Note on Need for Quantitative Analysis in Economics

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Need for Quantitative Analysis in Economics

Quantitative analysis in economics helps in making a decision. Quantitative analysis is that number, symbols or mathematical formula or expression which are used to represent the model of reality.

In early days, economics was considered to be wholly a non-mathematical science. Economics is concerned with the use of scarce resources to produce commodities and distribute them among the different sections such as workers, traders, farmers, entrepreneurs, etc of society. But it is quite easy to put them in concise mathematical forms. The central aspects of economic theory can be stated as a functional relationship among variables using the mathematical and statistical tools. Mathematics and statistics are formed to be best for a scientific approach to economics.

Quantitative techniques have two aspects namely 'Mathematical Aspects' and 'Statistical Aspect'.

Use of Mathematics in Economics

Source: slideplayer.com
Source: slideplayer.com

The use of mathematics in economics put the literary form of economic theory into mathematical language. Mathematics are suitable for developing theories and models in economics. Mathematical symbols can be used instead of terms and equations instead of sentences.

The followings are the uses of mathematical in economics field:

  1. To determine economic function
    Function plays an important role in deriving different economic functions. It can be represented by an equation or graph.
    For Example,
    Demand function = Qdx : a+bPx
    Qsx: a + bPx
    Consumption function = C : a+bYd

  2. To determine equilibrium price
    An equilibrium price is determined at a price where the market demand is equal to the market supply.
    For example,
    Demand function, Qdx= 100-5Px
    Supply function, Qsx = 10+5Px
    Then, at equilibrium, Qdx = Qsx
    or, 100-5Px = 10+5Px
    \(\therefore\)Px = Rs 9 (equilibrium price)

  3. To compute marginal economic values
    Marginal analysis of economic variables is closely related to different calculus. All marginal concepts can be expressed as derivatives or ratios.
    For example,
    Marginal Product (MP) = \(\frac{Change \:in\: total\: product}{Change\: in\: units\: of\: labour}\) = \(\frac{\triangle TP}{\triangle L}\) = \(\frac{dTP}{dL}\)
    Marginal Utility (MU) = \(\frac{Change\: in\: total\: utility}{Change\: in\: units\: of\: consumption}\)= \(\frac{\triangle TU}{\triangle Q}\) = \(\frac{dTU}{dQ}\)

  4. To compute total economic values
    All economic functions in aggregate form can also be computed with the help of integration.
    For example,
    Total Utility (TU) = MU
    Total Product (TP) = MP

  5. To solve problems of optimization
    All business firms and household have optimization problems. These problems can be solved with the equation, inequalities, linear programming and so on.

Use of Statistics in Economics

Source: slideshare.com
Source: slideshare.com

We use statistics to do empirical studies in economics. we can estimate required function by using statistical tools and technique. It also helps to estimate an economic parameter that measures the effect of one variable to another.

The followings are the uses of statistics in an economics field:

  1. To study the consumption pattern and standard of living
    Consumption statistics reveals the pattern of the consumption of the various commodities by different sections of the society and also enable us to have some idea about their purchasing capacity and their standard of living.

  2. To solve production related economic problems
    Production statistics is very useful in solving basic economic problems which have risen due to the scarce of resources and also help in the adjustment market supply to the market demand.

  3. To study the process of pricing
    Exchange statistics reflects upon the process of pricing regarded to maximize the profit of business firms or to promote consumer's welfare.

  4. To study the nature and process of income distribution
    Statistics play a prominent role while distributing the national income and calculated.

  5. To formulate and evaluate economic policies
    Statistical methods are very useful to formulate economic policies. They also evaluate the effectiveness of these policies.

  6. Means of economic planning
    The statistical method helps as a tool of economic planning. It evaluates the achievement and problems of the previous plan.

  7. Basis of economic models and functions
    These help in the building economic models and function.

Reference:

Adhikari, Ramesh Prasad, Economics-XI, Asmita Pustak Prakashan, Kathmandu

Kanel, Navaraj et.al., Principles of Economics-XI, Buddha Prakashan, Kathmandu

Kharel, Khom Raj et.al., Economics In English Medium-XI, Sukunda Pustak Bhawan, Kathmandu

  • Quantitative analysis in economics refers to the use of mathematical and statistics in economic analysis.
  • Quantitative techniques have two aspects namely 'Mathematical Aspects' and 'Statistical Aspect'.

Use of Mathematics in Economics

  1. To determine economic function
  2. To determine equilibrium price
  3. To compute marginal economic values
  4. To compute total economic values
  5. To solve problems of optimization 

Use of Statistics in Economics

  1. To study the consumption pattern and standard of living
  2. To solve production related economic problems
  3. To study the process of pricing
  4. To study the nature and process of income distribution
  5. To formulate and evaluate economic policies
  6. Means of economic planning
  7. Basis of economic models and functions
.

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