Following are the basic economic tools for decision making:
- Opportunity cost
- Incremental principle
- Principle of the time perspective
- Discounting principle
- Equi-marginal principle
What are the tools used in economic analysis?
Tables, charts and graphs Tables, charts and graphs are some of the most used tools in economic analysis. In fact, just as lawyers are known for speaking legal maxims and Doctors for medical terms, that is how Economists are known for using Tables, charts and graphs.
What are the different types of mathematics used in economics?
Mathematical tools used in economics include matrix algebra, linear equations, econometric models, optimization and differential equations. Statistics is similar to mathematics, but here the emphasis is made on processing vast arrays of data.
What are the three tools of government to control the economy?
Taxes 2. Government Expenditures 3. Regulation and Control. Government Policy: Tool # 1. Taxes reduce income of individuals and companies and thus reduce private expenditures (on motor cars, television sets, or liquor).
What are statistics used for in economics?
Statistics, for example, help economists calculate a nation's GDP or allows them to better configure a manufacturing process to reduce costs. Statistical tools include regression and correlation analysis and calculation of probabilities.
What are economic tools?
Economic Tools. Economic tools refer to qualitative instruments available to economists. The law of supply and demand is the primary example of an economic tool. Supply refers to goods that are available in a market, whereas demand defines the amount of products or services consumers want to buy.
What is the tool of economics?
Tools of Economics. Economics is a social science that studies how to create wealth and spread material well-being. Macroeconomics is one of the many branches of economics that study gross domestic product (GDP), inflation and other macro variables.
Why is math important in economics?
Mathematics comes hand in hand with economics. Math helps economists solve concrete problems involving numbers, such as how to calculate the profit margin of a firm, what price a company should set to maximize profits, or how to calculate the amount of CO2 emissions in the atmosphere.
1. Tables, charts and graphs
Tables, charts and graphs are some of the most used tools in economic analysis. In fact, just as lawyers are known for speaking legal maxims and Doctors for medical terms, that is how Economists are known for using Tables, charts and graphs.
2. Measures of central tendency
A measure of central tendency to an average figure or value. This average is the one that is more centrally placed or typical among a series of figures or values. There are five measures of central tendency and they include the following:
What are the basic tools of economics?
In brief, get acquainted with the terms such as Variables, Ceteris Paribus, Functions, Equations, Identities, Graphs and Diagrams, Lines and Curves, Slopes, Limits and Derivatives, Time Series and so on. These are the basic tools of economic analysis.
Why is math used in economics?
Geometry is being increasingly resorted to in order to provide pictorial presentation of economic behavior.
What is the purpose of graphs in economics?
Graph is most commonly used tool in modern economics. Graph depicts the functional relationship between two or more economic variables. The use of graph provides a better understanding of the economic generalizations.
What is the role of variables in economics?
Variables play an important role in economic theories and models. A variable is a magnitude of interest can be defined and measured. In other words a variable is something whose magnitude can change. It assumes different values at different times or places. Variables that are used in economics are income, expenditure, saving, interest, profit, investment, consumption, imports, exports, cost and so on. It is represented by a symbol.
What are economic theories?
Economic theories are formulated to explain different phenomenon. They try to explain the relationship between two or more variables. While formulating theories a number of tools are used by experts in this field. The tools of economic analysis are found in the realm of Mathematics. Mathematics is being profusely used in modern economic analysis. Mathematics is regarded as the second language for the students of economics. Geometry is being increasingly resorted to in order to provide pictorial presentation of economic behavior. Diagrams and Graphs provide visual impact and help to grasp and learn economics with interest and ease. A Chinese proverb says “A picture is worth a thousand words”.
What are the two types of functions?
Functions are classifieds into two type namely explicit function and implicit function . Explicit function is one in which the value of one variable depends on the other in a definite form. For instance, the relationships between demand and price Implicit function is one in which the variables are interdependent.
How to explain demand for good depends upon price?
For instance, economist generally links demand for good depends upon its price. It is expressed as D = f (P). Where D = Demand, P = Price and f = Functional relationship.
What is the most commonly used method to track economic growth?
Economists and statisticians use several methods to track economic growth. The most well-known and frequently tracked is the gross domestic product (GDP). Over time, however, some economists have highlighted limitations and biases in the GDP calculation. Organizations such as the Bureau of Labor Statistics ...
What are the methods used to measure economic growth?
Economists and statisticians use several methods to track economic growth. The most well-known and frequently tracked is the gross domestic product (GDP). Over time, however, some economists have highlighted limitations and biases in the GDP calculation. Organizations such as the Bureau of Labor Statistics (BLS) and the Organization for Economic Co-operation and Development (OECD) also keep relative productivity metrics to gauge economic potential. Some suggest measuring economic growth through increases in the standard of living, although this can be tricky to quantify.
Why do economists use GNP?
Economists use GNP mainly to learn about the total income of a country's residents within a given period and how the residents use their income. GNP measures the total income accruing to the population over a specified amount of time. Unlike gross domestic product, it does not take into account income accruing to non-residents within ...
What is the measure of the value of goods and services produced by a nation?
Gross National Product measures the value of goods and services produced by a nation (GDP) and income from foreign investments. Some economists posit that total spending is a consequence of productive output. Although GDP is widely used, it, alone, does not indicate the health of an economy. 1:18.
Why does the productive capacity of an economy not grow?
The productive capacity of an economy does not grow because more dollars move around, an economy becomes more productive because resources are used more efficiently. In other words, economic growth needs to somehow measure the relationship between total resource inputs and total economic outputs.
What is the purpose of gross domestic product?
Gross Domestic Product measures the value of goods and services produced by a nation. Gross National Product measures the value of goods and services produced by a nation (GDP) and income from foreign investments.
When did the Bureau of Economic Analysis start using GDP?
The Bureau of Economic Analysis (BEA) used GNP as the primary indicator of US economic health until 1991. In 1991 , the BEA began using GDP, which was already being used by the majority of other countries. The BEA cited an easier comparison of the United States with other economies as a primary reason for the change. Although the BEA no longer relies on GNP to monitor the performance of the US economy, it still provides GNP figures, which it finds useful for analyzing the income of US residents.
What are the three tools that government uses to influence private economic activity?
The following points highlight the three major tools used by government to influence private economic activity. The tools are: 1. Taxes 2. Government Expenditures 3. Regulation and Control.
What is the tax system used for?
The tax system is not just a revenue- raising instrument, it is also used to exercise control over the private sector.
What are some examples of government regulation?
For example, the government can pass rules relating the extent to which firms can pollute. Similarly, the government can regulate working conditions in farms and factories. In some countries there are rules requiring nutritional information on food packaging or on safety.
Why are taxes important?
Taxes reduce income of individuals and companies and thus reduce private expenditures (on motor cars, television sets, or liquor). However, the basic object of taxes is to provide resources for public expenditures (on roads, highways, public schools, colleges, hospitals or even parks and playgrounds).
Is the net result of the government’s combined expenditure and tax programmes expansionary or contractionary?
The net result of the government’s combined expenditure and tax programmes may be expansionary or contractionary depending on the nature of government expenditures and the types of taxes used to finance such expenditures. ADVERTISEMENTS:
Variables
Ceteris Paribus
- Ceteris paribusis a Latin phrase meanings, “all other things remaining the same” or all relevant factors being equal. In Economics the term “Ceteris Paribus” is used quite often to assume all other factors to remain the same, while analyzing the relationship between any two variables. Ceteris Paribusis an assumption which we are compelled to make due to complexities in the rea…
Function
- A 'function'explains the relationship between two or more economic variables. A simple technical term is used to analyze and symbolizes a relationship between variables. It is called a function. It indicates how the value of dependent variable depends on the value of independent or other variables. It also explains how the value of one variable can be found by specifying the value of …
Equations
- Economic theory is a verbal expression of the functional relationships between economic variables. When the verbal expressions are transformed into algebraic form we get Equations. The term equation is a statement of equality of two expressions or variables. The two expressions of an equation are called the sides of the equation. Equations are used to calculate the value of an …
Identities
- An identity explains an equilibrium condition or a definitional condition. A definitional identity explains that two alternative expressions have exactly the same meaning. For example, total profit is defined as the excess of total revenue over total cost, and we can denote as: π ≡ TR - TC Where π is total profit, TR is total revenue and TC is total cost. Similarly, saving is defined as the differe…
Graphs and Diagrams
- A graph or a diagram presents the relationship between two or more sets of data or variables that are related to one another. Graph is most commonly used tool in modern economics. Graph depicts the functional relationship between two or more economic variables. The use of graph provides a better understanding of the economic generalizations. Graph ...