Use of quantitative analysis in economics

This is Why People Love Math Stat and Economics

Economic theories always attempt to define the relationship between deferent economic variables. In modern economic history, the use of mathematical and statistical tools to evaluate economic theories has increasing importance especially after the development of subjects like econometrics.

The use of mathematics and statistics in economic analysis is called quantitative technique in economics. The main propose of employing quantitative analysis in economics is to provide diligence in deducing economic theories and measure economic parameters so that they can be compared with similar other values.  

Since economics is related to the study of the economic behavior of the individuals living in the society and as they are the social phenomenon, variation is obvious and can be studied when expressed in a quantitative form.  

Economics has an increasing scope with the development of complex socio-economic relationships and without the use of mathematics and statistics, it is difficult to handle the subject matter of economics only in the word form.

New technology, modern strategies of global business, new techniques of income generation, global economic policies, etc are the main factors to make economics useless without quantitative analysis.

Subjects like mathematics and statistics provide many tools to analyze various aspects of economic theories and principles considering the data related to individuals, societies, and nations.

Economics is concerned with consumption, production, exchange, distribution of wealth, saving, investment, and income, etc.

Therefore, it is said that the study of modern economics is incomplete without taking the knowledge of quantitative techniques. We can see the use or need for quantitative analysis in economics from the following two aspects;

The mathematical aspect of Economics 

Mathematical skills and techniques help to solve different problems easily and logically. There are different variables in the sector of economics in which it is needed to establish a relationship between them by numerical calculation or graphical presentation.

In both cases, mathematical tools are very important. Cost affects profit, price level affects demand, investment is affected by market demand and interest rate, etc. are the different dependent and independent variables whose relation can be verified through mathematics.

The demand curve, supply curve, profit maximization, cost minimization, and other algebraic types of problems can be solved by using mathematics. Derivative, integration, transformation, coordinate geometry, linear programming, etc. are very much useful and essential mathematical tools for successful economic transactions.

The statistical aspect of Economics

Statistics is one of the most powerful subjects for explaining events or phenomena and it deals with statistical data and statistical methods, which have a spectacular role in a proper understanding of the economic problems and formulation of economic policies and strategies. Thus, statistics are an essential part of economics.

All situations like profit and loss, demand and supply, investment, production, and so many other data can be analyzed by statistical tools and methods. In the modern technological and competitive world, the economic activities at large volumes cannot run without comparing and analyzing other similar types of businesses around the globe or regions.

The economist always evaluates several indicators of the economic environment over time and applies the information to anticipate the circumstance of the economy shortly.

Data collection, systematic tabulation, presentation of data in graphic form, observation of data concerning the central value and partition value, the probabilistic study, the correlation between different variables, deviation condition of the data can be observed by statistics.

Economics in modern times has no applied without the use of statistical methods and techniques. Thus, an economical model and conditions can be studied and verified by data provided or collected from the field.

Statistical methods, therefore, are very helpful to execute the theory of economics concerning investment, production, distribution, profit, loss, etc.  For the nations, to estimate and forecast national income and output, to prepare the budget and other necessary economic policies, statistical methods and techniques play a vital role.

Therefore, the use of quantitative analysis in economic science has a growing role, and while not use of its economic analysis and interpretation isn't attainable.

Economic theories toughed within the school rooms ought to be checked against information obtained from the real world. If empirical information verifies the connection projected by the speculation, then only we can stay for the theory; otherwise, we must reject the connection.

Use of Statistics in Economics

In modern times, the use of statistics is not confined only up to the study of human population and behavior but it is significantly used for better administration of the state. The scope of this subject has been extended to every human activity and economic activity.

Issues related to economics like an investment, production, consumption, distribution, profit, loss, expenditure, etc. can be analyzed, solved, and point out the way of improvement through research-based works. It is at the same time also useful to observe the situation of money in circulation, bank deposit, stock exchange, etc. in a nutshell the use of statistics in economics can be enlisted as below;

• Statistics are useful to represent the demographic variables of the state and nations.
• It is used to measure the central values of the economic variable and also used to measure the dispersion of the observations from central and it has a significant contribution to economics.
• Statistics are also useful to formulate, test, and provide empirical support to economic theories and. Economic theories like the law of demand, the law of income distribution, law of consumption, etc. have been better understood with the help of statistical representation.
• Statistical tools and techniques are widely and extensively used in the estimation and forecasting the time series of economic variables. It helps the nation to forecast, to see the trend, and based on these to formulate suitable policies.
• Statistics is useful to observe and find possible dynamism in economic and business activities. Proper research could ensure the best policy for the nation and statistics provides base and important tools to conduct research and development works of the nations.

Use of mathematics in economics

Mathematics has powerful logic and tools to establish a relation between the variables which are widely used in economics.

Very long and difficult theoretical expressions of economic theories can be expressed in the short and understanding form only with the help of mathematical techniques and methods. We can find the accurate ratios and coefficients of various economic relations with the help of math.

Economic theories get more concrete and precise form due to mathematics and they are then widely applied and recognized. Logarithm, linear programming, equations, functions, integral calculus, geometry, game theory, coordinate geometry, etc and applied mathematics are important areas that have a very pivotal role in the field of economics. The major use of mathematics in economics can be pointed as below;

• It helps to show the financial position of the business and economy.
• It also helps to find the condition of demand, supply, investment, saving, income, export, import, taxation, etc in the economy.
• Mathematics is used to find a casual relationship between economic variables. Similarly, mathematical tools for analyzing the relationship between three or more economic variables.
• Mathematics is used to convert sentences and lengthy expressions into short and precise symbols. 
• Mathematics is helpful to formulate and solve economic problems and business problems by applying different tools like game theory, linear programming, coordinate geometry, etc. and they provide a criterion for policy formulation.
• Finally, mathematics is also used to develop appropriate and dynamic economic new theories for the existence of contemporary situations. 

Summary

The quantitative analysis consists of the use of mathematics and statistics in different disciplines. Among various, the use of mathematics and statistics in economics is imperative and foreseeable. Without the use of quantitative analysis in economics, the study of economics has become inadequate and pointless. Mathematical and statistical tools work as the vital device to scrutinize the existing relations among different economic variables, estimate and to articulate different economic plans and guidelines. It means, to produce a much better guideline for policy formulation, there is a greater role and application of measurement and quantitative relationship between the various economic variables.