Economic analysis is the process of weighing costs and benefits to determine the best course of action. This is a common practice in both the private and public sectors. For example, federal agencies often use cost-effectiveness and cost-benefit analyses to determine which programs produce the most impact for the resources invested. These analyses are often conducted with the guiding principle of ceteris paribus—Latin for “all other things being equal.” This is meant to acknowledge that there are other factors outside the analysis that could affect the results.
As economic analysis is not easily tested in controlled experiments, it is largely based on models and hypotheses. Many economists use statistical methods like regression and econometrics to test these theories. This type of analysis is a vital part of business planning, operations research, and even financial decision-making.
In the case of energy, economic analysis is used to help maximize efficiency. The cost-function analysis is an analytical tool that helps identify the optimum energy source based on investment and operation costs for any given situation. This includes comparing renewables with fossil fuels.
The key to choosing a topic for an economic analysis is to look for topics that are relevant and manageable. A good place to start is by reviewing your course material, textbooks, and assigned readings. It is also beneficial to look at current events and ongoing debates about economic issues. Finally, you should make sure your chosen topic has available resources—like academic papers and statistics.
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