Economic analysis serves as a fundamental tool for understanding the complexities of market dynamics, making informed decisions, and predicting trends. It can be used to examine the health and performance of an economy, as well as individual businesses. In this article, we’ll explore the basic tools, main purpose, methods, types, and key elements of economic analysis.
The first step in economic analysis is establishing what to measure, which requires determining the relevant data. This may involve collecting or constructing composite indicators based on sub-indicators and their weighting, or simply using existing ones that are already available (Charles et al. 2018). Ideally, the measurements that are used in an economic analysis are accurate and valid to ensure that any results can be trusted.
Another important element of economic analysis is determining the perspective from which to look at the costs and benefits of an event or program. According to Unacademy, economic studies typically take a societal perspective, which means accounting for all costs and benefits regardless of who bears them. This makes sense, as resources (e.g., the raw materials and worker’s time required to produce goods and services) are limited whereas society’s need and desire for those products is not.
Economic analyses are used in a wide variety of contexts, from business to public policy to addiction treatment. Many government agencies conduct cost-effectiveness and cost-benefit analysis to determine the best ways to spend their taxpayer-funded budgets, for example. Other examples of economic analysis include examining the impact of various taxes and tariffs on global supply chains, or investigating how behavioral economics can be applied to marketing strategies.
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