Final answer:
Sensitivity analysis technique systematically examines how varied inputs impact a specific output, and while it can be done graphically, the analytical method provides more precision and reliability, especially when calculating economic effects.
Step-by-step explanation:
The sensitivity analysis technique is a method used in business and finance to assess how the different values of an independent variable affect a particular dependent variable under a given set of assumptions. This concept is widely applicable, including in project management, financial modeling, and economic studies. Sensitivity analysis allows decision makers to determine how sensitive an outcome is to changes in the inputs, helping to identify which variables are most impactful.
Graphical methods can be useful for visualizing these effects, but they may not be as accurate as analytical techniques. When you sketch diagrams, there can be inaccuracies due to scale, misjudging the slope of lines, or difficulty in precisely determining the points of tangency. In contrast, analytical methods use mathematical equations and computations to give an exact measure of sensitivity.
For situations requiring precision, like calculating substitution and income effects in economics, following an analytical procedure is recommended. This ensures that all the values and tangencies are derived from the underlying equations, which can lead to a more accurate and reliable conclusion compared to a graphical approach.