Economic analysis is a key tool for understanding market dynamics, making informed decisions, and predicting future trends. This article explores the basic tools, main purpose, methods, types, and key elements of economic analysis.

The deductive method of economic analysis starts with identifying the dependent variable and then analyzing it to determine its behavior. Next, the analyst identifies possible explanatory variables and then builds a model with those variables to explain how they affect the dependent variable. Finally, the model is tested using simulated data. This process demonstrates the validity of the theory and allows the analyst to make better predictions in the future.

One of the most challenging parts of economic analysis is collecting and interpreting data. Data collection may involve interviewing participants, gathering survey data, and observing or measuring physical items and services. Costs, for example, can be complex and difficult to measure. An analyst may need to identify several component costs, such as the price of a stretcher or the cost of care for a patient with tularemia, and then calculate the total cost of treatment.

There are various types of economic analysis, such as microeconomic analysis (MA), macroeconomic analysis (MEA), and techno economic analysis (TEA). A common type of economic analysis is an economic impact assessment, which is often developed in conjunction with proposed legislation or regulatory changes. These assessments help to communicate the benefits of the change and can be helpful with lobbying, media relations, and community outreach efforts.