Economics new ppt.pdf
Transcript of Economics new ppt.pdf
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Economics
Dr P James Daniel Paul
Professor VIT BS
Introduction to Economics
Dr P James Daniel Paul
Professor VIT Business School
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Thought to act: process mapping
Philosophy Formulae Application
Similarly, Economics starts with Philosophy, Formulae & Application
History of Economic Thought
The Mercantilists (1500-1780)
The Physiocrats (1750-1800)
Pre-Classical (up to 1776)
Classical (1776-1870s).
Socialism (1848-to date).
Marginal (1870s-1890s).
Neoclassical (1890s-to date).
Keynesian (1936-1960s).
Monetarist (1945 to date).
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Physiocrats vs Mercantilist
Mercantilism is the economic doctrine that government control of foreign trade is of paramount importance for ensuring the military security of the country.
Physiocrats, a group of economists who believed that the wealth of nations was derived solely from the value of "land agriculture" or "land development." The Tableau Economique by Franois Quesnay in 1759, Laid the foundation of the Physiocrats economic theories.
Classical Economists
Adam Smith (1723-1790)
David Ricardo (1772-1823)
Thomas Malthus
(1766-1834)
J.B. Say (1767-1832)
J. S. Mill (1806-1873)
Robert Malthus
David Ricardo
Advocates of laissez-faire
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Adam Smith (1723-1790)
An Inquiry into the Nature and Causes of the Wealth of Nations (1776)
Division of labour
Pin making
David Ricardo (1772-1823)
Definition of the Rent: That portion of the produce of earth which is paid to the Land Lord for the use of the original and indestructible powers of the soil.
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Thomas Robert Malthus (1766-1834)
Essay on the Principle of Population
While food output was likely to increase in a series of twenty-five year intervals in the arithmetic progression 1, 2, 3, 4, 5, 6, 7, 8, 9, and so on, population was capable of increasing in the geometric progression 1, 2, 4, 8, 16, 32, 64, 128, 256,
Marginal or Utilitarian
J.B. Say (1767-1832) Supply will create its
own demand JB Say
J. S. Mill (1806-1873)
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Socialism- Karl Marx
The Communist Manifesto (1848) and Das Capital (18671894).
Capitalist vs labour
Cold war
Karl Marx
Keynesian Revolution
The Great Depression of 1930s
Doctor of doom The General Theory of
Employment, Interest and Money - John Maynard Keynes, 1936
Liquidity preference: Transaction Precautionary Speculative
Aggregate demand Pump priming
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Monetarism
During the 1960s he promoted an alternative macroeconomic policy known as "monetarism". He theorized there existed a "natural" rate of unemployment, and argued that governments could increase employment above this rate
Milton Friedman
Evolution of Economics
Physiocrats vs
Mercantilist
Socialist Vs Capitalist
Keynesians Vs
Monetarist
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Economics
Wants
Efforts
Satisfaction
It is the study of
Branches of Economics
Economics
Micro Economics
Individuals, Family, Firms,
Markets
Macro Economics
Aggregate income, savings,
investments, Exports, Imports
Monetary Economics
Money currency
coins Interests forex
Public Economics
Revenue
Direct Indirect
Expenditure
Capital Plan Expenditure
Non Plan Expenditure
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Agenda
Law of Demand
Elasticity of Demand
Forecasting Demand
Law of Diminishing Marginal Utility
Indifference Curves
Law of Demand
Citrus Paribus when price falls the demand expands.
Assumptions
Demand depends on the law of diminishing marginal utility
Citrus Paribus
Negative slope
Linear relationship
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Exceptions to Law of Demand
Luxury goods
Addictive Goods
Elasticity of Demand
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Demand forecasting
Normal Equations:
Substitute the values in Normal equation to estimate a & B
Law of diminishing marginal Utility
Cardinal Utility Theory
Assumptions
Utility is measurable
Utility is additive
As a product is consumed repeatedly the utility of the product diminishes for every consecutive product
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Indifference Curves
Ordinal Utility Theory
Assumptions :
Utility is relative [Not measurable but comparable]
Goods are consumed in ordered pairs
Preferences are revealed
Circular Flow
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Law of Supply
When price of Onion increases producers bring more to the market
Price and quantity relationship
Other things remain the same
Marginal Productivity Theory
Cardinal Theory
Increase in inputs over a period of time provides diminishing results
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Isoquants
It is an ordinal theory
Productivity can be measured in relative terms not in absolute terms
Producers have ordered pairs of the factors of production.
Production functions
where Q = Output F= Factor productivity a= Share parameter L and K = Primary production factors (Capital
and Labor) R=(s-1)/s S=1/(r+1) r and s Elasticity of substitution.
CobbDouglas production function
where: Y = total production (the real value of all
goods produced in a year) L = labor input (the total number of person-
hours worked in a year) K = capital input (the real value of all
machinery, equipment, and buildings) A = total factor productivity and are the output elasticities of capital
and labor, respectively. These values are constants determined by available technology.
CES Production Function
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Concepts covered
Customers Law of Demand Elasticity Demand Forecasting Normal
Equations Law of diminishing marginal
Utility Indifference Curves
Producers Law of Supply Law of Marginal Product Isoquants
Others Evolution
Physiocrats Vs Mercantilist Socialist Vs Capitalists Institutionalism Vs Free market Keynesians vs Monetarists
Branches of Economics Circular Flow
Thank you
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Market Equilibrium
Two women and a geese Definition of Market
Break Even Point, Costs & Revenue Functions
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Average and Marginal costs
Types of Markets
Monopoly Monopolistic Competition
Oligopoly Imperfect
Competition Perfect
Competition
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Perfect competition
Many sellers
Many buyers
Buyers and sellers determine the price.
Free Entry and exit.
Perfect Knowledge of the product in the market
Monopoly
Only one seller
Many buyers
Seller is the price maker not the price taker
Entry Restricted
Indian Railways - Monopoly
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Oligopoly
Few dominant firms
Price setters
Objective : Profit maximization
Perfect knowledge of Customers
Interdependence
Theories in Oligopoly
Cournot Nash
Beterand
Kinked Demand
Game Theory
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Cournot Nash Equilibrium
Firms compete in quantities
Firms do not collude.
output decision affects the good's price;
Beterand Model
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Game Theory
Collusive oligopoly
Non-collusive oligopoly
Game theory Prisoners dilemma
Explains collusion and non collusive outcomes
Economics of Scale
When a business Expands the average cost increases.
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Constant, Increasing, Decreasing returns to scale
Cost and Revenue Functions
TR= a+b1X1
TC = a+b2X2
TR-TC