Economic analysis is a fundamental tool for understanding the function and performance of an economy. It is used by businesses, policymakers and investors to make informed decisions. It helps them navigate economic trends and future prospects, identify risks and opportunities, design appropriate strategies, shape economic policies, and address economic challenges.
Economic analysts conduct in-depth studies to assess the feasibility of a project, investment opportunity, or other matter. They also identify and evaluate costs and benefits, and compare alternatives. They use different methodologies to perform economic analysis, including deductive and inductive methods.
An economic analysis may be retrospective (based on historical data) or prospective (assumed to happen in the future). Prospective analyses give the analyst more control over the situation, but they can only provide results that mirror or predict actual events. Retrospective analysis may be more difficult to conduct, but it can help inform the development of general economic theories and principles.
When conducting an economic analysis, it’s important to consider whose costs and benefits are included in the evaluation. A societal perspective is essential, which means accounting for the cost of an intervention or program regardless of who incurs them – whether it’s payers, providers, patients or their families, social services agencies, or criminal justice systems. This approach is commonly referred to as ceteris paribus (Latin for “all else being equal”). It’s an important principle to remember when performing economic analysis because it ensures that you are comparing like with like.