Semester-I

Introductory Microeconomics

Paper: ECO-A-CC-1-1-TH

Unit 1: Exploring the subject matter of Economics

1.1 Scope and Method of Economics: Wants, Scarcity, Competing Ends and Choice - Defining Economics, Thinking like an economist: Basic Economics Questions, Microeconomics and Macroeconomics, Normative Economics and Positive Economics

1.2 Principles of Microeconomics – principles of individual decision making and principles of economic interactions – Introduce trade off, opportunity cost, efficiency, marginal changes and cost-benefit, trade, market economy, property rights, market failure, externality and market power.

1.3 Interdependence and the Gains from Trade - production possibilities frontier and increasing costs, absolute and comparative advantage, comparative advantage and gains from trade.

1.4 Reading and working with graphs

Unit 2: Demand and Supply: How Markets Work

2.1 Elementary theory of Demand: Determinants of household demand and market demand, movement along and shift of the demand curve

2.2 Elementary theory of Supply: factors influencing supply, the supply curve, movement along and shift of the supply curve

2.3 The Elementary theory of market price: Determination of equilibrium price in a competitive market.

2.4 Market Adjustment without Government (with illustrations):the effect of shifts in demand and supply, the excess demand function, existence, uniqueness and stability of equilibrium

Unit 3: Market and Adjustments

3.1 The Evolution of Market Economies, Price System and the Invisible Hand

3.2 The Decision-takers - households, firms and central authorities

3.3 The Concepts of Markets- individual market, separation of individual markets, interlinking of individual markets. Difference among markets- competitiveness, goods and factor markets, free and controlled markets. Market and non-market sectors, public and private sectors, economies- free market, command and mixed.

3.4 Different goods: Public goods, Private goods, Common resources and Natural Monopolies.

Unit 4: Market Sensitivity and Elasticity

4.1 Importance of Elasticity in Choice-Decisions

4.2 Method of Calculation- Arc Elasticity, Point Elasticity-definition

4.3 Demand and supply Elasticities-types of elasticity and factors affecting elasticity, Demand Elasticity and Revenue, Long run and Short run elasticities of Demand and Supply

4.4 Income and Cross Price Elasticity

4.5 Applications: Case studies – OPEC and Oil Price, Illegal Drugs

Unit 5: Government Intervention

5.1 The Economic Role of Government with respect to Market: (i) Price Ceiling, Price Floor and Market Adjustment (with short case studies of agricultural administered price, minimum wage and rent control); (ii) Black Market; (iii) Tax and market adjustment ; (iv) Elasticity and Tax incidence

5.2 Comparison of markets with and without government

Unit 6: Utilitarian Approach

(Focus on intuitive explanation and diagrams. Learning to analyze without using calculus a must)

6.1 The History of Utility Theory – From Cardinal to Ordinal Approach.

6.2 Utility in Cardinal Approach- Utility and choice, Total Utility and Marginal Utility, Utility and choice-maximization, marginal utility, theory of demand

6.3 Ordinal utility: Assumptions on preference ordering, indifference curve, marginal rate of substitution and convexity of IC, budget constraint, consumers‘ equilibrium-interior and corner, Derivation of Demand Curves from ICs, composite good convention. Application: Cash subsidy versus subsidy in kind

6.4 Price consumption curve, Income consumption curveand Engel curve. Price effect - Income and Substitution effect (Hicks and Slutsky),inferior goods and Giffen goods, Marshallian and compensated demand curves

Mathematical Methods in Economics-I

Paper: ECO-A-CC-1-2-TH

1.Preliminaries

• Sets and set operations; functions and their properties; number systems.

• Convex sets; geometric properties of functions: convex functions, their characterizations, properties and applications; further geometric properties of functions: quasi-convex functions, quasi-concave functions, their characterizations, properties and applications.

• Limit and continuity-Different Limit Theorems with proof-concept of first principle.

• Uses of the concept of continuity.

2. Functions of one real variable

• Continuous functions of different types and their graphs- quadratic, polynomial, power, exponential, and logarithmic.

• Concept of derivatives. Limits and derivatives. L‘ Hospital‘s rule .Graphical meaning of derivatives. Derivatives of first and second order and their properties; convex, concave and linear function.

• Application in economics- concept of marginal. Concept of elasticity. Concept of average function

3. Single variable optimization

• Local and global optima; Geometric characterizations; characterizations using calculus. Significance of first and second order conditions.

• Interpretation of necessary and sufficient conditions with examples.

• Applications in Economics- profit maximization and cost minimization.

4. Integration of functions

• Integration of different types of functions;

• Methods of Substitution and integration by parts.

• Applications in economics- obtaining total from the marginal.

5. Matrix Algebra

• Matrix: its elementary operations; different types of matrix.

• Rank of a matrix.

• Determinants and inverse of a square matrix.

• Solution of system of linear equations-Cramer‘s rule; Eigen values and Eigen vectors.

• System of nonlinear equations- Jacobian determinant and existence of solution.

• The concept of comparative statics

• Applications of Matrix Algebra in input-output analysis-the Leontief Static Open Model (LSOM) - the Hawkins-Simon conditions.

6. Game Theory

• Concept of a game, strategies and payoffs

• Zero-sum games- maxmin and minmax solutions

• Dominant Strategy Equilibrium

• Nash equilibrium

• Nash equilibrium in the context of some common games – Prisoners‘ Dilemma, Battle of Sexes, Matching Pennies