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QuestionWhat are some of the basic analytical tools of economics?
AnswerThe tools of economic analysis are found to be in the realm of mathematics. Some key tools are described below: · Graphs and diagrams - A graph or a diagram presents the relationship between two or more sets of data or variables that are related to one another. Graph depicts the functional relationship between two or more economic variables. · Identities - An identity explains an equilibrium condition or a definitional condition. A definitional identity explains that two alternative expressions have exactly the same meaning. For example, total profit is defined as the excess of total revenue over total cost, and we can denote as: π ≡ TR - TC Where π is total profit, TR is total revenue and TC is total cost. · Function - A 'function' explains the relationship between two or more economic variables. A simple technical term is used to analyse and symbolizes a relationship between variables. It is called a function. It indicates how the value of dependent variable depends on the value of independent or other variables. It also explains how the value of one variable can be found by specifying the value of other variable. · Equations - Equations are used to calculate the value of an unknown variable. An equation specifies the relationship between the dependent and independent variables. Each equation is a concise statement of a particular relation.
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