Initial Publication Date: April 12, 2016
What should the student get out of this module?
After completing this module, a student should be able to:
- Understand the importance of units of analysis that are used in the measurement of economic variables.
- Understand different ways that economic variables can be measured.
- Recognize that units of measure are sometimes arbitrary.
- Understand how and why to construct index numbers.
- Recognize that large numbers are often best interpreted as per capita measures or values per unit of time.
- Recognize the units of measure that apply to economic variables in microeconomics and macroeconomics.
What we don't include on this page
This module does not address the important difference between nominal and real values for prices and output. We also do not address the idea of purchasing power parity in our discussion of exchange rates and comparisons of per capita GDP.
Why is it difficult for students?
Understanding units of measure can be difficult for students for many reasons.
- Many students may not be familiar with the basic need for clarity in identifying what is being studied and how that particular economic variable is measured. If students are unfamiliar with the hierarchical nature of the measurement of many economic variables, they may view a particular value as "small" or "large" simply because they have not considered the units used in the analysis.
- Students may not be familiar with the difference between variables and parameters and as such may not know how units of measure are necessary or applicable.
- Students may also struggle with the mathematics associated with calculating and interpreting index numbers as well as the notion that "arbitrary" units of measure still convey important information for making comparisons.