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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