Glossary

Carrying Cost

Carrying cost refers to the total expense a business incurs to hold and maintain inventory over a period of time. It includes storage expenses, the cost of capital tied up in stock, insurance, taxes, depreciation, and the risk of inventory becoming damaged or obsolete.

Compound Interest

Compounding interest is the interest you earn on the original principal money plus the interest earned on the money earned previously through interest. Over time, this process can help investors grow money much faster.

Cross-Price Elasticity

Cross-price elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good. It shows the strength and direction of the relationship between two products, whether they are substitutes, complements, or unrelated.

Demand-Pull Inflation

Demand-Pull Inflation refers to a rise in the general price level of goods and services that occurs when overall demand in an economy outpaces its ability to produce goods and services.

Dollar-Cost Averaging (DCA)

Dollar-Cost Averaging (DCA) is an investment strategy that involves regularly investing a fixed amount of money in a particular asset or security, such as mutual funds or stocks, over a period of time.

Economies of Scale

Economies of scale occur when a business reduces its cost per unit by increasing production. This happens because fixed costs like rent, salaries, and machinery are spread over more units, and operations become more efficient as output grows.

Interest Spread

Interest Spread is the difference between the average lending rate (the rate a bank charges on loans) and the average deposit rate (the rate it pays on deposits). It measures a bank's core profitability from its lending and deposit-taking activities.

Law of Diminishing Marginal Returns

The Law of Diminishing Marginal Returns states that as you continue to add units of a variable input (like labour) to fixed inputs (like land or machinery), the additional output (or marginal return) produced from each unit of the variable input will eventually decrease.

Law of Diminishing Marginal Utility

The Law of Diminishing Marginal Utility is a principle rooted in utility theory that explains how consumer behaviour is shaped by the satisfaction derived from consuming additional units of a good or service.

Marginal Utility

Marginal utility refers to the additional satisfaction, benefit, or usefulness a consumer gains from consuming one extra unit of a good or service, while keeping other factors constant.

Price Elasticity of Demand

Price elasticity of demand measures how responsive the quantity demanded of a good or service is to a change in its price. It indicates whether consumers will buy significantly more or less of a product when its price changes.

Short-Term Debt

Debt obligations that are due within 12 months are classified as short-term debt or current liabilities on a company’s balance sheet.

Simple Interest (SI)

Simple Interest (SI) is a straightforward way of calculating interest on a loan or investment. It is based only on the original principal amount, not on accumulated interest.

Sunk Cost

A sunk cost is an expense that has already been incurred and cannot be recovered, regardless of future outcomes. It represents money or resources spent on past decisions, such as investments in a failed project or outdated equipment. Since sunk costs cannot be changed, they should not influence future business or investment decisions; only potential future costs and benefits should matter.

Sunk Cost Fallacy

The sunk cost fallacy is the tendency to continue investing time, money, or effort into a decision simply because resources have already been spent, even when stopping would be the better choice.

Supply

Supply refers to the quantity of a good or service that producers are willing and able to offer for sale at various prices over a given period of time, assuming all other factors remain constant (ceteris paribus).

Time Value of Money (TVM)

Time Value of Money (TVM) refers to the concept that a sum of money is worth more today than the same amount in the future because of its potential earning capacity. This principle is based on the idea that money can earn interest or returns over time. It follows the concept that “money today is better than money tomorrow.”