Quantitative Analysis in Economics - Economics Notes Grade XI

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Quantitative Analysis In Economics

Quantitative Analysis in Economics

Quantitative Analysis in Economics

Need for Quantitative Analysis in Economics:
The use of numbers or symbols in order of study is known as quantitative analysis. There are two aspects of quantitative techniques use in economics that is mathematics and statistics. In early days, economics was considered to be wholly a non-mathematical science. The verbal technique was supposed to be sufficient to explain and describe everything in economics. At that time mathematics and statistics had not any place in economics.

When economics began to develop and became popular, economic theories and analysis became more and more complex and it impacted difficult to express them only in words. The introduction of mathematics in economics put the literary form of economic theories into mathematical language. It provides a concrete form to economic principles and relationship and deals the economic matters more precisely and practically. Mathematics helps to represent the functional relationship between economic variables that is price and demand, consumption and income, etc. Statistics helps to formulate the economic theory and policy by using the statistical facts of various economic variables.

Thus, quantitative analysis helps us to find the information in numerical terms which makes easier, shorter and faster understanding and thereby facilitation on the decision-making process. Nowadays, economics is being a quantitative subject due to the increased use of quantitative analysis. Most of the economic concepts are set quantitative terms.

Uses of Statistics in Economics:
In ancient times, statistics was regarded as the science of statecraft and was used to collect information related to military force, population, wealth, etc. But in modern times, the use of statistics is broad. It is not only the device for collecting sound techniques for handling analysis and drawing valid conclusions. Statistics play a significant role in the solution of problems related to planning, economics, business, management, mathematics, etc. The uses of statistics in economics are as follows:

  1. Helpful in calculating PCI:
    Statistics help us to calculate the PCI. PCI is one of the component of NI in economics. It is accounted for by the help of NI and the size of the population. Thus, statistics help us in calculating PCI.
  2. Helpful in analyzing consumer’s satisfaction:
    The statistical tools help the particular economy to analyze and make a scientific and systematic report of consumer’s satisfaction. It helps in finding out the information about the consumer. So the degree of consumer’s satisfaction can be measured by the numerical evidence with the help of statistics.
  3. Helpful in production functions:
    The relationship between the various factors of input and output is termed as production function. In fact, such a production function is evaluated by the help of various statistical tools.
  4. Helpful in income employment generation programme:
    It also helps in income employment generation programme through time series analysis and regression analysis which serves as the major tool of economics.
  5. Helpful in formulating economic policies:
    The various statistical tools help in the formulation of economic policies. In fact, economic policies such as fiscal policies and monetary policies are determined by the help of statistics.
  6. Helpful in analyzing the relationship between economic variables and economic development:
    Economic development means the growth of GNP along with the development of different aspects. Thus, statistics analyzes the relationship between economic variables and economic development.

Uses of Mathematics in Economics:
Different economics theories can be explained by the use of mathematical relations. Use of mathematics in economics translates the verbal form of economic theory into mathematical language. Mathematical tools like ratio equations, indices, logarithm, derivatives, etc. are suitable for developing theories and models in economics. Mathematical symbols can be used instead of terms and equations instead of sentences. It provides a concrete form to economic modes & theories and makes them more precise and practical. The uses of mathematics in economics are as follows:

  1. To show the functional relationship
    Various economic variables are affected by other variables. Mathematical relations equations are used to show these relationships between dependent and independent variables. For example Quantity demand of goods depends upon its price. In mathematical term we can express as: D = f (P) where D = (dependent variable), P = Price (independent variable) and f = function.
  2. To determine equilibrium price and quantities
    Mathematics uses the equilibrium condition of the market and presents them in the form of an equation. Then it finds the equilibrium quantity & price of the market by solving the equations. Therefore, it is used to determine the equilibrium price and quantities.
  3. For marginal and total analysis
    All marginal concepts such as marginal cost, marginal revenue, marginal product, etc. and all the total concepts such as total product, total revenue, total utility, etc. are discussed by the use of differential, calculus, and integral calculus respectively.
  4. To reach a faster conclusion
    The use of mathematical symbols, relations and mathematical tools helps to find the decisions to reach the conclusion in a quick and easy way.
  5. To determine the optimum condition
    Mathematical methods and techniques help to determine the point of maximum profit of producers and businessman and maximum satisfaction of consumers. Its uses the condition of maxima and minima.

These are some of the uses of mathematics in economics which have been increasingly used nowadays. The appropriate use of mathematical techniques can be powerful and essential tools in the hand of any economists. These mathematical tools can give a deeper insight into the subject and help in deriving the conclusions.

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