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ECONOMIC ANALYSIS

WHAT IS ECONOMICS? Is the social science that is concerned with the production, distribution and consumption of goods and services.

Deals primarily with the allocation of scarce resources to alternative uses. This may refer to the behavior of an individual. recreation) . the distribution of limited resources ( his income) over expenditures that satisfy different needs( foods. clothing.

administration” from oikos. hence “rules of the household. . “house” + nomos.ECONOMICS • The term economics comes from the Ancient Greek oikonomia. “custom” or “law”. “management of a household.

CHOICE.Basic terms of Economics SCARCITY-occurs when society’s wants exceed the ability of the economy to meet these wants. or course of action in preference to . person.act of choosing something or somebody: a decision to choose one thing.

Without exchange.complements specialization. businesses. EXCHANGE.SPECIALIZATION-Economics studies show the participants in the economy (people. specialization would be of no benefit because individual could not trade the goods in which they specialize for those that other individuals produce. . countries) specialize in the task to which they are particularly suited.

. involving the comparison of two alternatives in achieving a specific objectives under the given assumption and constraints.WHAT IS ECONOMIC ANALYSIS? A systematic approach to determining the optimum use of scare resources.

choices are made within the economy to ensure that projects selected for investment meet a minimum standard for resource generation and to weed out those projects that do not. For directly productive project.Scope of Economic Analysis The purpose of the economic analysis of a project is to bring about a better allocation of resources leading to enhanced incomes for investment or consumption. . where output is sold directly to relatively competitive environment.

compared to the opportunity cost of money. Traditionally in project planning.Objectives of the Economic Analysis • The ultimate objective of the economic analysis is to provide s decision-making tool which can be used not only for the pilot project but also for demonstration purpose. . decisions on which projects to fund and implement relied on a combination of political decisions and calculation of rates of economic return from alternative projects.

Procedures for Economic Analysis Defining a project objectives and economic rationale Forecasting effective demand for project outputs. . Choosing the least cost design for meeting demand or the most cost effective way of attaining the project objectives. Determining whether economic benefits exceed economic cost.

Testing the risk associated with the project.Assessing whether the projects net benefits will be sustainable throughout the life of the project. Identifying the distribution effects of the project. . particularly on the poor one.

2. . COST-EFFECTIVENESS ANALYSIS  A comparison of cost in monetary units with outcomes in quantitative non-monetary units. COST MINIMIZATION ANALYSIS  A determination of the least costly among alternative interventions that are assumed to produced equivalent outcomes.Four common types of Economic Analysis 1.

measured. usually to patient. .3. COST-UTILITY ANALYSIS A form of cost effectiveness analysis that compare cost in monetary units outcomes in terms of their utility. COST-BENEFIT ANALYSIS Compare costs and benefits both of which are quantified in common monetary units. 4.

The Three Types of Economic System 1. national and state governments play a minor role. Instead. Market Economy  In a market economy. consumers and their buying decisions drive the economy. .  Market decisions are mainly dominated by supply and demand.

. the predetermination of prices for different commodities.Market economies aim to reduce or eliminate entirely subsidies for a particular industry. and the amount of regulation controlling different industrial sectors. and market forces have very little say in such an economy.Planned Economy  Also called a command economy  The planned economy is government directed. 2.

Mixed Economy In a mixed economy there is flexibility in some areas and government control in others. distribution. 3. . are all made by the government.The most important aspect of this type of economy is that all major decisions related to the production. commodity and service prices.

This system prevails in many countries where neither the government nor the business entities control the economic activities of that country-both sectors play an important role in the economic decision-making of the country. This means that certain features from both market and planned economic systems are taken to form this type of economy.A mixed economy combines elements of both the planned and the market economies in one cohesive system. .

Backbone of market economy. supply and prices. .LAW OF SUPPLY AND DEMAND Defines the generally observed relationship between demand.

The Law of Demand Law of demand is an economic law that states consumers buy more of a good when its price decreases and less when its price increases. (ceteris paribus) If the price of the good increases.1. the quantity demanded decreases. while if price of the good decreases. . its quantity demanded increases.

The Law of Supply  The tendency of suppliers to offer more of a good at a higher price.2.  The relationship between price and quantity supplied is usually a positive relationship. .

. the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded. when the supply function and demand function intersect) the economy is said to be at equilibrium.3. Equilibrium When supply and demand are equal ( i.e. At this point.

excess supply will be created within the economy and there will be allocative inefficiency.4. 1. Excess Supply o If the price is set too high.Disequilibrium o Occurs whenever the price or quantity is not equal to P* or Q*. .

Because the price is so low. Excess Demand • Excess demand is created when price is set below the equilibrium price. too many consumers want the good while producers are not making enough of it.2. .

Bernardino Maed-EM Discussant .THANK YOU FOR LISTENING !!!! Ms. Vanessa R.