing some money %the principal'. A &uic method of calculating the interest charge on a loan. -imple interest is determined by multiplying the interest rate by the principal by the number of periods. Compound !nterest 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 person/s life. *rdinary annuity A series of e&ual payments made at the end of each period over a fixed amount of time. 0hile the payments in an annuity can be made as fre&uently as every wee, in practice, ordinary annuity payments are made monthly, &uarterly, semi1annually or annually. The opposite of an ordinary annuity is an annuity due, where payments are made at the beginning of each period.22 $eferred 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. e&uivalent annual cost !n finance, the e&uivalent annual cost %EAC' is the cost per year of owning and operating an asset over its entire lifespan. ate of return ate of return is a profit on an investment over a period of time, expressed as a proportion of the original investment.345 The time period is typically a year, in which case the rate of return is referred to as annual return.
6niform gradient A uniform gradient cash flow is one wherein the cash flow changes (increases or decreases) by the same amount in each payment period. 7onds !n finance, a bond is an instrument of indebtedness of the bond issuer to the holders. !t 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' andor to repay the principal at a later date, termed the maturity date. $epreciation The monetary value of an asset decreases over time due to use, wear and tear o r obsolescence. This decrease is measured as depreciation. -traight "ine )ethod -traight 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. -ining 8und )ethod A techni&ue for depreciating an asset in booeeping records while also generating money to purchase a replacement for the asset when it reaches the end of its useful life. 6nder thesining 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. $EC"!N!N9 7A"ANCE )ET:*$
A common depreciation1calculation system that involves applying the depreciation rate against the non1 depreciated balance. !nstead 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. -um of ;ears $igit )ethod An accelerated method for calculating an asset ? > @ > 4 > to get a total of =. 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 . !nflation !n economics, inflation is a sustained increase in the general price level of goods and services in an economy over a period of time. 0hen the price level rises, each unit of currency buys fewer goods and services.
$epletion reduction in the number or &uantity of something. present worth method The Present 0orth method evaluates the desirability of an alternative relative to some base point in time called the present %usually year B'. 7asically, it loos at the present e&uivalent of all the cash flows of an alternative
