BASIC TOOLS FOR ECONOMICS ANALYSIS

At the end of this chapter; student should be able to:

Identify and solve simple linear and simultaneous equations.

Calculate and interpret correctly simple statistical measure of dispersion.

INTRODUCTION

Some basic tools are required for proper analysis of economic problems.

Most of these problems are often presented in statements which may be too difficult to understand.

The use of these basic tools therefore makes it easier for better interpretation and understanding of economic principles. Some of these basic tools used for economic analysis are:

Linear equation

Simultaneous equation

Range

Quartile

Mean deviation

Variance

Standard deviation

LINEAR AND SIMULTANEOUS EQUATIONS

Linear equation is an equation that contains more than one unknown quantities, represented by ax + by = c where x and y are unknown and a,b,c are numbers.

This kind of equation can only be solved through graph, called straight line graph.

For instance x + y = 3, x and y are unknown quantities which can only be obtained by calculation if there is another equation having the same unknown quantities.

Thus, two or more of such equations which can be solved simultaneously are called simultaneous equations. Simultaneous equations are two or more equations which contain common unknown quantities which can be solved at the same time.

Simultaneous equations can be

All linear equations

One linear one quadratic equations

Solution of Simultaneous equations

Simultaneous equations can be solved by:

Eliminating one of the unknown

Solving for the other

Substituting the result from b in any of the equations,

Then solve for the eliminating unknown

To eliminate any of the unknown, adopt the following methods.

Addition or subtraction

Substitution

Equating

it is easy to calculate or compute

it is useful for further statistical calculations

Disadvantages of the range

It does not take all the values of a distribution into consideration, only values at the extremes are used.

It is not a reliable measure of variability.

THE QUARTILE

Quartiles are the values which divide a given distribution into four equal parts. It is similar to the median except that the median divides a distribution into two equal parts.

The four equal parts of a quartile include:

First Quartile Q1

Second Quartile Q2

Third Quartile Q3

Fourth Quartile Q4

VARIANCE AND STANDARD DEVIATION

The variance refers to the arithmetic mean of the squares of the deviation of the observation from the true mean. It is also referred to as the “Mean square deviation”.

The standard deviation, on the other hand, is the square root of the variance. The standard deviation is also referred to as the “root mean square deviation

Formulae for calculating variance and standard deviation

The formulae that may be used for calculating variance and standard deviation are stated below.

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