What Is Economic Analysis?

Economic analysis is the process of examining statistics and market indicators to determine possible plans for the allocation of resources. Analysis can be geared toward developing a specific economic plan or policy, or may be used to thoroughly understand the current status of an economy. In order to perform a basic economic analysis, it is important to understand the relationship between resources and needs, the recent history of the economy in question, and goals or forecasts for the near future.

The first step of an economic analysis often involves data gathering on resources. These resources may include intangible concepts, such as labor and time, as well as tangible items such as money or goods. Understanding how best to allocate scarce resources is often the primary function of economic analysis, since efficient allocation can lead to a stable or growing economy and a balance between resources and needs. Data needed for resource analysis might include population information, gross production statistics, and details about labor and wage laws that can influence the maximum cost and amount of labor.

Understanding the recent history of an industry, region, or national economy can greatly impact the results of economic analysis. A country in the midst of a war will generally have very different economic factors at work than a country just emerging from a recession. The recent history of the subject may affect the allocation of resources, prices, production maximums, and nearly every other factor that plays a role of importance in analysis. In addition to examining past economic events that may be influencing a study, it is also important to examine local, national, and global events that can also change the interpretation of data.

Economic analysis can sometimes be performed simply to explain the current state of a specific economy, but it may also be done as part of an attempt to set and meet future economic goals. If, for instance, a government foresees an upcoming food scarcity, it may want to begin subsidizing farming to help reduce the economic risk of a shortage. By performing economic analysis, it may be able to determine how to create subsidies and assistance programs that best suit the situation without straining financial resources.

The business of economic analysis is enormous, both in the private and public sector. A small business or large corporation might request an analysis to determine expansion or reduction needs, plan for new product lines, or examine the cost versus benefits of entering a new global market. In the public sector, governments often have entire bureaus devoted to thorough economic analysis, measuring everything from the production of grain to the ripple effect caused by another nation's economic woes.