<p>Some bits of information:</p>
<p>Economics is <em>not</em> primarily about the workings or the &quot;measurement&quot; of a single firm. It is <strong>predominantly about markets and about the macroeconomy.</strong></p>
<p>To analyze a single firm based on its own Financial Statements, or also based on internally available quantitative data, one applies Balance Sheet Analysis, Cost Accounting (Fixed/Variable costs, break-even point, etc) and Revenue/Mixed profit Analysis etc, which is the field of accounting professionals, business consultants, and of managerial finance.</p>
<p>A bridge is the so called &quot;business economics&quot; that use some basic economic/statistical concepts in a more practical way, like for example, how one can enhance a business budget by computing confidence intervals so as to estimate in a more scientifically sound way &quot;optimistic&quot; and &quot;pessimistic&quot; scenaria than just using ad hoc &quot;sensitivity analysis&quot;.</p>
<p>Also, there has been, or maybe still is, a subfield of econometrics called &quot;Insider econometrics&quot; which focuses indeed on a single firm (usually large and usually with a long history so that there will eventually be enough data), where econometricians audit the inside workings of a firm in order to come up with mathematical relations that reflect the specific way this firm operates. But that requires actual field-work in cooperation with the firm itself.</p>
<p>But again, the main focus of economics is markets and the macroeconomy, not individual firms.</p>
<p>Other than that, things like production functions are estimated econometrically based on comparable data of <em>many</em> firms -and then one can of course use the data from financial statements (that state the levels of capital for example, and usually number of employees, which are the two fundamental production inputs in economic theory).
So this is the average production function in this sector.
We can get some degree of individuality per firm if we use flexible functional forms like the &quot;translog&quot; (which allows for elasticities to vary with the inputs per firm).</p>
<p>The &quot;risk-free&quot; rate is taken to be some rate on short-term government bonds (which is considered risk-free because the time horizon is short and the government is considered credit worthy at least for such horizons).</p>
<p>Total output is directly calculated, we do not need TFP for that. The measured output includes TFP. TFP arises as a separate entity when we try to <em>explain</em> output statistically as a function of the production inputs in a regression relation, and we are missing something, that shows up as a residual.</p>

CC BY-SA 4.0
2024-11-10T05:24:49.433Z
Thanks for the clear answer. It seems economics is a field where the most practical aspects are not found in books. I felt exactly like this when I tried to jump into electronics. Kept getting stuck at basics like a loose connection causing garbled data transfer. I think what I need is economics lab course, like HSP511 of IIT Delhi (Experiment with sample survey data in India like IHDS, NSSO, NFHS and census data, forecasting of macroeconomic data, simulation exercise, replication exercises). But I cannot access that one. Maybe there is some open course out there that teaches similar things.
Spero
CC BY-SA 4.0
2024-11-09T02:26:27.677Z
2024-11-09T02:26:27.677Z
Alecos Papadopoulos
<p>Background:</p>
<p>Recently, I was asked by a student to help with their college project where they were performing economic analysis of a LLC based on its annual report. I recommended the Cobb-Douglas production function, but when trying to draw the graph, I came upon the realization that I have no idea how to do it, in spite of having studied advanced macroeconomics, econometrics, dynamic asset pricing etc. All the methods described in the books were circular in nature. To calculate total output, we need TFP, but the formula to calculate TFP assumes that we know the total output. Finding output elasticity proved even more hopeless. I could not find anything in those books that takes real-life market reports and shows us how to analyze them.</p>
<p>So, I have no idea of economics, and my study books teach as much economics as &quot;A Brief History of Time&quot; teaches physics. I need to learn economy from ground-up, but properly this time.</p>
<p>What I tried:</p>
<p>I asked a few Chartered Accountants for help. They said that they are not interested in anything that does not have to do with taxation. I asked fellow teachers, they provided unclear answers. I checked all the recommended economy books, including Mankiw, Varian, Romer, Wooldridge, Duffie etc, as well as the MIT Courseware introductory economy courses. I also searched online, but every answer raised more questions. For example, one answer required me to know the risk-free rate, but I do not know how to calculate that either. While some of these, like Varian and Wooldridge, do appear to be mathematical, they fall short in terms of practical examples. I do not want mathematics for mathematics's sake.</p>
<p>What I require:</p>
<p>I require economics study materials that do not expect prior knowledge, treat the subject mathematically, derive proof of every economic model, and provide sample <strong>exercises on performing economic analysis from real-life market data like budget reports, audits, annual reports, surveys and as such, especially focusing on bridging the gap between accountancy and macroeconomics.</strong></p>

CC BY-SA 4.0
2024-11-06T14:25:24.940Z
1. I think by "accountancy" you mean accounting. 2. This question is not really clear, in accounting, analysis, such as ratio analysis does not mean the same thing is analysis in statistics. There are plenty of econometrics handbooks that deal will estimating parameters from real life data, but they have little to do with accounting, and its unclear what you mean by bridging the gap between macroeconomics and accounting since those fields are quite unrelated. In modern world the sole purpose of official accounting (GAAP/IFRS) is determine the tax liability of company and little else
1muflon1
CC BY-SA 4.0
2024-11-06T14:28:17.583Z
which is why those accounts answered to you as they did. 3. Also while there are many good econometric handbooks that discuss how to estimate various parameters, like elasticities, TFP, natural rate of interest etc from real life data, I don't know any handbook that would not assume prior knowledge economics and statistics. An econometric handbook that would try to cover also basics of economics would be extremely dense.
1muflon1
CC BY-SA 4.0
2024-11-06T15:24:53.553Z
@1muflon1 Thanks for the response. I will try a few handbooks. I just have one more query: may I ask why regular economics books do not show how to estimate parameters from real life data? We study physics without calculus until high school, then everything gets recapped with proper mathematical treatment. The difference between Hewitt's Conceptual Physics and Sears-Zemansky's University Physics is that both cover the same chapters and concepts, but the later derives everything mathematically. Why did no such book ever evolve for economics? Is it a case of "it is what it is"?
Spero
CC BY-SA 4.0
2024-11-06T15:29:26.043Z
@1muflon1 Also, I did study Baby Wooldridge, which is the go-to introduction to econometrics, but it did not prepare me for real world analysis at all. Is there a better book? can you recommend any?
Spero
CC BY-SA 4.0
2024-11-06T15:44:44.310Z
@1muflon1 Also, can you recommend a good handbook? The only one I found is the North Holland series. It contains over 30 volumes and even a single volume of these is prohibitively expensive.
Spero
CC BY-SA 4.0
2024-11-06T18:24:15.567Z
There are such books in economics. For example, MWG microeconomic theory, derives all propositions from first principles. However, you want to know (or what the text of your questions says you want to know) where some numerical values for parameters of economic models come from. To get the numerical values you need to do some measurements. In physics you can do that via experiments (e.g. measuring speed of light), in economics experiments are nearly always impossible but you can use statistical analysis (this is analogous to astrophysics where statistical analysis is used
1muflon1
CC BY-SA 4.0
2024-11-06T18:25:58.530Z
to estimate things like cosmological constant). I used to study physics. To my best knowledge there is no physics book that would contain both; rigorous theoretical derivations from first principles and explanations of how to do statistical analysis on empirical data. If theory books use specific numbers they will just say it comes from this or that experiment/measurement thats often not possible in economics. Also it is tall order to include both rigorous theory and statistical analysis in one single book, such book would be denser than unabridged oxford dictionary.
1muflon1
<macroeconomics><self-study><accounting><textbooks>
Recommend study material that treat economics the way Statistics and Accountancy are treated, with proof and calculations from real-life data
Spero
# Recommend study material that treat economics the way Statistics and Accountancy are treated, with proof and calculations from real-life data

(Asked by: username_0 on 2024-11-06)

Background:

Recently, I was asked by a student to help with their college project where they were performing economic analysis of a LLC based on its annual report. I recommended the Cobb-Douglas production function, but when trying to draw the graph, I came upon the realization that I have no idea how to do it, in spite of having studied advanced macroeconomics, econometrics, dynamic asset pricing etc. All the methods described in the books were circular in nature. To calculate total output, we need TFP, but the formula to calculate TFP assumes that we know the total output. Finding output elasticity proved even more hopeless. I could not find anything in those books that takes real-life market reports and shows us how to analyze them.

So, I have no idea of economics, and my study books teach as much economics as "A Brief History of Time" teaches physics. I need to learn economy from ground-up, but properly this time.

What I tried:

I asked a few Chartered Accountants for help. They said that they are not interested in anything that does not have to do with taxation. I asked fellow teachers, they provided unclear answers. I checked all the recommended economy books, including Mankiw, Varian, Romer, Wooldridge, Duffie etc, as well as the MIT Courseware introductory economy courses. I also searched online, but every answer raised more questions. For example, one answer required me to know the risk-free rate, but I do not know how to calculate that either. While some of these, like Varian and Wooldridge, do appear to be mathematical, they fall short in terms of practical examples. I do not want mathematics for mathematics's sake.

What I require:

I require economics study materials that do not expect prior knowledge, treat the subject mathematically, derive proof of every economic model, and provide sample **exercises on performing economic analysis from real-life market data like budget reports, audits, annual reports, surveys and as such, especially focusing on bridging the gap between accountancy and macroeconomics.**

**Tags:** macroeconomics, self-study, accounting, textbooks

> **Comments:**
> **username_1**: 1. I think by "accountancy" you mean accounting. 2. This question is not really clear, in accounting, analysis, such as ratio analysis does not mean the same thing is analysis in statistics. There are plenty of econometrics handbooks that deal will estimating parameters from real life data, but they have little to do with accounting, and its unclear what you mean by bridging the gap between macroeconomics and accounting since those fields are quite unrelated. In modern world the sole purpose of official accounting (GAAP/IFRS) is determine the tax liability of company and little else  
> **username_1**: which is why those accounts answered to you as they did. 3. Also while there are many good econometric handbooks that discuss how to estimate various parameters, like elasticities, TFP, natural rate of interest etc from real life data, I don't know any handbook that would not assume prior knowledge economics and statistics. An econometric handbook that would try to cover also basics of economics would be extremely dense.  
> **username_0**: @username_1 Thanks for the response. I will try a few handbooks. I just have one more query: may I ask why regular economics books do not show how to estimate parameters from real life data? We study physics without calculus until high school, then everything gets recapped with proper mathematical treatment. The difference between Hewitt's Conceptual Physics and Sears-Zemansky's University Physics is that both cover the same chapters and concepts, but the later derives everything mathematically. Why did no such book ever evolve for economics? Is it a case of "it is what it is"?  
> **username_0**: @username_1 Also, I did study Baby Wooldridge, which is the go-to introduction to econometrics, but it did not prepare me for real world analysis at all. Is there a better book? can you recommend any?  
> **username_0**: @username_1 Also, can you recommend a good handbook? The only one I found is the North Holland series. It contains over 30 volumes and even a single volume of these is prohibitively expensive.  
> **username_1**: There are such books in economics. For example, MWG microeconomic theory, derives all propositions from first principles. However, you want to know (or what the text of your questions says you want to know) where some numerical values for parameters of economic models come from. To get the numerical values you need to do some measurements. In physics you can do that via experiments (e.g. measuring speed of light), in economics experiments are nearly always impossible but you can use statistical analysis (this is analogous to astrophysics where statistical analysis is used  
> **username_1**: to estimate things like cosmological constant). I used to study physics. To my best knowledge there is no physics book that would contain both; rigorous theoretical derivations from first principles and explanations of how to do statistical analysis on empirical data. If theory books use specific numbers they will just say it comes from this or that experiment/measurement thats often not possible in economics. Also it is tall order to include both rigorous theory and statistical analysis in one single book, such book would be denser than unabridged oxford dictionary.  

---

## 1 answers

### Answer by username_2 on 2024-11-09. Score: 2 | Accepted answer

Some bits of information:

Economics is *not* primarily about the workings or the "measurement" of a single firm. It is **predominantly about markets and about the macroeconomy.**

To analyze a single firm based on its own Financial Statements, or also based on internally available quantitative data, one applies Balance Sheet Analysis, Cost Accounting (Fixed/Variable costs, break-even point, etc) and Revenue/Mixed profit Analysis etc, which is the field of accounting professionals, business consultants, and of managerial finance.

A bridge is the so called "business economics" that use some basic economic/statistical concepts in a more practical way, like for example, how one can enhance a business budget by computing confidence intervals so as to estimate in a more scientifically sound way "optimistic" and "pessimistic" scenaria than just using ad hoc "sensitivity analysis".

Also, there has been, or maybe still is, a subfield of econometrics called "Insider econometrics" which focuses indeed on a single firm (usually large and usually with a long history so that there will eventually be enough data), where econometricians audit the inside workings of a firm in order to come up with mathematical relations that reflect the specific way this firm operates. But that requires actual field-work in cooperation with the firm itself.

But again, the main focus of economics is markets and the macroeconomy, not individual firms.

Other than that, things like production functions are estimated econometrically based on comparable data of *many* firms -and then one can of course use the data from financial statements (that state the levels of capital for example, and usually number of employees, which are the two fundamental production inputs in economic theory).
So this is the average production function in this sector.
We can get some degree of individuality per firm if we use flexible functional forms like the "translog" (which allows for elasticities to vary with the inputs per firm).

The "risk-free" rate is taken to be some rate on short-term government bonds (which is considered risk-free because the time horizon is short and the government is considered credit worthy at least for such horizons).

Total output is directly calculated, we do not need TFP for that. The measured output includes TFP. TFP arises as a separate entity when we try to *explain* output statistically as a function of the production inputs in a regression relation, and we are missing something, that shows up as a residual.

> **Comments:**
> **username_0**: Thanks for the clear answer. It seems economics is a field where the most practical aspects are not found in books. I felt exactly like this when I tried to jump into electronics. Kept getting stuck at basics like a loose connection causing garbled data transfer. I think what I need is economics lab course, like HSP511 of IIT Delhi (Experiment with sample survey data in India like IHDS, NSSO, NFHS and census data, forecasting of macroeconomic data, simulation exercise, replication exercises). But I cannot access that one. Maybe there is some open course out there that teaches similar things.  

---

