Economics Third Semester Syllabus

MATHEMATICS AND STATISTICS FOR ECONOMICS

Module 1: Tools of Economic Analysis

Introduction:

• Nature and Scope of Mathematical Economics 
• Role of Mathematics in Economic Theory 

Functions and Functional Relations:

• Linear and Non- Linear Functions 
• Demand and Supply Functions 
• Liquidity Preference Functions 
• Production Possibility Curves 
• Indifference Curves 

Concept of Sets:

• Meaning and Types 
• Union of Sets 
• Intersection of Sets 

Module 2: Economic Application of Linear Functions 

• Determination of Market Equilibrium Price and Quantity 
• Impact of Specific Tax on Market Equilibrium 
• Impact of Subsidy on Market Equilibrium 

Module 3: Derivatives of Functions 

• Concept of Limit and Continuity 
• First Principle of Differentiation Relating to Algebraic Functions 
• Application of Differential Calculus to Economics to Derive Marginal Revenue and Marginal Cost Function and Total Revenue and Total Cost Functions 
• Elasticity of Demand 
• Revenue/Profit Maximization and Cost Minimization 

Module 4: Definition and Scope of Statistics 

• Definition 
• Importance of Statistics in Economics 
• Limitations 

Module 5: Sources of Data and Presentation of Data 

• Primary and Secondary Sources 
• Classification and Tabulation of Data 
• Diagrammatic Representation of Data 

Module 6: Measures of Central Tendency

• Mean, Median, Mode 
• Geometric Mean and Harmonic Mean for Grouped and Ungrouped Data 

Module 7: Measures of Dispersion 

• Range, Semi-Inter Quartile Range, 
• Mean Deviation and Standard Deviation 
• Lorenz Curve

Recommended Text Books

1.  Veerachamy R (2005) Quantitative Methods for Economics, New Age International (P) Limited Publishers, New Delhi.

2.  Bose D (2000) An Introduction to Mathematical Economics, Himalaya Publishing House, Mumbai.

3.  Anderson David R, Dennis J, Sweeney and Thomas A. Williams, (2002) Statistics for Business and Economics, Thomson South – Western, Singapore

4.  Dr.C.K. Renukarya “ Mathematics and Statistics for Economics” Chetana Publication

Four Phases of Business Cycle

Business Cycle (or Trade Cycle) is divided into the following four phases;

1. Prosperity Phase: Expansion or Boom or Upswing of economy.
2. Recession Phase: from prosperity to recession.
3. Depression Phase: Contraction or Downswing of economy.
4. Recovery Phase: from depression to prosperity.

Supply Side Economics

The problem of stagflation encountered by USA and UK during the seventies and early eighties when both high inflation and high unemployment prevailed simultaneously did not admit for easy solution through the Keynesian demand management policies, it only worsened the situation. 

Against this backdrop, the alternative school of thought, about macroeconomics laid stress on Supply Side of macroeconomic equilibrium, that is, it focused on shift in the aggregate supply curve to the right rather than causing the shift in the aggregate demand curve. Thus Supply side economics prefers to solve the problem of stagflation through the management of aggregate Supply rather than the management of aggregate demand. Further Supply Sides economics stresses the determinants of long run growth instead of causes of short run cyclical movement in the economy. Supply Side economists laid emphasis on the factors that determine the incentives to work, save and invest, which ultimately determine the aggregate supply of the output of the economy.

Rational Expectation Theory (RATEX)

Meaning:

New classical economics based on rational expectation hypothesis was put forward by Robert Lucas of the University of Chicago. Rational Expectation theory which is the corner stone of recently developed macro-economic theory, popularly called new classical macroeconomics. Friedman’s adaptive expectation theory assumes nominal wages lag behind changes in the price level. This lag in the adjustment of nominal wages to the price-level brings about rising business profits which induces the firms to expand output and employment in the short run, and leads to the reduction in unemployment rate. But according to the Ratex theory, there is no lag in the adjustment of nominal wages consequent to rise in price level. The advocates of this theory further argue that nominal wages are quickly adjusted to any expected changes in the price level. According to the Ratex theory, as a result of increasing aggregate demand, there is no reduction in unemployment rate, the rate of inflation resulting from increasing aggregate demand is fully and correctly anticipated by workers and business firms and get completely and quickly incorporated into the wage agreement resulting in higher prices of products. 

Inflationary Gap

In his pamphlet,’ how to pay for the war ‘published in 1940, Keynes explained the concept of ‘inflationary gap’. It differs from his views on inflation given in the general theory. In the general theory, he started with underemployment equilibrium, but in how to pay for the war, he began with a situation of full employment in the economy. He defined an inflationary gap as an excess of planned expenditure over the available output at pre-inflation or base prices. According to Lipsey,’ the inflationary gap is the amount by which aggregate expenditure would exceed aggregate output at the full employment level of income’. The classical economists explained inflation as mainly due to increase in the quantity of money, given the level of full employment. Keynes, on the other hand, ascribed it to the excess of expenditure over income at the full employment level. The larger the aggregate expenditure, the larger the gap and the more rapid the inflation will increase. Given a constant average propensity to save, rising money incomes at full employment level would lead to an excess of demand over supply and to a consequent inflationary gap. Thus Keynes used the concept of the inflationary gap to show the main determinants that cause an inflationary rise in prices.

Inflation

The term ’inflation’ is used in many senses and it is difficult to give a generally accepted, precise and scientific definition of the term. Popularly inflation refers to a rise in price-level or fall in the value of money. Kemmerer states that,” inflation is too much currency in relation to the physical volume of business being done”.

Types of Inflation

There are several types of inflation observable in an economy. These can be classified as under: 

1. Creeping, Walking, Running, and Galloping Inflation: 

This classification is made on the basis of the” speed” with which the prices increase in the economy. 

Effects of Inflation

A period of prolonged, persistent and continuous inflation results in the economic, political, social and moral disruption of society. The effects of inflation can be discussed under two sub-heads;

1. Effects on production 
2. Effects on distribution 

Effects on Production: 

The phenomenon of inflation produces a very deep impact on the production of wealth in the economy. Inflation may not always be detrimental to production. Mild inflation may actually be good for the economy, particularly, when there are unemployed productive resources in the country. An expansion of money supply in an underdeveloped economy will result in a slow and gradual rise in the prices. The production costs in such an economy do not increase in the same proportion as the prices with the result that the profit margins of the businessmen continue to increase, creating optimistic conditions in the economy. Thus, an expansion of money supply up to the point of full employment may not be harmful for the economy. But, any expansion of money supply after the point of full employment may not be harmful for the economy. But any expansion of money supply after the point of full employment will degenerate into runaway or hyper-inflation and, hyper-inflation is very harmful for the economy. It creates business uncertainty which is not good for production.