In order to solve various economic problems, economic policies are formulated. Behind these policies, there is an analytical framework of economic theory. Economic policy is equally important for both developed and developing countries. In developed countries, economic policy is important for maintaining and stabilizing already achieved growth, and for the proper distribution of wealth. Whereas, in developing countries, economic policy plays significant role in alleviating poverty, reducing unemployment and attaining higher growth. Economic analysis includes both micro and macro economic analysis in which economic events are studied on the basis of observed facts. Economic analysis provides the entire knowledge of the existing state of economic events. After having the full knowledge of existing situation of the subject under consideration, economic policy formulation becomes possible. Economic policy intends to attain specified goal in the future.

The policy of safe guarding the domestic economy from international competition is known as protection policy. In other word, protection is the restriction on the import of goods and services from abroad and encouraging domestic industries to make their product in favorable position by providing subsidies or support prices.  Protection policy uses two types of instruments to protect domestic industries. Tariff barrier Under this, government imposes high custom duties on import of foreign goods. It will make foreign goods relatively expensive than that of domestic products and import declines and increases demand of domestic goods. Non-tariff barrier Under this policy, government control import applying the quota system exchange control, withdraw of subsidy and trade by government itself.