Economic decision analysis can be divided into regulatory, social, and commercial areas, with overlap between them. Stakeholders use economic data to argue for specific decisions, and resource impact can be measured through cost-benefit analysis. Economic decision analysis is used to measure profitability and efficiency in the commercial realm and to balance benefits with anticipated costs in regulatory action. Social patterns of behavior can also be analyzed for their economic impact. However, obtaining an unbiased and accurate economic decision analysis can be difficult due to the complexity and overlap of factors.
The different types of economic decision analysis can generally be divided into regulatory, social, and commercial areas. Economic decision analysis can also be applied to publicly funded projects. Some overlap between the four areas is often unavoidable, as economic activity in these different areas is often intertwined. Stakeholders often play a significant role in using economic data to argue for a specific decision to be made. The impact of resource abundance or depletion can also be measured through a cost-benefit analysis.
Economic decision analysis includes setting a threshold of what will be analyzed and ranking options according to economic impact. Without an analysis, people will not understand the true cost of taking action versus maintaining the status quo. This field is also called applied economics.
In the commercial realm, economic decision analysis is typically used to measure profitability and efficiency. This type of analysis has often proven useful in improving profit margins when areas of inefficiency are revealed through the analysis. Later, costs can be reduced with these efficiencies.
Economic factors often impact regulatory action. Policing agencies can enact and enforce laws in an attempt to balance benefits with anticipated costs. Weighing economic factors can provide justification for regulating an activity that had not previously been regulated.
For example, analyzing the cost and benefits of studded tires may reveal that damage to public infrastructure outweighs accident prevention in terms of overall costs. Often, social, commercial and regulatory factors are intertwined in complex ways. This may be one of the reasons why it is difficult to obtain a pure economic analysis uncontaminated by social and political factors.
Social patterns of behavior can also be analyzed for their economic impact. For example, when large numbers of people adopt new behaviors, public health can either improve or decline. The popularity of cigarettes, which many believed was enhanced through limited regulation and widespread advertising, has been subjected to intense scrutiny by economic decisions. Often one result has been increased regulations undertaken, in many cases in an effort to mitigate the health care costs incurred by a society.
There are often areas of overlap between different types of economic decision analysis, as virtually every economic decision proves difficult to isolate into a well-defined area of influence. This is why interested parties are often consulted and can also be actively involved in an economic decision analysis. Calculating the costs and benefits of complex investments, such as transport infrastructure, often proves to be very difficult. As a result, there is often significant public discourse about the economic impacts of large-scale public investments. An unbiased and accurate economic decision analysis can be an elusive goal when all factors are considered.
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