Economic analysis is a set of tools used to assess the profitability or negative consequences of an opportunity, project, or task. Business management utilizes these tools to restrict risks and find appropriate opportunities for the business. Examples include economic variables, slopes, and optimization.
This article explains that a crucial aspect of economic analysis is to consider the impact of a change on all of society’s members, not just on some. That is why economic analysis includes a societal perspective in determining who pays for and receives the benefits of an intervention, program, or policy. This is called the “inclusive neoclassical model.”
Whether a business wants to take advantage of a new opportunity, or is considering expansion or integration into a market, it is essential for them to use economic analysis to understand their surroundings and the potential risk involved. This enables them to make the best decision and restrict any hazards. For instance, Rudy, who runs a construction company, uses economic analysis when he plans to build his building on the land that he bought years ago. Economic analysis helps him determine the vicinity of the property and its surrounding environment, which will affect the profitability and success of his building.
There are two primary methods for economic analysis. Deductive analysis starts with a general principle or theory and tests it with specific observations. Inductive analysis begins with specific observations and uses logical reasoning to develop a more general theory or hypothesis. Both methods are valuable for developing concrete theories and providing novice solutions to economic problems.