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  • Economics Unit 1: Tools of Economic Analysis

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    Darryl Saunders
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    This document discusses key tools used in economic analysis, including economic models, variables, and relationships. It defines economic models as representations of theories or ideas that can take various forms like diagrams or equations and be used to make predictions. Economic variables are quantities like unemployment, prices, and incomes that can be presented graphically. Relationships between variables can be linear, showing proportionate changes, or non-linear. Key concepts covered are total, marginal, and average values of variables, as well as cause-and-effect analysis of how independent and dependent variables influence each other.

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    Econ U1

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    This document discusses key tools used in economic analysis, including economic models, variables, and relationships. It defines economic models as representations of theories or ideas that can take various forms like diagrams or equations and be used to make predictions. Economic variables are quantities like unemployment, prices, and incomes that can be presented graphically. Relationships between variables can be linear, showing proportionate changes, or non-linear. Key concepts covered are total, marginal, and average values of variables, as well as cause-and-effect analysis of how independent and dependent variables influence each other.

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    © All Rights Reserved
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    12 views7 pages

    Economics Unit 1: Tools of Economic Analysis

    Uploaded by

    Darryl Saunders
    This document discusses key tools used in economic analysis, including economic models, variables, and relationships. It defines economic models as representations of theories or ideas that can take various forms like diagrams or equations and be used to make predictions. Economic variables are quantities like unemployment, prices, and incomes that can be presented graphically. Relationships between variables can be linear, showing proportionate changes, or non-linear. Key concepts covered are total, marginal, and average values of variables, as well as cause-and-effect analysis of how independent and dependent variables influence each other.

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    © All Rights Reserved
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    of 7

    Economics Unit 1

    TOOLS OF ECONOMIC ANALYSIS


    Economic Models

    ► An economic model is any mechanism that represents a theory, hypothesis or idea.


    ► A model could take the form of a diagram, formula, table equation or theory.
    ► Models can be used to make predictions.
    ► Does the demand curve illustrate any theory?
    Economic Variable

    ► An economic variable is an economic quantity or measurement of interest which


    take on a different set of values.

    ► Examples include: unemployment rates, prices, wage rates, production levels,


    income levels etc.

    ► Economic variables can be presented in graphical form.


    Economic Variables

    ► Total, Marginal and Average values of an economic variable may be of interest.


    For example a firm may be interested in total revenue it earns or total cost it
    incurs. They may also be interested in marginal cost and average cost.

    Output Total Cost Marginal Cost Average Total


    Cost
    1 15 15
    2 22 7 11
    3 27 5 9
    4 44 17 11
    5 65 21 13
    Economic Variables

    ► Minimum or Maximum values of a variable may be of interest. For instance the


    price at which the firms revenue is maximised or the level of output at which cost
    is minimised is of interest.
    Economic Relationships

    ► Cause and Effect – analysis of the impact of one economic variable on another.

    ► The variable that exerts the influence is the is the independent or exogenous
    variable.

    ► The variable that responds is the dependent or endogenous variable.

    ► Can we think of any variables which have economic relationships?


    Linear & Non-Linear Relationships

    ► A linear relationship between two variables occurs when the ordered pairs lie
    entirely along a straight line. This type of relationship implies that any change in
    the independent variable results in a proportionate change in the dependent
    variables.

    ► A non-linear relationship occurs between two variables, if the relationship does


    not conform to a straight line.

    ► Required Reading – Chapter 3 of Text.

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