Econometrics And Steps Of Traditional Econometrics

 
     Econometrics And Steps Of Traditional Econometrics

Econometrics: Econometrics means economic measurement that uses different Statistical and mathematical tools to analyze economic phenomena, economic theory ,economic data or hypothesis.

In other words, econometrics is a branch of economics in which the tools of economic theory, mathematics and statistics are used to analyze economic phenomena.

                    8 steps of Traditional Econometrics:

1.Statement OF Theory: The first step is to give the economic theory of the subject we want to know about.  Assuming that we want to know the effect of income on consumer consumption... we can say that income and consumption are positively related.

2.Mathematical Model: In this step , economic theory is expressed as mathematically. 

                                Y=β1+β2X

mathematical model, shows the relationship between two variables. if this consumption function, Y = consumption , X =income, β1=intercept ,β2=slope coefficient or MRS(marginal rate of substitution).

3.Econometric Model: in  econometric model, error term is included.

Y=β1+β2X+μ

μ=Disturbance or error term.

(Represents all factors that affect  on the model.)

4.Data Collect:

Collect essential and reliable data .This data may be cross sectional data , time series data, pooled data or panel data .

5.Estimation of the Econometric Model: After collecting the data, the parameters have to be estimated.  If we are working on a consumption function then we need to estimate the parameter of the consumption function. Generally , regression analysis is used to estimate parameters.

6.Hypothesis Testing: After estimating the parameters, hypothesis testing should be done to see how much the parameter supports the economic theory and how much the estimated parameters are sufficient for the model.

7.Prediction:

Y=β1+β2X+μ

Y=predicted variable

X=predictor

If our considered model does not explain the hypothesis or theory then the predictor X has to predict the dependent variable or the predicted variable Y.

8.Policy implications: The estimated model may  be used for policy purposes. The government can manipulate the control variable with the help of monetary and fiscal policy to get predicted variables.

Variable Cost |Average Variable cost

 

Variable Cost And Average Variable cost

Variable costs are costs that depend on the company's production and sales.

That is, if the production and sales of a company decrease or increase, variable costs will also change as production and sales decrease and increase.

For Example

Raw Materials :If a company's sales increase, that company's production also increases.     Then production will require more raw materials than before and production costs will increase.

Utilities: Production requires gas and electricity.  As production increases, the demand for this fuel will increase.

 Labor: Labor related to production.  If production increases, the demand for labor will increase.  If production decreases, the demand for labor will decrease and labor has to pay wages. So, the cost of labor is variable cost.

Average Variable Cost

Average Variable Cost=Variable Cost/Output 

Average variable cost is the variable cost divided by the output of a production.

What is Economics and different definitions of economics by different economists

 

Economics : Economics is the key to the development of a society.

In our society  , resources are limited but scarcity is unlimited.Economics balances unlimited scarcity with limited resources.The main goal of economics is the fulfills our needs by limited resources.

Economics is involved in every aspect of our life.

Economics ensures the production of goods and services and their equitable distribution using limited resources so we can say economics is the study of scarcity.The main goal of economics is to try to satisfy the limited resources and to achieve the welfare of the society.

Economics definition is defined by different economists is the different ways.Adam smith is the known as the father of economics.

According to Adam Smith,  

     "Economics is the science of       wealth "

       According to Adam Smith,

Economics deals with production, distribution and consumption.

According to Samuelson,

"ECONOMICS IS THE STUDY OF HOW PEOPLE AND SOCIETY CHOOSE WITH OR WITHOUT THE USE OF MONEY,TO EMPLOY SCARCE PRODUCTIVE RESOURCES WHICH COULD HAVE ALTERNATIVE USES.TO PRODUCE VARIOUS COMMODITIES OVER TIME AND DISTRIBUTE THEM FOR CONSUMPTION NOW AND IN THE FUTURE AMONG VARIOUS PERSONS AND GROUPS OF SOCIETY ".

According to Lionel Robbins,

"The science which studies human behaviour as a relationship between ends and scarce means which have alternative uses"
                          ..................

What Is Microeconomics and Macroeconomics ,Difference Between Microeconomics And Macroeconomics

             What is Microeconomics?

Microeconomics is a branch of economics that discusses how individual ,firms and households behave during an economic activity and how they make decisions when they use scarce resources.

Microeconomics is also known as price theory.  Because microeconomics highlights the importance of price between buyers and sellers. How buyers and sellers determine prices through their activities is discussed in microeconomics.

        What is Macroeconomics?

Macroeconomics is a branch of economics that deals with the overall economy.

Macroeconomics Focused on Inflation, interest and foreign exchange rates, and the balance of payments, price level, economic growth rate, national income, gross domestic product (GDP), and unemployment .Macroeconomics is also concerned with fiscal policy and monetary policy

Difference Between  Microeconomics And Macroeconomics

Microeconomics is concerned with the decisions of individuals , firms and households ,but macroeconomics is concerned with the overall economy. Microeconomics is also known as price theory and Macroeconomics is also known as income and employment theory.

Microeconomics focuses on individual income  and Macroeconomics focuses on national income .Microeconomics describe price of goods and services .Macroeconomics describe price level ,inflation, unemployment

                      Other Definition Of Microeconomics

      What is Microeconomics?

Microeconomics deals with the behavior of individuals, firms and households and how they make decisions.

 

Microeconomics deals with how an individual makes decisions about himself and his family and how he makes decisions about their consumption . Also, microeconomics deals how the firm produces the goods and services used by scarce resources and how these goods and services are distributed and used.