Economics is a social science that uses a lot of data to reach conclusions. There are many statistical tools and formulas that economists use to analyze and summarize data that is collected from a number of sources. Economic theories need to quantify data in order to predict and then interpret results. Through these theories, the future of the economy can be predicted and measures can be taken to avoid pitfalls in advance.
You need to have a good hold over not only social sciences and economics but also, statistics and algebra in order to analyze data. There are also many other mathematical concepts but your analytics software can take care of that. Following are some economic data analysis methods that you should be aware of –
1. Time Series Analysis – This method uses regression analysis to analyze data that has been collected over a period of time. The base is a dependable variable and this method uses its present values as well as past values to predict the future value, taking the changing independent variables at one side. Dependable variables include the price of goods or commodities, rate of unemployment of the economy, and other similar things. You can use data science feature in your analytics software to help you with the same.
2. Linear Programming – Linear programming studies how limited resources can be allocated to units in the most efficient way possible. As you are aware, in an economy, the resources are never unlimited but the wants and needs of the units are. However, after restricting the requirements of the units, you have to ensure that the allocation is such that their demands are met and resources are not overexerted. Using Linear Programming, anything can be maximized like profits of a firm, and minimized like the cost of production.
3. Input Output Analysis – Input Output analysis is a method that makes use of matrix algebra to reach its conclusions. Basically, the method attempts to find links between industries and then analyses those links. The rows of the matrix are the sales by economic sectors and the columns are the purchases. Then, the matrix depicts how services and goods flow from one sector to another. If you want to find out the amount of inputs needed for a fixed level of output (or vice versa) then you can use Input Output analysis.
4. Econometrics – Econometric aims to quantify economic phenomena. It is used by economics to review and analyze various economic phenomena in the best and more precise way possible. Its main technique is regression analysis that studies the effects of independent variables and dependent variables on the economy. Regression analysis can only confirm the existence of important relationships and now casual ones.
Economics is a brilliant science that is made use is all fields of the world. A basic knowledge of this science never goes amiss because everyone needs to use it, economists and entrepreneurs alike.