Economic analysis is a crucial tool for understanding market dynamics, making informed decisions, and predicting future trends. In this article, we’ll explore the main tools, purposes, methods, and types of economic analysis.
Economic Impact Analysis
Economic impact analysis attempts to measure or estimate the change in economic activity caused by a business, organization, policy, program, project, activity, etc. It can be performed either before or after the event (ex ante or ex post). Economic impact analyses typically compare the changed economic activity to a counterfactual scenario.
Sensitivity Analysis
Using sensitivity analysis is an important part of any economic analysis, and one that is often overlooked. This method tests how results change under different assumptions about key variables such as employment levels, wage rates, and local purchasing percentages. It is a key step in validating an economic analysis, and one that can save significant time and resources down the line.
Economic analysis often abstracts away from the “details” of a problem, and it can be difficult to see the forest for the trees. However, if the details aren’t taken into account, it can easily compromise the accuracy and integrity of an economic analysis. For example, if a decision involves the use of an environmental asset, it’s important to understand how the residuals will be managed and disposed of in order to avoid costly and unnecessary negative effects. Also, if the project requires the purchase of materials or energy, it’s critical to ensure that prices are reasonable.