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WEEK 2

TOOLS FOR ECONOMIC ANALYSIS

Content

1. Simple Linear Equations
2. Measures of Dispersion
3. Pie Charts, Histogram, Polygons, etc

Sub-topic One:  Simple Linear Equation

Basic tools for Economic analysis are the tools required to reduce the wordiness of economic theories and principles and help to present them in clearer concise forms.  Some of these tools are

1. Simple linear equation
2. Simultaneous equation
3. Measures of Dispersion, etc

Simple Linear Equation

In this, functional relationship between two variables can be illustrated symbolically.  For example, let’s say the demand for more plates of rice depends on the availability of meat.  This can be illustrated symbolically as:

Qr = f(m)

Where: Qr = Demand for Rice

m  = Meat

Also, if the demand for Indomie Noodle depends on its price. This can also be illustrated thus:

Qi=f(Pi)

Also, it is generally known in economic parlance that the consumption of an individual depends on his level of income; that is, consumption is a function of income.  This is illustrated as:

C = f(Y)

Where C = Consumption and   Y  = income

If consumption (C) increases as Income (Y) increases, then C and Y varies directly. E.g.

C = 12 + 2y

On the other hand, if C decreases as Y increases, then they vary inversely. E.g.  C = 12 – 2y

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