Economic analysis is the systematic examination and evaluation of economic data, trends, and indicators to uncover insights that inform decision-making and shape economic policies. This process uses tools such as cost-benefit analysis, statistical analysis, economic modeling, and scenario analysis to analyze the current state and future prospects of an economy.
Descriptive Analysis: This type of analysis focuses on describing and summarizing economic data and trends, and identifies patterns, changes, and relationships within the data. It also explains the underlying causes of economic phenomena.
Diagnostic Analysis: This type of analysis seeks to understand the causes and factors behind economic trends, events, or problems. It also identifies the key drivers and their impacts. This analysis can be carried out using a variety of methods such as regression analyses, time series analyses, and qualitative research.
The economic analysis is frequently carried out under the assumption of efficient production and the production possibilities frontier (PPF). The PPF is a graphical device that shows how many goods an economy can produce given its current resources and technology. This enables economists to examine the effects of changes in one factor on the number of goods produced without having to take into account other factors that might influence the change.
A key technique used in economic analysis is discounting. This is the practice of adjusting future costs and rewards to their present value. It recognizes that inflation and opportunity cost (the value of the next best alternative you must forgo when making a choice) make a dollar in the future worth less than a dollar today.