IIMT & School of Law
PPT ON
ECONOMIC ANALYSIS
SUBMITTED BY:
SUBMITTED TO:
RAUNAK SINGH MS. MANSI
KHANNA
ASSISTANT
PROFESSOR BA LLB , 1ST YEAR
INTRODUCTION
Economic is a study about how individuals, businesses and governments
make choices on allocating resources to satisfy their needs. These groups
determine how the resources are organised and coordinated to achieve
maximum output. They are mostly concerned with the production,
distribution and consumption of goods and services.
Economics is divided into two important sections, which are:
Macroeconomics & Microeconomics
Macroeconomics deals with the behaviour of the aggregate economy and
Microeconomics focuses on individual consumers and businesses.
MICRO V MACRO
Microeconomics is the study of decisions made by people and businesses regarding the allocation
of resources and prices of goods and services. The government decides the regulation for taxes.
Microeconomics focuses on the supply that determines the price level of the economy.
It uses the bottom-up strategy to analyse the economy. In other words, microeconomics tries to
understand human’s choices and allocation of resources. It does not decide what are the changes
taking place in the market, instead, it explains why there are changes happening in the market.
The key role of microeconomics is to examine how a company could maximise its production and
capacity, so that it could lower the prices and compete in its industry. A lot of microeconomics
information can be obtained from the financial statements.
Macroeconomics is a branch of economics that depicts a substantial picture. It
scrutinises itself with the economy at a massive scale, and several issues of an economy
are considered. The issues confronted by an economy and the headway that it makes
are measured and apprehended as a part and parcel of macroeconomics.
Macroeconomics studies the association between various countries regarding how the
policies of one nation have an upshot on the other. It circumscribes within its scope,
analysing the success and failure of the government strategies.
In macroeconomics, we normally survey the association of the nation’s total
manufacture and the degree of employment with certain features like cost prices, wage
rates, rates of interest, profits, etc., by concentrating on a single imaginary good and
what happens to it.
STATIC V DYNAMIC
In static economic analysis time element has nothing to do. In static economics, all
economic variables refer to the same point of time.
Static economy is also called a timeless economy. Static economy, according to Hicks, is
one where we do not trouble about dating. On the contrary, in dynamic economics, time
clement occupies an important role. Here all quantities must be dated. Economic variables
refer to the different points of time.
Difference # 2. Process of Change:
Another difference between static economics and dynamic economics is that static analysis
does not show the path of change. It only tells about the conditions of equilibrium. On the
contrary, dynamic economic analysis also shows the path of change. Static economics is
called a ‘still picture’ whereas the dynamic economics is called a ‘movie’ of the market.
Difference # 3. Equilibrium:
Static economics studies only a particular point of equilibrium. But dynamic
economics also studies the process by which equilibrium is achieved. As a result,
there may be equilibrium or may be disequilibrium. Therefore, static analysis is a
study of equilibrium only whereas dynamic analysis studies both equilibrium and
disequilibrium.
Difference # 4. Study of Reality:
Static analysis is far from reality while dynamic analysis is nearer to reality. Static
analysis is based on the unrealistic assumptions of perfect competition, perfect
knowledge, etc. Here all the important economic variables like fashions, population,
models of production, etc. are assumed to be constant. On the contrary, dynamic
analysis takes these economic variables as changeable
POSITIVE V. NORMATIVE ECONOMICS
Positive economics and normative economics are two standard branches
of modern economics. Positive economics describes and explains various
economic phenomena, while normative economics focuses on the value
of economic fairness or what the economy should be.
To put it simply, positive economics is called the "what is" branch of
economics. Normative economics, on the other hand, is considered the
branch of economics that tries to determine the desirability of different
economic programs and conditions by asking what "should" or what
"ought" to be.
Positive Economics
Positive economics is a stream of economics that focuses on the description, quantification,
and explanation of economic developments, expectations, and associated phenomena. It
relies on objective data analysis, relevant facts, and associated figures. It attempts to
establish any cause-and-effect relationships or behavioral associations which can help
ascertain and test the development of economic theories.
Positive economics is objective and fact-based where the statements are precise, descriptive,
and clearly measurable. These statements can be measured against tangible evidence or
historical instances. There are no instances of approval-disapproval in positive economics.
Here's an example of a positive economic statement: "Government-provided healthcare
increases public expenditures." This statement is fact-based and has no value judgment
attached to it. Its validity can be proven (or disproven) by studying healthcare spending
where governments provide healthcare.
Normative Economics
Normative economics focuses on value-based judgments aimed at improving economic
development, investment projects, and the distribution of wealth. Its goal is to
summarize the desirability (or lack thereof) of various economic developments,
situations, and programs by asking what should happen or what ought to be.
Normative economics is subjective and value-based, originating from personal
perspectives or opinions involved in the decision-making process. The statements of this
type of economics are rigid and prescriptive in nature. They often sound political, which
is why this economic branch is also called "what should be" or "what ought to be"
economics.
An example of a normative economic statement is: "The government should provide
basic healthcare to all citizens." As you can deduce from this statement, it is value-
based, rooted in personal perspective, and satisfies the requirement of what "should"
be.
SHORT RUN V. LONG RUN
In the study of economics, the long run and the short run don't refer to a specific
period of time, such as five years versus three months. Rather, they are conceptual
time periods, the primary difference being the flexibility and options decision-makers
have in a given scenario. In the second edition of "Essential Foundations of
Economics," American economists Michael Parkin and Robin Bade give an excellent
explanation of the distinction between the two within the branch of microeconomics:
"The short run is a period of time in which the quantity of at least one input is fixed
and the quantities of the other inputs can be varied. The long run is a period of time
in which the quantities of all inputs can be varied.
"There is no fixed time that can be marked on the calendar to separate the short run
from the long run. The short run and long run distinction varies from one industry to
another."
In short, the long run and the short run in microeconomics are entirely dependent on
the number of variable and/or fixed inputs that affect the production output.
