ECO

1. CHINMAY DEO
MACRO ECONOMICS
- COURSE OBJECTIVES
- Terminology and Application.
- Real world feasibility and pragmatic understanding.
- Ability to understand social phenomenon through the
economic models.
- Reverse engineer the economic phenomenon based on
analysis of theoretical concepts.
- Ability to learn and synthesize new ideas on the scaffolding
of the foundational ones.
- Ability to think LINEARLY, ANALYTICALLY and
INDIVIDUALISTICALLY.

2. CHINMAY DEO
MEANING VS. DEFINITION
Meaning
• Observable Phenomenon.
• Verbal description not essential.
• Understood Subliminally as –
• Abstract manifestation of an
object/phenomenon.
• Sensible summation of a concept.
• Mentally/abstractly articulated.
e.g. Hey kid look there is a CAT on the roof!
Remember the bill was $70 last year for the same type of
groceries, Its $90 now, terrible INFLATION!!
Definition
• Linguistic Expression.
• Understood overtly in linguistic terms.
• As a series of linearly articulated expression.
• Hints or Points toward the phenomenon by the
way of linguistic/symbolic description of the
attributes.
• Tends towards the acquisition of the meaning.
E.g. CAT - a small domesticated carnivorous mammal with
soft fur, a short snout, and retractable claws.
INFLATION - a general increase in prices and fall in the
purchasing value of money.

3. CHINMAY DEO
CONSUMER & PRODUCER
DEMAND SIDE & SUPPLY SIDE
HOUSEHOLDS & FIRMS
UTILITY VS. COST

4. CHINMAY DEO
COMPARISON OF THESE TWO BEHAVIORS
DEMAND BEHAVIOR
UTILITY – as a determinant.
SUPPLY BEHAVIOR
COST – as a determinant.

5. CHINMAY DEO
EQUILIBRIUM – THE INTERACTION OF CONSUMERS’ AND PRODUCERS’ BEHAVIOR THAT LEADS TO
PRICE DETERMINATION.
EQUILIBRIUM ISN’T STATIC BUT WILL BE DYNAMIC. BUT DYNAMIC COMPARISONS AREN’T
POSSIBLE FOR THE PURPOSES OF ANALYSIS.
THUS, C O M P A R A T I V E S T A T I C S . C E T E R I S P A R I B U S .
STATIC COMPARISONS HELP US DRAW CONCLUSIONS ABOUT NEW STATE VS. PREVIOUS STATE IF
AN ADDITIONAL LAYER OF INFORMATION IS PROVIDED. E.G. PRICE CEILING OR FLOOR OR TAXES
OR TARIFFS ETC.
MODELS ARE A MERE REPRESENTATION TO AID ANALYZING REAL PHENOMENA.
IT IS UP TO US TO UNDERSTAND ITS IMPLICATIONS AND DEEM THEM VALID OR INVALID.
N ORMAT IV E VS . POS IT IV ISTIC CON CLUS ION S .
AS S UMPTION S OF RAT ION ALITY AN D CE T E RIS PARIBUS .

6. CHINMAY DEO
INPUT FACTORS AND UPWARD PRICE PRESSURE.
UTILITY AND PRICE PREFERENCE
SUBJECTIVE UTILITY BUT OBJECTIVE COSTS
Static equilibrium
Shifts representing changes statically
Upward and downward pressure on prices

7. CHINMAY DEO
Idea of Marginal and diminishing marginal …….
Marginal simply means rate of change in economics literature.
Diminishing (or declining) marginal …… means declining rate of
change.
Thus,
Diminishing marginal UTILITY would mean that Utility is declining
with respect to consumption….i.e. with each additional unit of
consumption the utility of consumption declines.
!! If MONEY is thought of as a commodity then will its utility
decline with additional accrual??
Similarly, Diminishing marginal OUTPUT/PRODUCT would mean
that the output will decline with respect to inputs as subsequent
units of Good/Service are produced.
This clearly indicates that the COSTS of production will rise
progressively with the production.

8. CHINMAY DEO
COSTS OF PRODUCTION
Competitive market where the firms as well as
consumers have to accept the market price.
Monopolistically competitive market or
monopoly/oligopoly, where firm can decide its prices
base on demand curve estimates