Economic analysis

The study of forces that determine the distribution of scarce resources. Economic
analysis provides insight into how markets operate, and offers methods for
attempting to predict future market behavior in response to events, trends,
and cycles. Economic analysis is also used by governments to determine tax
rates and evaluate the financial health of the nation or state

An economic analysis or evaluation is a process carried out by economists, statisticians and

mathematicians on behalf of both for-profit and nonprofit small business. The goal of this exercise is
to gain a clear picture of the current economic climate as it relates to the organization’s ability to
conduct business. This is accomplished through an in-depth appraisal of the strengths and
weaknesses of the market. A few different methods are used to carry out economic analysis.

Ceteris paribus assumption. In performing economic analysis, it is sometimes difficult

to separate out the effects of different factors on decisions or outcomes

Efficient production and the production possibilities frontier. In addition to

the ceteris paribus assumption, economic analysis is often carried out under the
assumption of efficient production. According to the efficient production assumption,
the economy is always using its resources and technology to produce
the maximumnumber of goods possible.

The efficient production assumption is frequently associated with theproduction

possibilities frontier (PPF), a graphical device that is used for economic analysis of
production decisions. The PPF measures the quantity of two goods that an economy is
capable of producing with its currently available resources and technology. While
economies typically produce more than two goods, the graphical analysis of the PPF is
made easier by restricting the production possibilities of the economy to just two goods.
Types of Economic Analysis
by KJ Henderson

Cost/Benefit

Cost/benefit is an economic analysis technique used to determine whether a project is feasible. This
is accomplished by weighing the cost of implementation against the benefits of the project's creation.

Cost/Effectiveness

Cost/effectiveness analysis is a technique used in weighing the effectiveness of a project against its
price. Unlike cost/benefit, however, a low cost does not equate to high effectiveness, and vice versa.
Using the same scenario as an example, the owner of a sm

cost/Minimization

Cost/minimization analysis is the technique of seeking out the least expensive method of carrying
out a project. This method of economic analysis is used primarily when costs savings are at a
premium and must outweigh all other considerations.