Mathematics for Decision Making Lectures

Class Lecture-1+2+3

Mathematics for Decision Making (Math-1202)

Chapter-1: Equilibrium Analysis

Meaning of Equilibrium:

1. Equilibrium is a constellation of selected interrelated variables so adjusted to one another that no inherent tendency to change prevails in the model which they constitute.

2. Equilibrium in Demand and Supply analysis occurs when Qd=Qs.by equating the supply and demand functions, the equilibrium price and quantity can be determined.

3. The state in which market supply and demand balances each other and, as a result, prices become stable. Generally, when there is too much supply for goods or services, the price goes down, which results in higher demand. The balancing effect of supply and demand results in a state of equilibrium.

 

Types of Equilibrium:

There are three types of Equilibrium. Such as-

1. Partial market Equilibrium
2. General market Equilibrium
3. Equilibrium in national income or income determination model

1. Partial market Equilibrium

Definition:

1. Partial market Equilibrium refers to the situation where Equilibrium position is analyzed when only one commodity (isolated market) is being considered.

2. A partial equilibrium is one which is based on only a restricted range of data, a standard example is price of a single product, the prices of all other products being held fixed during the analysis.

There are three variables in the model as following:

1. The quantity demanded of the commodity (Qd)
2. The quantity supplied of the commodity (Qs)
3. The price (P)

Example:

(1)Given,

Qd of Apple = -5+3p

Qs of Apple =10-2p

Now find the Equilibrium price (P) and quantity demanded of Apple (Qd)

Ans:

We know that,

Equilibrium=

 Qd=Qs

-5+3p=10-2p

or,        3p+2p=10+5

or,        5p=15

or,        p=15/5

or,        p=3

Equilibrium price (P) of Apple = 3

Now finding Equilibrium quantity demanded of Apple (Qd),

Substituting the value of P into Demand equation of Apple (Qd), we get,

Qd = -5+3p

      = -5+ (3×3)

      = -5+ 9

      = 4

So, Equilibrium quantity demanded of Apple (Qd) =4

Ans: Equilibrium price (P) of Apple = 3

         Equilibrium quantity demanded of Apple (Qd) =4

Example:

(2)

Demand and supply equation of a certain commodity are Qd =14-3p and

Qs =P²-4. Find the equilibrium price (P) and quantity (Qd).

                                                                                    (Solve by factoring)

Ans:

We know that,

Equilibrium=

 Qd=Qs

14-3p= P²-4

           Or,           14-3p – (P²-4)=0

Or,          14-3p – P²+4 =0

Or,                 18-3P- P²=0

Or,            - P²-3p+18=0

Or,            - (P²+3p-18)=0

Or,                P²+3p-18=0

We can solve it either by factoring or by quadratic formula; here we will apply factoring,

Or,                P²+6p-3p-18=0

Or,                P (P+6)-3(p+6) =0

Or,                  (P+6) (p-3) =0

Now set,

(P+6) =0 and (p-3) =0

             Or,                    P = -6    and P = 3

     Since, negative price is not meaningful. So we take only positive value.

Equilibrium price (P) = 3

Now, finding the Equilibrium quantity (Qd),

Qd =14-3p

      =14-(3×3)

       =14-9

       =5

So, the Equilibrium quantity (Qd)=5

Ans:

Equilibrium quantity (Qd)=5

Equilibrium price (P) = 3

Example:

(2)Demand and supply equation of a certain commodity are Qd =14-3p and

Qs =P²-4. Find the equilibrium price (P) and quantity (Qd).

                                                                                    (Solve by quadratic formula)

Ans:

We know that,

Equilibrium=

 Qd=Qs

                                                           

14-3p= P²-4

           Or,           14-3p – (P²-4)=0

Or,          14-3p – P²+4 =0

Or,                 18-3P- P²=0

Or,            - P²-3p+18=0

Or,            - (P²+3p-18)=0

Or,                P²+3p-18=0

We can solve it either by factoring or by quadratic formula; here we will quadratic formula,

                        AX²+bX+C=0

Xe   =    -b±√b²-4ac

                                                            2a

Here,

P²+3p-18=0

Let,

          a=1

b=3

X=P

C= -18

Now substituting the above values in the formula, we get,

P   =    -3±√3²-4.1.-18

                                                            2.1

        =    -3±√9+72

                                                            2.1

        =    -3±√81

                                                      2

        =    -3±9

                                                      2

         =    -3+9                    (only considering + value)

                                                       2

           =    6

                                                     2

                                          P       =    3

And

         =    -3 - 9                    (only considering - value)

                                                       2

           =    -12

                                                       2

                                          P       =    - 6

Since, negative price is not meaningful. So we take only positive value.

Equilibrium price (P) = 3

Now, finding the Equilibrium quantity (Qd),

Qd =14-3p

      =14-(3×3)

       =14-9

       =5

So, the Equilibrium quantity (Qd)=5

Ans:

Equilibrium quantity (Qd)=5

Equilibrium price (P) = 3

2. General market Equilibrium

Definition:

1. General market Equilibrium refers to the situation where Equilibrium position is analyzed when more than one commodity or two or more commodities are being considered.

2. When several interdependent commodities are simultaneously considered in equilibrium analysis that is called General market Equilibrium

3. General equilibrium theory studies supply and demand fundamentals in an economy with multiple markets, with the objective of proving that all prices are at equilibrium. The theory analyzes the mechanism by which the choices of economic agents are coordinated across all markets.

4. General equilibrium theory is distinguished from partial equilibrium theory by the fact that it attempts to look at several markets simultaneously rather than a single market in isolation.

Example:

Find the equilibrium price and quantity demand for two substitute goods Beef (B) and Mutton (M) in two related markets:

Given,

For Beef,

Qd of Beef = 82-3PB+PM

Qs Of Beef =-5+15 PB

For Mutton,

Qd of Mutton = 92+2PB-4PM

Qs Of Mutton = -6+32 PM

Ans:

For Beef,

We know that,

Equilibrium=

 Qd=Qs

Or,                               Qd- Qs=0

82-3PB+PM=-5+15 PB

or,                                82-3PB+PM  - (-5+15 PB)

or,                                82-3PB+PM  + 5-15 PB = 0

or,                                87-18 PB+PM  = 0

or,                                -18 PB+PM  = -87

or,                                            PM  = -87 + 18 PB

or,                                            PM  =  18 PB-87

Similarly For Mutton,

We know that,

Equilibrium=

 Qd=Qs

Or,                               Qd- Qs=0

92+2PB-4PM = -6+32 PM

or,                    92+2PB-4PM – (-6+32 PM)

           

or,                    92+2PB-4PM +6-32 PM = 0

or,                    98+2PB-36 PM = 0

or,                    2PB-36 PM = - 98

or,                    2PB = - 98+36 PM

or,                    2PB = 36 PM – 98

or,                    PB = 36 PM – 98

                                    2

or,                    PB = 18 PM – 49

Now finding PM,

PM = 18 PB-87

    = 18 (18 PM – 49)-87   (substituting the value of PB)

    = 324 PM – 882-87

PM - 324 PM   = - 969

      - 323 PM   = - 969

               PM   =  969  

                           323

                 PM   = 3

So equilibrium price of Mutton PM   = 3

Now finding PB,

PB = 18 PM – 49

      = (18× 3)– 49

      = 54 – 49

       = 5

So equilibrium price of Beef  PB   = 5

Now finding Qd of Beef

QdB = 82-3PB+PM

       = 82-3(5)+3   (substituting the value of PB & PM )

       = 82-15+3

       = 85-15

       = 70

SO equilibrium Quantity demand of Beef  QdB = 70

Now finding Qd of Mutton,

QdM= 92+2PB-4PM

         = 92+2(5)-(4×3)

         = 92+10-12

         = 90

SO equilibrium Quantity demand of Mutton QdM = 90

Ans:

Equilibrium price of Mutton PM   = 3

Equilibrium price of Beef  PB   = 5

Equilibrium Quantity demand of Beef  QdB = 70

Equilibrium Quantity demand of Mutton QdM = 90

3.     Equilibrium in national income or income determination model

Equilibrium in national income defines as the level of national income where economy’s total national income equals to total national expenditures.

i.e.

Total national income = total national expenditures

Y= C+I+G+X-M

Where,

Y= total national Income

C=Personal Consumption Expenditure

I=Gross Private Investment

G=Government purchases of goods and services or Government expenditures

X=Export

M=Import

Example:

Find the equilibrium national income Y and consumption C for four sector economy, where Y= C+I+G+X-M and given,

C=C0 +bYd

Yd=Y-T

T=T0 +tY

C0 = 85

b=0.6

t=0.2

T0 = 20

I=I0=30

G=G0=60

X=X0=80

M=M0=50

Ans:

Y= C+ I+G+X-M

   = C0 +bYd + I0+ G0+ X0- M0

   = C0 +b(Y-T) + I0+ G0+ X0- M0

   = C0 +b(Y-( T0 +tY) + I0+ G0+ X0- M0

   = C0 +b(Y- T0 - tY) )+ I0+ G0+ X0- M0

   = C0 +bY- bT0 - btY+ I0+ G0+ X0- M0

   =85+0.6Y-(0.6×20) – (0.6× 0.2)Y+30+60+80-50

    =85+0.6Y-12 – 0.12Y+120

 Y =205-12 +0.48Y

  Y-0.48Y =193

   0.52Y = 193

           Y= 193

                  0.52

            Y= 371.153846

SO equilibrium national income Y = 371.153846

Now finding equilibrium consumption C,

C=C0 +bYd

   = C0 +b(Y-T)

   = C0 +b(Y-( T0 +tY)

   = C0 +b(Y- T0 - tY)

   = C0 +bY- bT0 - btY

   =85+0.6(371.153846)-(0.6×20) – (0.6× 0.2) (371.153846)

   =85+222.692308-12 – 44.5384615

   =307.692308 – 56.5384615

    C=251.153847

SO equilibrium Consumption C=251.153847

Ans:

Equilibrium national income Y = 371.153846

Equilibrium Consumption C=251.153847

Home work from previous questions

Partial market Equilibrium

(1) Given,                                                                                                        

Qd of a commodity = 51-3P

Qs of the same commodity = -12+6P

Now find the Equilibrium price (P) and quantity demanded of that commodity (Qd)

(2) Given,

Qd of a commodity = 24-2P

Qs of the same commodity = -5+7P

Now find the Equilibrium price (P) and quantity demanded of that commodity (Qd)

(3) Given,

Qd of a commodity = 51-3P

Qs of the same commodity = 6P-10

Now find the Equilibrium price (P) and quantity demanded of that commodity (Qd)

(4) Given,

Qd of a commodity = 30-2P

Qs of the same commodity = -6+5P

Now find the Equilibrium price (P) and quantity demanded of that commodity (Qd)

(5) Given,

Qd of a commodity = 4-P²

Qs of the same commodity = 4P-1

Now find the Equilibrium price (P) and quantity demanded of that commodity (Qd)

(6) Given,

Qd of a commodity = 3-P²

Qs of the same commodity = 6P-4

Now find the Equilibrium price (P) and quantity demanded of that commodity (Qd)

(7) Given,

Qd of a commodity = 8-P²

Qs of the same commodity = P²-2

Now find the Equilibrium price (P) and quantity demanded of that commodity (Qd)

General market Equilibrium

(8) Find the equilibrium price and quantity demand for the following two goods in two related markets:

Given,

For goods-1,

Qd1 of goods-1 = 10-2P1 +P2

Qs1 Of goods-1 = -2+3P1

For goods-2,

Qd2 of goods-2 = 15+P1 -P2

Qs2 Of goods-2 = -1+2P2

(9) Find the equilibrium price and quantity demand for the following two goods in two related markets:

Given,

For goods-1,

Qd1 of goods-1 = 18-3P1 +P2

Qs1 Of goods-1 = -2+4P1

For goods-2,

Qd2 of goods-2 = 12+P1 -2P2

Qs2 Of goods-2 = -2+3P2

(10) Find the equilibrium price and quantity demand for three complementary goods in three related markets:

Given,

For goods-1,

Qd1 of goods-1 = 23-5P1 +P2+ P3

Qs1 Of goods-1 = -8+6P1

For goods-2,

Qd2 of goods-2 = 15+P1 -3P2+ 2P3

Qs2 Of goods-2 = -11+3P2

For goods-3,

Qd3 of goods-3 = 19+P1 +2P2 - 4P3

Qs3 Of goods-3 = -5+3P1

(11)  Find the equilibrium price and quantity demand for two complementary goods Slacks (S) and Jackets (J) in two related markets:

Given,

For Slacks (S),

QdS = 410-5PS-2PJ

QsS =-60+3PS

For Jackets (J),

QdJ = 295-PS-3PJ

QsJ = -120+2 PJ

(12) Find the equilibrium price and quantity demand for the following two goods X and Y in two related markets:

Given,

For goods-X,

Qdx = 82-3X +Y

Qsx = -5+15X

For goods-Y,

Qdy= 92+2X -4Y

Qsy = -6+32Y

  Equilibrium in national income or income determination model

(13)Find the equilibrium national income Y and consumption C for two sector economy,, where Y= C+I and given,

C=C0 +bY

C0 = 85

b=0.9

I=I0=55

(14)Find the equilibrium national income Y and consumption C for two sector economy,, where Y= C+I and given,

C=C0 +bYd

Yd=Y-T

T=T0 +tY

C0 = 85

b=0.75

t=0.2

T0 = 20

I=I0=30

(15)Find the equilibrium national income Y and consumption C for three sector economy, where Y= C+I +G and given,

C=25 +6Y½

I=I0=16

G =G0 =14

(16)Find the equilibrium national income Y and consumption C for two sector economy,, where Y= C+I and given,

C=C0 +bY

C0 = 65

b=0.6

I=I0 +aY

I0 = 70

a=0.2

(17)Find the equilibrium national income Y and consumption C for four sector economy, where Y= C+I+G+X-M and given,

C=C0 +bYd

Yd=Y-T

T=T0 +tY

I=I0

G=G0

X=X0

M=M0

Attention: All of my class lectures are available at: www.islamiceconomicsbd.blogspot.com

Macroeconomics Class Lecture-3

Class Lecture-3

Macroeconomics in Business (Econ-1202)

Rational Expectations Theory

Economic-behavior observation according to which: (1) On average, people can quite correctly predict future conditions and take actions accordingly, even if they do not fully understand the cause-and-effect (causal) relationships underlying the events and their own thinking. Thus, while they do not have perfect foresights, they construct their expectations in a rational manner that, more often than not, turn out to be correct. Any error that creeps in is usually due to random (non-systemic) and unforeseeable causes. (2) In efficient markets with perfect or near perfect information (such as in modern open-market economies) people will anticipate government's actions to stimulate or restrain the economy, and will adjust their response accordingly. For example, if the government attempts to increase the money supply, people will raise their prices and wage demands to compensate for the inflationary impact of the increase. Similarly, during periods of accelerating inflation, they will anticipate stricter credit controls accompanied by high interest rates. Therefore they will attempt to borrow up to their credit capability, thus largely nullifying the controls. This theory was proposed not as a plausible explanation of human behavior, but to serve as a model against which extreme forms of behavior could be compared. It was developed by the US economist Robert Lucas (born 1937) who won the 1955 Nobel Prize for this insight. Not to be confused with rational choice theory. Also called rational expectations hypothesis.

An economic idea that the people in the economy make choices based on their rational outlook, available information and past experiences. The theory suggests that the current expectations in the economy are equivalent to what the future state of the economy will be. This contrasts the idea that government policy influences the decisions of people in the economy.
The idea is that rational expectations of the players in an economy will partially affect what happens to the economy in the future. If a company believes that the price for its product will be higher in the future, it will stop or slow production until the price rises. Because the company weakens supply while demand stays the same, price will increase. In sum, the producer believes that the price will rise in the future, makes a rational decision to slow production and this decision partially affects what happens in the future.

If we think of a stock price. It is common to assume that the price reflects all of the available information about the stock. If there was other information, someone would make money on the poop stock. This is a similar idea to the expectation that the Rational Expectations economist has when looking at economic agents. While acknowledging that the market for stocks has few of the distortions that other markets have, this paradigm allows for pretty good predictions of behavior, largely as a result of the observation that with large numbers the deviations start to cancel out.

 

Business cycle

1. A predictable long-term pattern of alternating periods of economic growth (recovery) and decline (recession), characterized by changing employment, industrial productivity, and interest rates. also called economic cycle.

2. The recurring and fluctuating levels of economic activity that an economy experiences over a long period of time. The five stages of the business cycle are growth (expansion), peak, recession (contraction), trough and recovery. At one time, business cycles were thought to be extremely regular, with predictable durations, but today they are widely believed to be irregular, varying in frequency, magnitude and duration

3. The business cycle describes the phases of growth and decline in an economy. The goal of economic policy is to keep the economy in a healthy growth rate -- fast enough to create jobs for everyone who wants one, but slow enough to avoid inflation. Unfortunately, life is not so simple. Many factors can cause an economy to spin out of control, or settle into depression. The most important, over-riding factor is confidence -- of investors, consumers, businesses and politicians. The economy grows when there is confidence in the future and in policymakers, and does the opposite when confidence drops.

The Stages of the Business Cycle

There are four stages that describe the business cycle. At any point in time you are in one of these stages:

1. Contraction - When the economy starts slowing down.
2. Trough - When the economy hits bottom, usually in a recession.
3. Expansion - When the economy starts growing again.
4. Peak - When the economy is in a state of "irrational exuberance."

Chapter-2: Circular Flow of Income and National Income Accounting :

Income

Y=C+S

Y= Income                               Or

C=Consumption

S=Saving

Disposable Income

Y=C+S+R-T

Y= Income

C=Consumption

S=Saving

R=Transfer Payments or Subsidy

T=Tax

GDP=Gross Domestic Product

Definition: GDP is the market value of all the final goods and services produced within a country in a given time period.

Market Value: the prices at which each item is traded in market.

Example: if the price of an apple is 10tk, the market value of 20 apple is 10×20=200tk

Final goods and services: A final good or service is an item that is bought by its final user during a specified time period.

Intermediate goods and services: An Intermediate good or service is an item that is produced by one firm, bought by another firm and used as a component of a final good or services.

Example: Computer-Final goods

                  Motherboard- Intermediate goods

Within a country: only goods and services that are produced within a country count as part of that country’s GDP.

In a given time period: GDP measures the value production in a given time period.

Such as:  Yearly-Annual GDP, Quarterly GDP.

GDP: Production of goods and services by Bangladeshi Residents in Bangladesh + Production of goods and services by Foreigner who lives in Bangladesh.

GNP=Gross National Product

Definition: GNP is the market value of all the final goods and services produced by the residents of a country both at home and abroad in a given time period.

GNP: Production of goods and services by Bangladeshi Residents in Bangladesh + Production of goods and services by Bangladeshi Residents in Abroad -Production of goods and services by Foreigner who lives in Bangladesh.

NDP (Net Domestic Product) at market prices: GDP-Depreciation

NNP (Net National Product) at market prices: GNP-Depreciation=National Income

Depreciation: is the decrease in the stock of capital that results from wear &tear and obsolescence, also called capital consumption.

NDP (Net Domestic Product) at factor cost: NDP-Net Indirect Taxes

Net Indirect Taxes=Subsidy-Indirect Taxes.

NNP (Net National Product) at factor cost: NNP- Net Indirect Taxes

=National Income at factor cost

Personal Income: Income+Transper payments

Personal Disposable Income: personal Income+Transper payments-personal taxes

Personal Income: National Income-social security contribution-corporate income taxes-undistributed profits Transfer payments

National Disposable Income: National Income-social security contribution-corporate income taxes-undistributed profits Transfer payments-personal taxes

Disposable Income: C+S

Measurement of National Income:

1. Expenditure Approach
2. Income approach
3. Value added approach

1. Expenditure Approach

GDP at market price

GDP=Y=C+I+G+X-M

Y= Income/GDP

C=Personal Consumption Expenditure

I=Gross Private Investment

G=Government purchases of goods and services.

X=Export

M=Import

NDP (Net Domestic Product) at market prices: GDP-Depreciation

NDP mp =C+I+G+X-M-Depreciation

NDP (Net Domestic Product) at factor cost: NDP-Net Indirect Taxes

Net Indirect Taxes=Subsidy-Indirect Taxes.

NDP FC= C+I+G+X-M-Depreciation-Net Indirect Taxes

NNP (Net National Product) at market prices: GNP-Depreciation=National Income

NNP (Net National Product) at factor cost: NNP- Net Indirect Taxes

=National Income at factor cost

2. Income approach

GDP at market price

GDP mp: Compensation of employees or wage +Net interest+ Rent +corporate profit+ proprietor’s income-indirect taxes+subsidy+depreciation

GDP FC: Compensation of employees or wage +Net interest+ Rent +corporate income tax+ undistributed profits+dividends-indirect taxes+subsidy+depreciation

Macroeconomics Class Lecture-2

Class Lecture-2

Macroeconomics in Business (Econ-1202)

Keynesian Revolution

Classical and Neo-classical economists assumed that, full employment of labor and other resources are always prevailed in the economy. They explained that, how the resources were allocated to the production of various goods and services. They also explained that, how the relative prices of products and factors are determined. They concentrated on the problem of determination of prices, outputs and resources employments in the individual industries.

They believed that, if there were departures from full employments, a free market economy would automatically work in a way that would restore full employment of resources, if it works freely without interventions of trade unions and Governments.

They also believed that, the problem of deficiency of demand does not arise. Since Say’s law stated that, supply creates its own demand. So factors get rewards for supply and rewards create demand. For example –land, labor and capital get rent, wage and interest as rewards respectively.

But they could not provide adequate explanation about the huge unemployment during Great Depression in 1930s.

A.C.Pigou tried to solve the problem by cutting wage and increasing employment within the same budget.

 J.M.Keynes challenged the classical viewpoints and said that, reduction in wage may expand employment in an individual industry but reduce the income of working class, thus reduces the aggregate demand.

J.M.Keynes  made a genuine break from the Classical and Neo-classical economics and produced such a fundamental and drastic change in economic thinking through his book ‘A general theory of employment, interest ad money(1936), thus his macroeconomic analysis has earned the names ‘Keynesian Revolution and ‘New Economics’.

Post Keynesian development in Macroeconomics

1. Monetarism
2. Supply-side economics
3. Rational expectations theory

1.    Monetarism

American Nobel laureate economist Milton Friedman criticized the idea of .J.M.Keynes through his work (A monetary history of the United States) along with Anna Schwartz.

They argued that, monetary policy is the prime engine in causing fluctuations in economic activities by bringing about changes in aggregate demand while J.M.Keynes said that, monetary policy was quite ineffective instrument in bringing about economic stability.

He further argued that, the Great Depression in 1930s. did not show the failure of the free market system but the failure of Government’s interventionist policy. Moreover, it occurred mainly due to excessive contraction of money supply.

There are differences between the monetarists and Keynesian in respect of two important issues. First issue relates to the relationship between money supply and inflation. The second relates to the role of Government in the economy.

Monetarists led by Friedman believed that, inflation is always and everywhere a monetary phenomenon.Mreover, inflation is caused by the rapid expansion of money supply. It is also caused by the greater increase in money supply relative to growth of output. To control inflation, they suggest a constant growth rate of money supply.

Keynesian economists emphasized that, active role should be played by the Government to control Business cycle and achieve economic stability while monetarists opposed to this idea and said Government should pursue a policy of stable rate of growth of money supply.

Keynesian economists also emphasized on the adoption of discretionary fiscal and monetary policies. They argued that, expansion of money supply is not always cause of inflation but it also depends on the possibility of expansion in output.

Supply side economics

In the early 1970s and early eighties, the problem of stagflation appeared in which high inflation was accompanied by high rate oh unemployment. Keynesian economists were unable to solve this problem. if expansionary fiscal and monetary policies were taken to raise aggregate demand to remove stagnation or unemployment, it accelerated inflation further. On the other hand, if steps were taken to lower aggregate demand to lower the inflation rate, it would have further increased the already high unemployment rate.

Supply side economists pointed out that, it was caused by supply shock by reduction in oil supplies and increased in oil prices. They said that, if money supply decreases, then inflation increases but aggregate output and unemployment fall.

Advocates of supply side economics- for the expansion in aggregate in aggregate supply and there by increase in employment opportunities, incentives to work, more saving and investments were required to be promoted.

The increase in aggregate supply will lead to the increase in employment and thus reduce inflation. According to them, high rate of income taxes serve as disincentives to work, saving and investments. So to increase in aggregate supply, income tax should be reduced.

Reduction in income taxes increases the tax revenue and output; it was illustrated by the Laffer curve. Government budget deficit was also reduced by the increased tax revenue.

Islamic economics Class Lecture-1

Class Lecture-1

Principles of Islamic economics (Econ-2403)

Definition: Economics

1. Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.

2. the study of how society manages its scarce resources

Scarcity:

1. The limited nature of society’s resources
2. Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have.
3. A situation of scarcity is one in which goods are limited relatives to desires.

Nature of economics: 2 types

1. Positive economics: it describes the facts of an economy.
2. Normative economics: it involves value judgments.

Branches of economics:

1. Microeconomics
2. Macroeconomics
3. Islamic economics

Definition: Microeconomics

1. Microeconomics (from Greek prefix micro- meaning "small" + "economics") is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources.

2. It concerned with the behavior of individual entities such as markets, firms and households.

3. The study of how households and firms make decisions and how they interact in markets.

Definition: Macroeconomics

1. Macroeconomics (from Greek prefix "macro (o)-" meaning "large" + "economics") is a branch of economics dealing with the performance, structure, behavior, and decision-making of the entire economy. This includes a national, regional, or global economy.

2. It concerned with the overall performance of the economy.

3. Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance.

4. The study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Definition: Islamic economics

1. Islamic economics can be defined as that part of Islamic code which studies as a process, economic, social and moral behavior in an integrated manner in relation to production, distribution and consumption of goods and services.

2. Islamic economics refers to the body of Islamic studies literature that "identifies and promotes an economic order that conforms to Islamic scripture and traditions," and in the economic world an interest-free Islamic banking system, grounded in Sharia's condemnation of interest (Riba).

Basis: Behavioral norms" derived from the Quran , Sunnah,Ijma and Ijtihad

Islamic Economics (6^th -14^th Century):

Begun: The practice of Islamic Economics was begun in the state of Medina in the 6th century.

Contributors: After that, the process of Development of this discipline was handled by the different scholars and Economists in different centuries. many of them were Abu Yusuf (731-798), Al Farabi (873-950), Al Ghazali (1058-1111), Al mawaridi (1675-1158), Nasir Al-Din Al-Tusi (1201-1274), Ibn Taymiyyah (1263-1328), Ibn Khaldun (1334-1406) History of the World (Kitab al-Ibar), Asaad Davani (1444).

Topics: They amplified the Ideas of consumer theory, supply and demand, Elasticity, Taxation (Khaldun-Laffer Curve (the relationship between tax rates and tax revenue) etc in the light of Islamic Economics.  Ibn Khaldun was considered as a Forerunner of modern economics.

Books: History of the World (Kitab al-Ibar), division of labor, and macroeconomic forces of population growth, human capital development, and technological developments effects on development.

Recent Contributors:

The tools of Islamic economics are also employed in modern economics by some economic thinkers. Among of them, the contributions of  M .Umer chapra (Islam &economic challenges), Monzer Kahf. Najat Ullah Siddiqui, M.A. Mannan,  Fahim Khan,Anas Zarqa are well mentioned to the recent world.

 Comparative economic analysis:

Types of economy:

1. Market Economy: is one in which individuals and private firms make the major decision about production and consumption Market economy: an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services

Example-UK (came to close in 18^th century)

2. Laissez – faire economy: the extreme case of a market economy, in which Governments keeps its hands off economic decisions,is called a Laissez – faire economy.
3. Command Economy: is one in which the government makes all important decisions about production and consumption.

Example-ex-soviet union

3. Mixed Economy: it includes the elements of both market and command economy. Example-almost all economy of the world,Bangladesh,India etc

4. Islamic Economy: the economy which runs according to the law of welfare, justice and Islamic Shariah.

Example-Medina state in 7^th century, Iran (came to close)

Attention: All class lecture available at: www.islamiceconomicsbd.blogspot.com

Macroeconomics Class Lecture-1

Class Lecture-1

Macroeconomics in Business (Econ-1202)

Definition: Economics

1. Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.

2. the study of how society manages its scarce resources

Scarcity:

1. The limited nature of society’s resources
2. Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have.
3. A situation of scarcity is one in which goods are limited relatives to desires.

Nature of economics: 2 types

1. Positive economics: it describes the facts of an economy.
2. Normative economics: it involves value judgments.

Branches of economics: 2

1. Microeconomics
2. Macroeconomics

Definition: Microeconomics

1. Microeconomics (from Greek prefix micro- meaning "small" + "economics") is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources.

2. It concerned with the behavior of individual entities such as markets, firms and households.

3. The study of how households and firms make decisions and how they interact in markets.

Founder: Adam Smith (1723 –1790), a Scottish social philosopher and a pioneer of political economy and Scottish Enlightenment.

Book: The Wealth of Nation (1776)

Definition: Macroeconomics

1. Macroeconomics (from Greek prefix "macro (o)-" meaning "large" + "economics") is a branch of economics dealing with the performance, structure, behavior, and decision-making of the entire economy. This includes a national, regional, or global economy.

2. It concerned with the overall performance of the economy.

3. Macroeconomists study aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions. Macroeconomists develop models that explain the relationship between such factors as national income, output, consumption, unemployment, inflation, savings, investment, international trade and international finance.

4. The study of economy-wide phenomena, including inflation, unemployment, and economic growth.

Begun: 1860 (Early Period)

Early contributor: William Stanley Jevons (1835 –1882), a British economist and logician. Clément Juglar (1819 in Paris –1905 in Paris), a French doctor and statistician

Topics: apparent cycles of frequent, violent shifts in economic activity.

Modern Macroeconomics:

Begun: 1936

Main contributor: John Maynard Keynes (1883 –1946), a British economist

Book: The General Theory of Employment, Interest and Money (1936)

Name of renowned Macroeconomists:

Carl Menger, Alfred Marshall, Irving Fisher , John Maynard Keynes, Milton Friedman, Anna Schwartz,Neo-Keynesian Franco Modigliani, new Keynesian Stanley Fischer, new classical Edward C. Prescott

Attention: All class lecture available at: www.islamiceconomicsbd.blogspot.com