The Use of Math in Economic Analysis
Economics is the study of the use of economic resources in the marketplace. Free market economies often rely on this information to gauge current economic conditions. Economic analysis is a primary tool used to evaluate a nation & rsquo;s economy. Economic analysis is commonly defined as a systematic approach to determining the optimum use of scarce or limited economic resources. The analysis often includes several assumptions or constraints found in the economic marketplace.
Economic analysis often uses quantitative methods when reviewing specific information in an economy. Quantitative methods are mathematical or statistical calculations that provide economists with indicators for comparing the current economic analysis to those of previous periods. Economists often use various types of math to ensure their personal judgments, inferences or theories are supported by meaningful calculations.
Calculus is the most common type of math found in economics. Calculus includes the use of various formulas to measure limits, functions and derivatives. Many economists use differential calculus when measuring economic information. Differential calculus is the specific measuring of a derivative that relates to a specific function. In basic terms, a function usually represents a straight line known as a tangent. This represents a functions normal operation. The derivative is any change in the tangent that represents a deviation (up or down) in the original line.
How Calculus is Used
Economic models are a staple of economic analysis. Economists use models to describe various functions in the economic marketplace. The supply and demand graph is a basic example of an economic model. Differential calculus is applied to original supply and demand models to determine how different factors will shift the lines representing supply or demand in the economic market. Economic models are also used to prove or disprove various inferences or theories proposed by economists.
Economic analysis is only as good as the numbers used in the mathematical equations or economic models. Minor distortions in these numbers can present serious difficulties when attempting to explain or justify economic trends. Economists usually plan for such errors and attempt to take a large sample of economic information from the market. Large samples can help lessen the impact of distortions in economic information.
Business owners can use economic information to help forecast expected sales for their business operations. The use of economic analysis in a business is an important management tool when making business plans and decisions. Business owners do not usually require the heavy use of technical math concepts when breaking down economic information. Owners can use the information provided by economists and make basic decisions regarding business operations from these economic models.