Economic analysis is the process of understanding the forces that shape economic behavior and analyzing the consequences of economic policies. Economic analysis can help you understand why market prices work the way they do, what causes inflation and deflation, and why businesses invest their money in new products or services.
The main purpose of economic analysis is to improve decision making by providing information that helps policymakers make informed choices about the best ways to allocate resources and promote economic growth. It can also be used to evaluate the costs and benefits of investment projects and determine the effect of trade on the economy.
There are several types of economic analysis. The most common is cost-benefit analysis (CBA). This type of economic analysis compares the monetary costs and benefits of an action to determine whether it should be implemented. It can be performed retrospectively (using data from past events) or prospectively (collecting data while natural or created situations occur). Prospective studies are more difficult to perform than retrospective studies, but they allow for greater control over the situations in which data is collected.
To carry out a CBA, the analyst must consider all possible costs and benefits. This is known as the principle of ceteris paribus (literally, “all things being equal”). For example, if increasing tuition reduces college enrollment, the analyst should take into account all other factors that might affect this decision. This is an essential element of the CBA process and must be followed when performing any form of economic analysis.