## Need for Quantitative Analysis in Economics

Subject: Economics

#### Overview

Quantitative analysis in economics refers to the use of mathematics and statistic in economic analysis. In early days, economics was considered to be wholly a non-mathematical science.

### 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

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

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:

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

##### Things to remember
• 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
• It includes every relationship which established among the people.
• There can be more than one community in a society. Community smaller than society.
• It is a network of social relationships which cannot see or touched.
• common interests and common objectives are not necessary for society.