Readers Question: What is economic analysis? Can you give some examples? Kindly refer me to an easy to read book on economic analysis.
Economic analysis involves examining issues and problems from the perspective of an economist. Economic analysis would involve some or all of the following:
- Examining the opportunity cost of a decision. (e.g. if the government spend more money on trains it would mean higher taxes or less government spending for other projects)
- Examining whether decisions increase economic welfare (e.g. does the utility to the consumer exceed the marginal cost of producing it?)
- Examining all social costs and benefits in producing a particular good. E.g. is a congestion charge on motorists justified given the external costs of driving into the city centre?
- Examining the wider impact on issues just as equity and fairness (e.g. an increase in congestion charges could cause increased income inequality)
- Using models such as supply and demand to illustrate what could be happening in a particular market or wider economy.
Examples
Carbon Tax
An example of a present issue would be deciding whether to implement a carbon tax. A carbon tax is controversial because it would increase the cost of driving and consuming carbon products. Economic analysis would seek to evaluate whether the benefits of this new tax (lower carbon emissions, incentives to develop more efficient engines) outweigh these costs.
Controversy in Economic Analysis
Within the field of economic analysis, different economists may focus on different aspects and come to different conclusions.
For example, in their analysis some economists would place great emphasis on reducing inflation. Therefore, this would make them reluctant to advocate quantitative easing. Others would argue that the costs of inflation are exaggerated and so would look at a situation and come to the conclusion it is more important to stimulate the economy.