Before economic analysis, we should first understand, what economics is. Economics is a subject which deals with the production, distribution, and consumption of various goods and services. It studies various aspects of decision making as to how individuals, businesses, and governments make use of resources to produce goods according to consumer’s needs, manage distribution, and provide various services. It helps in the efficient use of available resources; therefore whether it is a household or large business, a basic understanding of various concepts of economics would be beneficial.
There are two basic types of economics – microeconomics, and macroeconomics.
It focuses on decision making done by individuals or businesses regarding the allocation of resources and prices of goods and services. Its main focus is on demand and supply that determines the price level of the economy. It is also called “Price theory” as the theory of product pricing and theory of factor pricing falls under microeconomics. It explains how and why different goods are valued differently, how individuals and businesses make financial decisions, how they coordinate and compete with each other, etc.
It focuses on the overall economy on both the national and international level. It studies various government policies, level of inflation, interest rates, employment, GDP, boom and recessions, etc. It is also called “Theory of income and employment” as the range of macroeconomics focuses on the determination of level of income and employment.
What is economic analysis?
Economic analysis in a business is an analysis to understand how various economic factors affect the functioning of any organization, whether it is an industry or a company. Various economic factors include inflation, interest rate, budget, exchange rates, GDP growth, inter and intra-country relations, etc. Every organization is an open system that can be directly or indirectly affected by an external factor, therefore, proper analysis of economic factors facilitate the identification of the opportunities and threats that could affect the industry’s or company’s performance.