the statistical and mathematical analysis of economic relationships. Such information is used by governments to set economic policy, as well as by private business to make decisions on prices, inventory, and production. Early econometric studies attempted to quantify the relationship between the price of a commodity and the amount sold. In theory, demand by individual consumers of particular goods and services depends on their incomes and on the relative prices of items that they intend to buy. Changes in prices and income are expected to have fairly predictable effects on the quantities sold. Early econometricians used market statistics compiled over time to study the relationship between changes in price and demand. Others used family-budget statistics broken down by income level to estimate relationships between income and expenditure. Such studies show which commodities are elastic in demand (i.e., have sales relatively responsive to changes in their prices) and which are inelastic (have sales less responsive to price changes). On the producer side, econometric analysis examines production functions, cost functions, and supply functions. The production function is a mathematical expression of the technical relationship between the output of a firm and its various inputs (or factors of production). The earliest statistical analyses of the production function tested the theory that labour and capital are reimbursed according to their marginal productivitiesi.e., the amounts added to production by the last man hired or the last unit of capital employed. Later work implies that the wage rate, adjusted for price changes, is related to labour productivity. Work in the field of cost functions originally tested the theory that marginal costthe addition to total cost resulting from an increment in outputfirst declines as production expands but ultimately begins to rise. Econometric studies, however, indicate that marginal cost often remains more or less constant. Work in estimating supply functions has been confined mostly to agriculture. Here the problem is to distinguish the effects of exogenous factors, such as temperature, rainfall, and pestilence, from those of endogenous factors, such as changes in prices and inputs. Observations in many societies over many generations indicate that a small proportion of the population receives most of the income. Attempts have been made to describe this statistical regularity in mathematical terms as well as to explain why the distribution of income is so consistent. Distributional measures are frequently important in analyzing the effect of income inequality on aggregate demand. After the mid-1930s the development of national income accounting and of macro-economic theory opened the way for macroeconomic model building, involving attempts to describe an entire economy in mathematical and statistical terms. A model developed by L.R. Klein and A.S. Goldberger in the United States after World War II was the forerunner of a large family of macroeconometric models. It was constructed on an annual basis and has been elaborated upon in a form known as the Michigan model. A later generation of models, based on quarterly data, permits the analysis of short-term movements of the economy and also permits the better estimation of the lags between different variables. A model jointly constructed by the U.S. Federal Reserve Board, the Massachusetts Institute of Technology, and the University of Pennsylvania is specially designed to handle the entire monetary sector. It has a large number of financial equations with a detailed lag structure and supplementary equations to show the main directions of monetary influence on the economy. Similar models have been developed in a number of advanced industrial countries, and many models have been constructed for developing economies as well. A major purpose in the development of macro models has been to improve economic forecasting and the analysis of public policy. Models have also been applied to the analysis of economic fluctuations and economic growth.
ECONOMETRICS
Meaning of ECONOMETRICS in English
Britannica English vocabulary. Английский словарь Британика. 2012