Ameya Patekar Btech. (COEP); MBA In Finanee (IFT) CFA (USA) - All Levels Cleared UGC NET cleared Finances Certifications - NISM Equity Derivatives, NCFM - Fundamental Analysis, Bloomberg Market Concepts Business Economics () Micro-economics (ll) Macro-economies (lll) Intemational Economies Marks Intemal Evaluation : 40 (10 - Glass particlpation; 10 - Quiz; 10 - Midsem and 10- Assignment} Endsem: 60 (passing Is 30 minimum) Link: https:/Avteduln59337-my.sharspolnt.com/st/giperonal/ameya_patekarviedu_In/ EjsTK8nkKwW5PmRXDS4WiOkoBgalez7syLdCA 1UAX4VGTTg7e=8L2v1BIntroduction to Economics y [Beet indeed, neither intends to promote the public interest, nor { nows how much he is promoting it. insucha manner as jhe intends only his own gain, and he is in this, as in many other cases, led by arfinvisible handJto mote an end which was no part of his no part of i p Difference between Micro and Macro Economics Miiro economics - actor make deciciov/ A\\ocutiova Stace Prriosop Y resources otis heteeecustige Mota \d =p conclusions? Macroecenowils - aga eeaghe econo * myasa achor> nan MAM potion ~ top dew ston microeconomics the study of the interactions of buyers and sellers in the markets for particular goods and services macroeconomics the study of aggregates and the overall commercial output and health of nations; includes the analysis of factors such as unemployment, inflation, economic growth and interest rates.icae are Roe err ree ME aE cd eens Peiueltis Ere ot) Peds eal Prema: aia m The study of economics is sometimes broken down into two disciplines: microeconomics and macroeconomics. Microeconomics examines the interactions of buyers and sellers in, and the markets for eSOURCES. Macroeconomics examines the interactions and behavior of éitire nations! economies, such as why recessions occur, what causes economic growth, and how countries can benefit from specialization and trade.@ scarce resources vs. free resources i Scarcity is sometimes considered the basic problem of economics. Resources are scarce because we live in a world in which humans_wants.are infinite but the land, labor, and capital required to satisfy those wants are limited. This conflict between society's unlimited wants and our limited resources means choices must be made when deciding how to allocate scarce resources. Oxygen is a free resource Economics is the study of how individuals and societies choose to allocate scarce resources, why they choose to allocate them that way, and the consequences of those decisions. Any economic system must provide society with a means of making choices that answer three basic questions: + What will be produced with society's limited resources? + How will we produce the things we need and want? + How will society's output be distributed?Eve em — x SZ, ree . Ly wa ply i sad Sung Gries “ras we , Ocemp\ensS coments guitus — AaaRT ee >) Model Wedel OK What are models In economies? - drawing parallels from other disipline Models and graphs [Economics is Agoctal sciencd This means that economists, in their study of human interactions, use models to simplify, analyze, and predict human behavior. Models include graphs and mathematical models. The purpose of these graphs and mathematical models is to simplify the many In their use of models, economists usually make the assumption, when analyzing the effect of a particular change ona market or on a nation's economy jthatalll€lSé is Held) Constant; The term] we use for “all else equal” is the Latin expressions) ceteris paribus.) Another assumption economists make is that economic agents aré rational a and have an incentive to make decisions that are always in their own selr- [interest While in reality human beings often act irrationally, by assuming people, businesses, governments, and other agents are rational decision- makers, and by assuming ceteris paribus, economists attempt to establish laws | _and make preections about how human interactions wil affect societySe it eGov 5 ae Timoaleow feo LB : G ate SS (p,000000 $4009 #19000 i VN J eet V XN Command Economy {Allfactors of production are controlled by Govt Market Economy - Factors of production are [M@penGSMLOPGOVt.... No govt intervention. Myed Economy Cowwand Economy Markel Etenomy wt. SS } eGov: ‘ 7 Zo ae Suestin WB yes L 1? Bioco © \__ ZE> Suculves, a Ze , P ty Lu\ 2 tN ~ gz £k Treque ley "Locness Most of the economieg|ara mixed economies)+ Economics is not the study of stock markets, money, or how to run a business. Although many new students believe they will be learning about these concepts, Beonomics is a Social Science that seeks to better! understand and predict human interactions; unlike business and finance, which focus on how to manage a business organization and invest money in a way to earn the highest return for investors. . ‘One essential assumption made in most economic analysis is that all |, obviously, people, bu: entire societies can be highly irrational. esses, and even « Just because a decision is "irrational" in the economic sense, that doesn't mean that it is inherently wrong, bad, or lesser than what an economist would call a "rational" decision. In fact, the field of Behavioral Economics) seeks to understand better the many reasons humans choose to make arannmirally ‘irrational! chnicec in their decicinn mabine, ¢ One of the | allocate is capital. When people use the word capital in everyday conversation, many people are referring to money or “financial capital.’ In economics, capital is defined as the already-produced goods (tools, production of other goods or services. A robot on a car factory floor is defined as capital in economics; money you borrow to start your own business is not.Factors of production: land, labor, c apie entrepreneurship 5O- Bs A {86ls, technology natural What are capital goods ve what are consumption goods? (5) production possibilities frontier. ‘Sewie “Canis Beat eeiens pussbas ® cx ~ i od 4 \oo ewer aad ° 4 \s0 yas? D 2 240 € 4 280 E ° 200 we ‘ieee ccna) cn ce Rane hoices outside the PPF are unattainable (at least in any sustainable way), and choices inside the PPF are inefficient. Sometimes the PPF is called a production possibilities curve. +/Allchoices alone a PPF display productive efficiency-it is impossible to use society's resources to produce more of one good without decreasing production of the other good. + The specific choice along a PPF that reflects the mix of goods society most desires is the choice with allocative efficiency. We need more information than iuct the PPE to determine allocative efficiency.1 Production oo ell f /el / wenloe ° TNS d [rent Most effletent The Production Possibilities Curve (PPC) is a model that captures scarcity and the opportunity costs of choices when faced with the possibility of producing two goods or services. Points on the interior of the PPC are inefficient, points on the PPC are efficient, and points beyond the PPC are unattainable. The opportunity cost of moving from one efficient combination of production to another efficient combination of production is how much of one good is given up in order to get more of the other good. (8) {Opportunity Costs | abot Becnes ~ “s a 3 cokers Rees a 4 \oo ower eyed @ \ oo waves? Cc 240 ) Produchiow D ta ‘ee... lel Vocerlalivnes eh ae 1 260 ti arver (FF -) 200 ( pf | NU as / Fy oe | [peel | NL [Sapeentos Mlle 0 // If 7 RY] a //7™ ay Dern co a Ravi eQhruwtO gyorg Cost ek 20 move berties 3S 4 Raprit L more bey oto Zawws - rravgned Cost In microeconomic theory, the opportunity cost of a particular activity is the value or benefit given up by engaging in that activity, relative'to engaging in an alternative activity. More simply, it means if you chose one activity (for example, an investment) you are giving up the is the one that, net of its opportunity et of their opportunity costs. For example, ifyeubuya ea and use i excuse to wanspor youre you cant If your cost of transporting yourself without the car is more than what you get for renting out the car, the optimal choice Is to use the car yourself. In basic equation form, opportunity cost can be (gms as: "Opportunity. Gost = (retums on best Forcone Option) - (retums on Chasen 1] Rarvwurs Becries % \joo becris IGP sp beens ee beret 249 16 be erie 230 | f 2 bers Boo Stewas ® 6 ¢c D é Qapton au eu a when thelopportunity cost of a good increases as output opportunity of the good increases, which is represented in a graph as costs a PPC that is bowed out from the origin; when the opportunity cost of a good remains constant as opportunity output of the good increases, which is represented as a costs PPC curve that is a straight line; for example,Production Fossrahty Canes for Rabbits + Becriee es Rabbits /y = (P Marginal Utility ql “st \] ‘ | A. LSS ——<+ t$—1—$+ . . 2 Ss Ravist /daay Rabbits / doy —» —_—_ Increasing opportunity cost Decreasing opportunity cos! Definition of “URIIRVS Another word for fhappingss! How happy we are as consumers. An increase in utility means consumers are better off and a decrease means consumers are worse. #ofscoops Total of Ice Cream Utility tu Fu Au [Ou Marginal Utility tu Bu ah Lu ( 2 3 4 |Ou 2 b al The Law of Dimnishing Marginal Utility: The idea that the more ofa additional happiness the good provides!ae ie rarginal utility Diminishing marginal utllty => Why demand Is downward sloping...... perncves Total Utility vs. Marginal Utility [Motal Utility is an/gggregateimeasure of satisfaction gained from consumption, whereas Marginal Utility is a measure of the ERARBBIBSatisfactionlzained from consumption asa result of a change in consumption. The(Yargina Uelity pained from thex#\Unitof consumption is equal to the difference between the total utility gained from x units of consumption and the total utility gained from x-1 units of consumption. The Law of Diminishing Marginal Utility states that thejadiditional Utility gained from the level of consumption. The Law of Diminishing Marginal Utility states the marginal utility gradually decreases with the level of consumption|latility being defined as‘The Brtsh economist Aired Marshall belleved that thd[ipore Of someting Vou have, The Toss of Fyou want toas sis!" Diminishing marginal uilly refers to the phenomenon that each addtional unit of gain leads to an ever-smaller increase in subjective valve. | he Utility Maximization Rule: A consumer should ibuyigoodjup to the point where the last dollar spent on every good provided the same marginal utility as the last dollar spent on every other good. © MN My Rie B Po . Determine each of the following: maximum + thé cotalutility you'd enjoy from Ide cream ‘and Cake at each level of consumption.) ¢ The optimal combination of ié@eream and Icakelyou would buy to maximize your total _ (hpi | You have $16 to spend on dessert Price of Ice Cream = $2per scoop Price of Cake: $4)per slice QUBREEof TU Ice IMU ice mu/p (GUBRERy TU (MUN) mu/e Ice Cream Cream Cream of cake Cake Cake 1 4 ak 10 wn wn oRNY wn wn NBO ©Quantity of TUlce MU Ice MUZPIQuantity TU MU jIMIUJPy Ice Cream Cream Cream of cake Cake Cake 1 4 ab 2 1 12 10 2.5 2 4. 3M 2 le a 2 3 4 at ( 3 at of Uj 4 10 avy, OS 4A 28 an 5 10 0% O 5 30 24 05 Quantity of TUlce MUIce MU/P Quantity TU = MU | MU/P IceCream Cream Cream ~ —— ofcake Cake Cake 1 4 a 1 18 10 QS) 2 4 By 2 lb 8 DD Ee cn ele 2 at al (Ls) 4 10 aby, OS 4 28 al 5 [oO o> O 5 30 w OS + The optimal combination of ice cream and cake you would buy to maximize your total utility Misys Marginal Utility ->;Ifyou have $10 and apples cost S1 and oranges cost $2, use the table below to determine: * how much of each will be bought? + total utility received? First 10 10 24 12 Second 8 8 20 10 Third 7 7 18 9 Fourth 6 6 16 Fifth 5 5 12 6 Sixth 4 4 6 3 Seventh 3 3 4 2(© the Laws of Demand and Supply waweanonis Ice Cream Inverse relationship = between price and quantity demanded Demand rice Ice Cream | 1. Substitution Effect 2. Income Effect ~ 3. Law of Diminishing Marginal Utility Demand QuanuyWhen the here is 4 substitution effect that shifts cs Because the total expenditure on the consumer's original bi The income effect can be i ‘his is the key point here: the ituti jon of a good that has fallen in price, while the income effect can ither increase or decrease consumption of a good that has fallen price. Based on this analysis, we can describe three possible outcomes of a decrease in the price of Good X: 1. The substitution effect is positive, and the income effect is also positive—consumption of Good X will increase. 2. The substitution effect is positive, and the income effect is negative but smaller than the substitution effect—consumption of Good X will increase. 3. The substitution effect is positive, and the income effect is negative and larger than the substitution effect—consumption of Good X will decrease. Substitution | Income Total Effect Effect effect © Positive Positive Positive a Positive | Negative | Positive — small @ Positive Negative "Negative. large a De. Movemen{aton|the demand curve and movementfifhe demand curve Ice Cream Price Achange in price causes a move along the curve Nota: In this graph, we change the price of the good Demand QuantityIce Cream Price No change in price (but some other things change} => Shift of the Shifters of Demand demand curve Preferences Number of buyers increase in Price of related goods demand) Income Expectations Q decrease in Demand ‘Quantity https JAwww.youtubs.com/fwatch?v=kIFBaaPJUOO 1. Preferences —=>> Winter - Demand will decrease | Summer - demand for Increase will Increase 2. No of Buyers= decrease Huge no of buyers - Demand will increase | Less no of buyers - demand 3.2. Price of related goods (substitute) - Gandy bars price Increase - Ice cream demand Increase candy bars price decrease - Ics craam demand decrease 3b. Price of related goods (complements) - Ica cream cons price increase - ice cream demand decrease ; ica cream cone price decrease - ice cream demand increase 4, Income - Normal good (ag les cream)— When income goes up, people will buy more of the good and when Income goes down, people will buy less of the good Infartor good (aubstandard products) - When Income. eo a People will buy lees of the good and when income goes down, people will buy more of the 5. Change in Expectation of Price of the good - Ifthe price of the good is expacted to go up in future then the demand will go up now. Demend Demand Curve 1 Preferences | Seasonality |Increase in preference - Demand Increase __ Reducing preference - Demand Decrease 2 No of Buyers Buyers increase - Demand Increase_ Buyers Reduce - Demand Decrease_ Complementary age Demend Complementary gogadrce; Demand 3 Decrease Increase lecrease Price of related goods — |supplementary good Price: Demand _ Supplementary good Price: Demand Decrease nto da O°rrand, Yécrense a Normal Good : Demand Increase Nonmel Good : Demand Decrease Income increase Inferior ood: Demand Decrease Inferior good: Demand Inrease 5 Expectations of the price [E(Priee)increase- Demand Increase E(Price) decrease - Demand DecreaseSia lal) PTT ale Meta In Demand curve SMO e Mle Shifts to the left 1. Income 1. Increase inIncome. 1. Decrease in income. 2 .Price of Substitutes 2 .Rise in the price of 2.Fall in the price of Substitute goods substitute goods. 3.Price of complements 3.Fall in the price of 3. Rise in the price of complementary goods. complementary goods. 4.Taste and Preference 4.Favourable Change in 4 Unfavourable change tastes and preferences __in tastes and preferences. 5. Population 5. Increase in 5. Decrease in population. Population.Now lets focus on supply Ice Cream Relationship between Price and ce the Quantity Supplied Supp Law of Supply Direct relationship between price and quantity supplied Quantity Novernen = Change in the price of the good Higher the price - higher the quantity avallable for supply 1, Change in the price of resouces (inputs) required to produce ice cream... Increase in price of raw material (milk in case of ice - cream - will reduce the supply of lee cream) . Price of resources . Technology . Government involvement . Number of sellers . Expectations. 2. Change In technology - New machine-> faster ice cream -> supply will increase: 3. Govt Involvement - subsidies or taxes More subsidies - mors supply more taxes - less supply 4. No of Sellers - Less lessers - leas supply and mors sellers - more supply same as. — 5, Expected price - if price Is expected to Increase than producers will Reduce the ‘supply now (and hoard to less later at higher rate later) opposite to that of demand quantity Quantity,Ice Cream Price Supply Equilibri Fie) market equllbrium . Change In the price of the los-cream moves; the supply and the demand curve Demand Quantity lee Creat Ice Croam Price i Sure Price Quantity Demanded > Quantity ‘Quantity Supplied > Quantity ‘Supplied Demanded Ina foo marke, whe thre B dharlige of aura, ings wil elowy move towards qulibaur s P( pergaton) soso ‘0 400 500 600 700 ed 900 Quantity of Gasatine (nitions ef gallons)> Demand curve: A graphical representation of the relationship between price and quantity demanded of a certain good or service, with quantity on the horizontal axis and the price on the vertical axis > Demand schedule: A table that shows a range of prices for a certain good or service and the quantity demanded at each price. > Demand: The relationship between price and the quantity demanded of a certain good or service > Equilibrium price: The price where quantity demanded is equal te quantity supplied > Equilibrium quantity: The quantity at which quantity demanded and quantity supplied are equal for a certain price level > Equilibrium: The situation where quantity demanded is equal to the quantity supplied; the combination of price and quantity where there is no economic pressure from surpluses o: shortages that would cause price or quantity to change. > Excess demand: At the existing price, the quantity demanded exceeds the quantity supplied; also called a shortage > Excess supply: At the existing price, quantity supplied exceeds the quantity demande called a surplus Is > Law of demand: The common relationship that a higher price leads to a lower quantity demanded of a certain good or service and a lower price leads to a higher quantity demanded, while all other variables are held constant > Law of supply: The common relationship that a higher price leads to a greater quantity supplied and a lower price leads to a lower quantity supplied, while all other variables are held constant > Price: What a buyer pays for a unit of the specific good or service > Quantity demanded: The total number of units of a good or service consumers are willing to purchase at a given price > Quantity supplied: The total number of units of a good or service producers are willing,to s: at.agiven price } Shortage: At the existing price, the quantity demanded exceeds the quantity supplied; also called excess demand > Supply curve: A line that shows the relationship between price and quantity supplied on a graph, with quantity supplied on the horizontal axis and price on the vertical axis > Supply schedule: A table that shows a range of prices for a good or service and the quantity supplied at each price nship between price and the quantity supplied of a certain good or service > Surplus: At the e excess supply, jing price, quantity supplied exceeds the quantity demanded; also calledScenarios Change in Demand Curve Only {i New Study = Eating lee-oream makes you smarter Ice Cream Price Ice Cream PL ) ‘at ‘Quantity Market Is In equilibrium aa any es Demand will Increase... Supply will remain same Price and the Quantity sold will increase New Study = Eating ics -cream jakes you dumber Ice Cream Price Bo Quantity Demand will decrease... Supply will remain sama Price of ice-cream and the quantity sold will reduceChange in Supply curve only Milk shortage - Less milk avallable to produes lee-cream Ice Cream Price eo Supply reduces... Demand remains the same Quantity gold Increases and the price of the ice cream incrsases Gp ow machine -to produce lee- cream quickly Ice Cream Price ‘Quanity aL_yce ‘Supply shifts to the right Demand remains same ‘cream reduces ‘Summary New Equilibrium prices Gusntiy ‘Quantity Quantity sold Increase and price of lee~ Demand decrease => price decrease Supply side changes — Supply increase => price decrease Supply decrease => | price increaseType of Change Price Level Increase in Demand Increase Decrease in Demand Decrease Increase in Supply = Decrease Decrease in Supply Increase Double Shifts- Supply and Demand Increase in Both Demand and Supply Figure 4.13(a) shows the Price (thousands of dollars per computer) . 9 us a, inboth “both demand and supply. eee An increase in demand shifts the demand curve rightward and an increase ‘ in supply shifts the supply eee curve rightward. e ee Oy is 2 oon a5 eee tee) 2. Price might rise or fall. Quantity (mitions of PCs per year) (a) An increase in both demand and su,Decrease in Both Demand and Supply Figure 4.13(b) shows the effects of a decrease in both demand and supply. A decrease in demand shifts the demand curve leftward and a decrease in supply shifts the supply curve leftward. 4. Price might rise or fall. Wage rane (ature po Rawr) aa00 A some toe 4 . a ae Querciny (thcauarads of chop hens operanay) 0h) Adercreane bi Doch dere anet and opp Increase in Demand and Decrease in Supply Figure 4.14(a) shows the effects of an increase in demand and a decrease in supply. An increase in demand shifts the demand curve rightward, and a decrease in supply shifts the supply curve leftward. 1. Price rises. 2. Quantity might increase, decrease, or not change. Price (dollars por share) 300 ‘An increase in demand fod a decreacein supply Sy ‘ite the price ‘The quareity might Increase, decrease, or Femain the same os 20 8 ‘Quantity (millions of shares per day) (a) An increase in demand and a decrease in supplyDecrease in Demand and Increase in Supply Figure 4.14(b) shows the effects of a decrease in demand and an increase in supply. A decrease in demand shifts the demand curve leftward, and an increase in supply shifts the supply curve rightward. 3. Price falls. 2. Quantity might increase, decrease, or not change. Price (dollars per 100 bahts) 8 A decrease in demand and and an increase in supply lower the price So sy The peor might femain the ame os o 7 e 9 o on Quantity (millions of babes per day) (b) A decrease in demand and an increase in supply Demand Increase Decrease Change in ‘Quantity Change in Price May increase or decrease May increase or decrease May increase or decrease ‘May increase or decrease‘Questions 1. Difference between Micro economics and Macro Economics: 2. Command and Market Economy 3. What are the 4 factors of production 5. Production possibilities frontier 6. Define Opportunity cost... Increasing , decreasing and constant opportunity cost and PPC curve 7. Total Utility , Marginal Utilty and Diminishing Marginal utllty 8. Utility Maximazation Rule 8. Law of Demand - Factors affecting law of demand - Income effect vs Substitution effect 10. Factors for Shift of demand curve 11. Law of supply 12. Shift of supply curve - 4 factors 13, Equilibrium price and diseqn rium price - Shortage and excess supply 14, 4 Scenarios - change of demand (Increase / decrease), change of supply (Increase / decrease)