Decision-Making Tools Essential for Economic Analysis

Economics analysis is widely used for formulating different phenomenon. It explains the relationship between variables; it can be two or more. Mathematics tools are used in the realm of economic analysis to compute the equations. As Economics always considered mathematics second language. To clearly understand the concepts of economic analysis, one must be clear with their effective tools. In this guest post, you will get to know about tools which are widely used in economic theories. Moreover, you can also hire economics Analysis assignment help from BookMyEssay without any hassle.

Modern economists used various fundamental tools for economics analysis like Matrix, Derivative, calculus, algebra to find the models and theories more accurately and precisely. Let’s explore each tool one by one to get better details of these tools.

Variables

 In models and theories of economics, variables play a major role. Variable is defined as a term whose magnitude can be measured or specified. In short, the variable magnitude can be changed according to the equations. Now the question arises, where you can use variables in economics? Then the answer is simple. While calculating import, exports, income, expenditure, profit, saving, consumptions, interest, cost etc., you use these variables. Variables are generally represented in form of the symbol. It can be exogenous and endogenous. Variables that are well defined within a theory is called the endogenous variables, whereas the second one is determined outside of given theory. 

Function

The relationship between more than two variables of economics is defined as a function. The function is used to analyse the relationship between the given variables. It describes how the value of dependent variables depends upon the value of independent variables. Through the help of function, you will understand how you can you determine the value of one variable with help of given one.

Just take out an example to understand it better. Economists usually link value of goods depends upon the cost or prices of goods. Hence, it can be shown like this D=f(P). Where Demand for products is dependent upon the price of products.

The function is basically of two types, that is Implicit and Explicit. In the latter one, the value of one variable depends upon the value of other variables in the definite form. However, in an implicit function, you can see the price is a function of demand, hence they both are interrelated to each other or you can say these are interdependent. For more information regarding function contact assignment desk.

Identities

As its name suggests, Identities explains that two expressions look same and tells exactly the same meaning. Just like definite and equilibrium conditions shows. For instance, the entire profit is defined as the difference between total revenue and cost. We can write it like this:

π ≡  TR – TC

Here, π defines as total profit

TR-> total revenue

 TC -> total cost

Similar to that, saving is also defined as the difference between income and expenditure

S ≡ I – E

Though you have gone through concepts of Identities, make sure that you get a difference between equations and identities. In equations, you can have a unique identity like national Income (Y) ≡ National Expenditure(E) ≡National Output(O)

Y≡ E≡ O

However, in equations, like (x -y)2 = x2 – 2xy +y2

Here for each value of x and y; this equation verifies. In a nutshell, you can see equations are based on the proven theories, whereas identities are based on truisms.

Diagrams and Graphs

The relationship between variables and data can be expressed with the help of graphs and diagrams. In modern economics, graphs are widely used. However, diagrams are also used to describes the functionality between two or more than two variables. The common method of making a diagram is as follow:

Where X axis called abscissa and Y- axis is called Ordinate. Which divides the coordinate system into four quadrants:

1st Quadrant: All values of X and Y are positive (+,+); Also called positive quadrant

2nd Quadrant: Values  of X is negative, where Y values are positive (-,+)

3rd Quadrant: Values of X, as well as Y, are negative (-,-); called as negative quadrant

4th Quadrant: Value of X is positive and Y values are negative (+,-)

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