Economic models establish relationships between variables in the form of functions. Tools for analyzing these relationships include equations, schedules, and graphs. Equations express relationships mathematically as Y=f(X). Schedules provide hypothetical data on how variables are interconnected. Graphs visually show functional relationships between variables on different axes. These tools are used to analyze relationships in economic concepts like demand, supply, production, costs, and profits at the level of households, consumers, firms, industries, and the economy.

1. Tools For Economic
Analysis
MRS.PADMAVATI PATIL

2. Function: Y= f(X)
Economic models establish relationship between two or more economic variables. Such
relationships may sometimes be expressed in the form of a function. A function is an
expression of the relationship between two or more variables. Y = f(x)
A demand function is expressed as Qd = f(P), where Qd represents the quantity demanded, P
is the price of the commodity and/represents the functional relationship. It is read as
“quantity demanded is a function of price”.
Tools For Economic Analysis
 Functional Relationship
 Schedules
 Graphs and Equations

3.  Equations - Y = a + bX
 Demand Function – Qd = 100 – 0.5 (P)
 Supply Function – Qs = 100 + 40 (P)
 Production Function - Q = f( K, L, L, O)
 Cost Function
 Total Revenue Function
 Profit Function

4. Schedules
Schedules are the empirical or hypothetical data whose functional
interconnection we wish to investigate.
 Demand Schedule
 Supply Schedule
Demand Schedule for pens
Price per unit in (Rupees) Quantity of pens Demanded
12 10
10 20
8 30
6 40
4 50
2 60

5. Graphs
A diagram showing the
relation between variable
quantities, typically of two
variables, each measured
along one of a pair of axes at
right angles.
The simplest and Most
intuitively obvious method of
showing functional
relationship is through graph.
10 20 30 40 50 60 70
Quantity Demanded
X
Y
0
12
10
8
6
4
2
D
D
Price

6. Concepts of Household, Consumer, Firm/ Plant, Industry
Households
A household consists of one or more people who live in the same
dwelling and share meals. It may also consist of a single family or
another group of people. ... The household is the basic unit of analysis in
many social, microeconomic and government models, and is important
to economics and inheritance.
 Owner of the all the factors of Production.
 It is the Basic unit
 Decision Making Unit
 Group of Consumer

7. Consumers
A Consumer is a person or Organization that uses economic services or
commodities. He is an end user and not necessarily a purchaser.
Role of a Consumer
 Enhancement in supply
 Eradicating Unfair Trade Practices
 Better Relationships
 Consumer Education
 Product Rating

8. Firm
The term firm refers to the business unit or undertaking which owns
the plant ( the factory, the shop, the warehouse or transport depot),
controls and manages it. Or a firm refers the a group or organization
that focuses on producing goods

9. Industry
An industry is a group of firms, but it is not easy to decide what type of
firms should be grouped together to make a particular industry. Some
common factor ( Raw material used, Production technique employed and
similarity among the products produced) among all the firms that make up
and industry.

10. Goals of Firms
Economic Goals Non Economics Goals
I. Profit Maximisation
II. Sales Maximisation
III. Wealth Maximisation
IV. Utility Maximisation
V. Growth of the firm
VI. Long run survival
I. Survival
II. Social Responsibility and Welfare
III. Goodwill of Employees
IV. Political Power, Prestige