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DEPARTMENT OF ECONOMICS BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN M.A ECONOMICS PART FIRST Paper I: MICROECONOMIC THEORY COURSE INSTRUCTOR: Muhammad Ramzan Sheikh Part A Topic: 1 Some Fundamentals of Micro Economics Microeconomics: Comparison with other branches of economics. The uses and limitations of Microeconomic theories. The problem of Scarcity. The Concept of opportunity cost. Markets, Firms and Individuals. Demand and Supply: A Review. Relative and absolute Prices. Real and Nominal Prices. Cobweb Theorem. Slope and Elasticity of Demand. Short Run and Long Run Elasticity. Different Kinds of elasticities of demand. Price Controls. Consumer and Producer’s surpluses. Network Externalities. Topic: 2 Theory of Consumer Choice Cardinal measurement of utility: Consumer’s equilibrium one commodity and general case. Derivation of demand curve. Income and Substitution effects under Cardinal Approach. Diamond Water Paradox. Drawbacks of Cardinal Approach Ordinal measurement of utility: Properties of preferences. The notion and examples of homothetic preferences and non-homothetic preferences. Axioms of consumer choice and their implications for preference ordering. Properties of indifference curves maps. The problem of bundles ranking and properties of consumption bundles. Types of utility functions. Consumer’s choice: Interior and corner solution optimum of a consumer. Algebraic solution for the optimum of a consumer. Solution for the optimum in the case of perfect complements. Boundary optimum of a consumer.: choice with perfect substitutes, neutrals, mutually exclusive goods, “good /bad” cases. Price Income and Substitution effects Under Hicksian and Slutsky Framework. Slutsky identity and Slutsky equation. Derivation of Slutsky equation and its economic interpretation. Indirect Utility Function and its derivation and properties. Application of Indifference curve analysis. Revealed Preference theory. Topic: 3 Analysis of Demand Determinants and properties of an individual demand function. Homogeneity of degree zero in prices and income. Deriving “income-consumption” and Engel curves. Engel expenditure curves. The difference between normal and inferior goods, .necessity and luxury goods in respect of marginal propensity to consume and income elasticity values. “Income-consumption” and Engel curves for homothetic preferences cases. Quasilinear preferences case. Deriving “price-consumption” and individual demand curves. The difference between ordinary and non-ordinary goods. The notion of a Giffen good. Gross substitutes and complements. The two notions of real income: in terms of Hicks and in terms of Slutsky. Substitution effect under Hicks and under Slutsky. Explanation of the sign of a substitution effect. Diagrams explaining price effect signs and derivations of individual demand curves for: a normal good, an inferior and ordinary good, a Giffen good. Topic: 4 Theory of Production The Concept of Production Function; Production with one variable and two variable inputs, Laws of Returns and Returns to scale. The substitution and Resource effects of change in input prices. Euler’s Theorem. The elasticity of substitution. Some special production functions: Cobb Douglas Production function. CES Production Function. Translog Production function. Homogenous Production Function. Topic: 5 Cost of Production and Revenue Definition and kinds of costs. Cost Functions. Traditional, Modern and Engineering costs theories. Economies of Scale and Scope. Learning Curve. Cost Minimization (A Mathematical Treatment). Revenue Analysis (Total, Marginal and Average Revenue) Part B Topic: 6 The Theory of Market Behaviour 6.1 Pure and Perfect competition: equilibrium of firm in Short run. The supply curve of the firm and the industry. Short run equilibrium of industry. equilibrium of firm and industry in Long run. Optimum Resource allocation. Dynamic changes and Industry Equilibrium: Shift in the Market demand, Predictions of the perfect competition model when costs change, Effects of Imposition of a Tax. Mathematically Price and Quantity Solution. Evaluating the gains and loses from Govt polices--consumer and Producer surplus. The efficiency of a competitive market. Minimum Prices. Price Supports and Production Quotas. Import Quotas and Tariffs. The impact of Tax or subsidy. Mathematical Derivation of Price and Output Decision. 6.2 Monopoly its basis. The negatively sloping demand curve: Short run and Long Run equilibrium, Predictions in dynamic changes: Shift in the Market demand, An increase in the costs of monopolist. Imposition of a Tax. Comparison with perfect competition: Govt regulated Monopoly. Monopoly Power its sources and social cost. Monopsony and Monoply compared. Monopsony Power its sources and social cost. Bilateral Monopoly. Multi-plant Monopolist Firm, Mathematical Derivation of Price and Output Decision. 6.3 Monopolistic competitive conditions: The historical setting of the theory of monopolistic competition, Characteristics of Monopolistically competitive firms. The concepts of industry & group: The basic Chamberlin theory of Monopolistic competition:(Model No 1: Equilibrium with new firms entering the industry, Model No 2: Equilibrium with Price competition, Model No 3: Equilibrium with Price competition and free entry). Critique of Chamberlin Model. Comparison with pure competition. Mathematical Derivation of Price and Output Decision. 6.4 Oligopolistic conditions: A simple statement of the problem of oligopoly: Non-collusive Oligopoly: Models of Cournot, Bertrand, Chamberlain, Sweezy & Stackelberg Collusive Oligopoly: Model of cartels and Price Leadership. Mathematical Derivation of Price and Quantity Determination. Topic: 7 Pricing With Market Power Capturing Consumer Surplus. Price Discrimination (First, Second and Third degrees) Intertemporal Price Discrimination and Peak Load Pricing. The two part tariff. Advertising. A rule of thumb for advertising. Transfer pricing when there is no outside market, when there is competitive outside market, when there is noncompetitive outside market. (A numerical example). Topic: 8 Pricing of Factors of Production and Income Distribution Factor Pricing in perfectly competitive and imperfectly competitive Markets. Elasticity of Factor substitution, Technological progress and Income Distribution. The Price of fixed Factors: Rents & Quasi-rents. Non homogenous factors and Wage differentials. The adding up problem and product exhaustion theorems. Topic: 9 General Equilibrium and Economic Efficiency Partial and general Equilibrium Analysis. Two interdependent markets moving to general equilibrium (an example). Efficiency in exchange. Equity and Efficiency. Efficiency in Production. Topic: 10 Welfare Economics Criteria of social welfare: Growth of GNP as a welfare criterion, Bentham’s criterion, A cardinalist criterion. The Pareto optimality criterion. The KaldorHicks Compensation criterion. The Bergson criterion ‘social welfare function’. Maximization of social welfare. Determination of the welfare maximizing output mix, Commodity distribution and Resource Allocation. Welfare Maximization and Perfect Competition. Recommended Books: 1. Bilas, Richard A, Microeconomic Theory*. McGraw-Hill Kogakusha,Ltd, (2nd Edition). 2. Koutsoyiannis, A., Modern Microeconomics*, London, Macmillan, (Latest Edition. 3. Pindyck, Robert. S, Daniel L. Rubinfeld and Prem L.Mehta, Microeconomics*. Pearson Education Inc, (Sixth Edition). 4. Henderson, J.M & Quandt, R.E., Microeconomic Theory*. N.Y Macmillan II A Book Co. 5. Varian Hal R., Micro Economics Analysis*, Norton & Company, New York, 1992. 6. Ferguson, C.E & Gould, J.P, Microeconomic Theory. Macmillan, (Latest Edition). 7. Layard and Walter A.A., Micro Economics, McGraw Hills, (Latest Edition). 8. Walter Nicholson, Microeconomic Theory: Basic Principles and Extensions (6th edition) Additional Readings: 1. Baumol, W)., Economic Theory and Operations Analysis, Prentice Hall (Last Edition). 2. Hirshleifer Jack, Price Theory and Applications*, Prentice Hall (Latest Edition). 3. Kameischon: D.T. R., Readings in Microeconomics, Nevi York, The world publishing co (last Edition). 4. Stiglor, GT., The Theory of price, N.Y Macmillan, London. (Last Edition). 5. Silberberg E., The Structure of Economics, A Mathematical Analysis, McGraw Hill, (Latest edition). 6. Dwivedi, D.N. Microeconomics theory and applications. Pearson Education Inc, (Second Edition). 7. Salvatore, Dominick, Micro Economic Theory*, McGraw Hills, (Latest Edition). (*Strongly Recommended). NOTE: Assignment No. 1 will be formulated from Part A and Assignment No. 2 will be based on Part B. BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN DEPARTMENT OF ECONOMICS Note: Attempt all questions. Answers should be brief and relevant. MICRO ECONOMIC THEORY: ASSIGNMENT NO: 1 Q1: What is price consumption curve (PCC)? Can you prepare a demand schedule on this basis of data provided by the PCC? Illustrate the derivation of demand curve for a normal good and a Giffen good. Q2: How will you distinguish between production with one variable input and production with two variable inputs? Does the difference between the two techniques of production make any difference in the laws of production? Q3: A consumer’s preferences are given in the form of following direct utility function: U ( x1 , x2 ) x1a x12a Drive the Indirect Utility function and prove Roy’s Identity. Compare the results. Q4: What is meant by the ‘envelope curve? Show graphically the derivation of the long run average cost curve (LAC). How can you find the minimum LAC? Q5: How are the revenue and cost curves under monopoly different from those under perfect competition? How are AR and MR curves related to one another? BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN DEPARTMENT OF ECONOMICS Note: Attempt all questions. Answers should be brief and relevant. MICRO ECONOMIC THEORY: ASSIGNMENT NO: 2 Q1: Show graphically long run supply a curve of an industry is drawn under perfect competition? Also illustrate graphically the derivation of the long run supply curve of a firm under perfect competition. Q2: Why does price leadership sometimes evolve in oligopolistic markets? Explain how the price leader determines a profit maximization price. Q3: Monopolistic competition is the middle ground between perfect competition and monopoly. Explain this statement. Q4: What is MRP? What roles does it play in the derivation of demand curve for a factor or production? Q5: What is marginal rates of transformation (MRT)? Explain why the MRT of one good for another is equal to the ratio of the marginal costs of producing the two goods. Paper II: MACROECONOMIC THEORY COURSE INSTRUCTOR: Muhammad Zahir Faridi Part A Topic: 1 Introduction to Macro Economics and National Income The development of Macro Economics. Introduction, main objectives, scope and subject matter of Macroeconomics. Circular flow of national income, national income aggregates, measurement of GNP, expenditure approach, income approach, product approach, GNP as a measure of welfare. Outlays and components of demand, some important identities, rules for computing GDP, real GDP VS nominal GDP, actual GDP VS potential GDP, prices indices. GDP deflator, CPI, PPI, Measuring job lessness. The unemployment rate, unemployment, GDP, and Okun’s Law. Inflation and Inflation rate, GDP growth rate. Topic: 2 Classical Theory of Output and Employment a) The classical revolution, production function and employment, demand for and supply of labor, labor market equilibrium, the determinants of output and employment, derivation of classical aggregate supply curve. b) What is money? Functions of money and types of money, how quantity of money is measured? The quantity theory of money, the money demand function and the quantity equation, relationship between money, prices and inflation, Seigniorage, real vs nominal interest rates, the fisher effect. The classical aggregate demand curve. The classical theory of the interest rate. Say’s Law of markets, pricing implications of the classical equilibrium model. Topic: 3 Keynesian Theory of Income and Output Determination a) Simple Keynesian model, conditions for equilibrium output. The components of aggregate demand. Consumption function, saving function (relationship between APC, MPC, APS, MPS, investment function) Govt. expenditure and net exports, aggregate demand equals aggregate output. Theory of multiplier, derivation of simple multiplier, Govt. expenditure and tax multiplier, export and import multiplier, super multiplier, employment multiplier, balanced budget multiplier. Budget surplus and full employment. b) Money in the Keynesian system. Interest rate and aggregate demand, Keynesian theory of interest rate, Keynesian theory of demand for money. Regressive expectation model, portfolio balance approach. Topic: 4 Theory of Consumption and Their Implications Theories of Consumption: Duesenbury Hypothesis, Keynesian Consumption Function. Permanent Income Hypothesis / Life Cycle Hypothesis, Beyond Permanent Income Hypothesis, Kuznet's findings and Reconciliation of Marginal Propensity to Consume and Average Propensity to Consume and Evidences. Mathematical derivation of Consumption Models. The MPS Model, Wealth effect in the Static Model. Implications of Consumption Theories for Policy Formulation and Stabilization Policy. Random Walk Model. Topic: 5 Theory of Investment Investment VS capital, kinds of investment, determinants of investment MEC VS MEI Present value criterion for investment, Internal Rate of Return Criterion, Neo classical model of fixed business investment. Taxes and investment, Tobin’s q theory, Residential investment model, Acceleration Principle, Rigid and Flexible Accelerator, Inventory Investment Model. Part B Topic: 6 IS – LM frame work IS curve, it derivation, shape of IS curve, factors affecting the slope and position of IS curve (Mathematical version) LM curve, its derivation, factors affecting the slope and position of LM curve. Policy effects in the IS-LM model. Monetary and fiscal policy multipliers in the IS-LM curve model. Topic: 7 Aggregate Demand and Aggregate Supply Analysis Keynesian aggregate demand curve, its derivation, factors determining its slope and position. The aggregate demand schedule combined with the classical theory of aggregate supply. The Keynesian contractual view of labor market – a flexible price – fixed money wage model, comparison of classical and Keynesian theories of labor supply. The Keynesian aggregate supply curve with variable money wage. Policy effects in the variable–wage Keynesian model. The effects of shifts in the aggregate supply schedule, factors that shift the aggregate supply schedule. Aggregate supply models. The sticky wage model, the imperfect information model, the sticky – price model, The Worker Misperception Model. Topic: 8 Inflation The concept of inflation, Demand pull and Cost push inflation, hyperinflation, social cost of inflation, theory of stagflation, The Relation of Wages Changes to Unemployment. The Philips curve – the theoretical basis for the Philips curve. Unemployment and price expectations. The long-run Philips curve. Deriving the Philips curve from the aggregate supply curve. Adaptive expectations and inflation inertia, The Natural Rate Theory, Monetarist View of the Philips Curve, Keynesian view of the Philips curve. Topic: 9 Government Debt and Budget Deficits The size of Government Debt, Measurement Problem: Inflation, Capital Assets, Business Cycle etc, Ricardian view or Debt: Ricardian Equivalence, Consumers and Future Taxes. Tax shooting, Delayed Stabilization, Ricardo and Ricardian Equivalence and Debate. Model or Debt Crises. Topic: 10 Economic Fluctuations, Long-Term Growth and Full Employment a) The theory of real business cycles, interpretation, labor market, technology shocks, household behavior, the persistence of output fluctuation, limitations of the models Samualson’s multiplier – accelerator interaction theory of trade cycles, Kaldor’s model of the business cycle. Hicks’s theory of business cycle, AD-AS theories of output functions. b) Basic neoclassical growth model/Solow growth model – the accumulation of capital, determination of steady state equilibrium in the long-run, how savings affects growth, the golden rule level of capital, how population affects the steady state level, technological progress in the Solow model, policies to promote growth endogenous growth theory. Recommended Books: 1. Branson, William H., (1979), Macroeconomic Theory and Policy, Harper and Row Publishers, New York / London. 2. Branson, William H., and Litvack James M., Macroeconomics*, (Latest Edition),' Princeton University. 3. Glahe, Fred R., (Latest Edition), Macroeconomics, Theory and Policy, Harcourt Brace Jovanovich Inc. 4. Mankiw, Gregory N., (2000) Macroeconomics*, Worth Publishers, New York. 5. Peel D. and Minfow P., (2002). Advance Macroeconomics, Edward Elgar, Cheltenham, U.K. 6. Romer, David, (200I). Advanced Macroeconomics*, McGraw Hills, New York, London. 7. Sargent, Thomas J., (19XX) Rational Expectations and Inflation*, Harper and Raw Publishers, New York / London. * Strongly Recommended Additional Reading Material / Research Papers: 1. Ball, Laurence, Mankiw, N. Gregory, and Romer, David 1988. “The New Keynesian Economics and the Output – Inflation Trade off”. Brookings Papers on Economic Activity. No. 1, 1 -6, Reprinted in Mankiw and Romer (1991) 2. Barro, Robert J 1976. “Rational Expectations and the Role of Monetary Policy”. Journal of Monetary Economics 2 (January): 1 – 32 3. Barro, Robert J. 1989. “Interest – Rate Targeting” Journal of Monetary Economics 23 (January): 3-30 4. Rosalind Leveic arid Alexander Reborens, Macro-economics: An Introduction to Keynesian Neo-Classical Controversies; Macmillan (Latest edition), 5. Barro, Robert, J " and Gordon, David B, 1983b. '"Rules, Discretion and Reputation in a Model of Monetary Policy," Journal of Monetary' Economics 12 (July): 101-121. Reprinted in Persson and Tabellini (1994). 6. Bernheim, B. Douglas. 1987, "Ricardian Equivalence: An Evaluation of Theory and Evidence." NBER Macroeconomics Annual 2: 263 – 304 7. Blanchard, Olivier J. 1984. "The Lucas Critique and the Volcker Deflation." American Economic Review' 74 (May): 211-215. 8. Denison, Edward F. 1985. Trends in American Economic Growth. /lJ2lJ-1IJ82. Washing/oil: The Brookings Institution. . 9. Fischer, Stanley. 1993. "The Role of Macroeconomic Factors in Growth." Journal Of Monetary Economics 32 (December): 485-512. 10. Friedman, Milton, 1968. 'The 13--ole of Monetary Policy". American Economic Review 58 (March): 1-17. 11. Genberg, Hans 1978. "Purchasing Power Parity under Fixed and Flexible Exchange Rates."- - (Journal of international Economics 8 (May): 247-276. 12. Long, John B., and Plosser, Charles I. 1983. "Real Business Cycles." Journal of Political Economy 91 (February): 39-69. 13. Mankiv, G., N. (1990), A quick Refresher Course in Macroeconomics, Journal of Economic Literature , Vol. XXVIII, 1645-60. . 14. Romer, Christina D. 1999. "Changes in Business Cycles: Journal of Economic Perspectives 13 (spring): 23-44. 15. Romer, Paul M. I.990, "Endogenous Technological Change." 1998 (October, Part 2): S71-S 102. NOTE: Assignment No. 1 will be formulated from Part A and Assignment No. 2 will be based on Part B. BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN DEPARTMENT OF ECONOMICS Note: Attempt all questions. Answers should be brief and relevant. MACRO ECONOMICS: ASSIGNMENT NO: 1 Q1. Define the terms personal income and personal disposable income. Conceptually, how do these income measures differ from national income? Of what usefulness are these measures? Q2. Three price indices were considered in this chapter: the GDP deflator, the consumer price index, and the producer price index. Explain the differences among these different measures of the price level. Q3. What are the major policy conclusions of classical economics? Explain how these policy conclusions follow from the key assumptions of the classical theoretical system. Q4. Suppose that for a particular economy and period, investment was equal to 100, government expenditure was equal to 75, net taxes were fixed at 100, and consumption (c) was given by the consumption function. C = 25 + 0.8 YD Where YD is disposable income and Y is GDP. a. What is the level of equilibrium income (Y)? b. What is the value of the government expenditure multiplier ( Y / G )? Of the tax multiplier ( Y / T )? Q5. Explain the permanent income hypothesis of consumer behavior. Compare the permanent income hypothesis with the life cycle hypothesis of consumption. BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN DEPARTMENT OF ECONOMICS Note: Attempt all questions. Answers should be brief and relevant. MACRO ECONOMICS: ASSIGNMENT NO: 2 Q1. Explain the Keynesian theory of interest-rate determination. What differences do you see between this theory and the classical theory of the interest rate? Q2. Explain the relationship between the effectiveness of monetary policy and the interest elasticity of money demand. Will monetary policy be more or less effective the higher the interest elasticity of money demand? Explain. Now explain the relationship between fiscal policy and the interest elasticity of money demand. Why do the two relationships differ? Q3. Within the variable price – variable wage version of the Keynesian model, analyze the effects that an unfavorable supply shock, such as a rise in the price of oil, would have on the rate of interest. Would the equilibrium rate of interest rise or fall? Q4. Explain the concept of the Phillips curve. Is there any difference between monetarist and Keynesian views of the Phillips curve? Q5. Explain why, in a model with endogenous technological change, a rise in the saving rate may lead to a permanent rise in the long run growth rate in output. Paper 3: MATHEMATICAL ECONOMICS PART A Topic: 1 The Nature of Mathematical Economics Ingredients of mathematical models. Derivations: Equation of a straight line and its forms: Two points, intercept, point slope and slope intercept. Types of functions: constant, polynomial, rational, non-algebraic. Relationships and functions. Indices & their rules. Functions of more than two independent variables. Logarithms & the rules of logarithms. Topic: 2 Equilibrium Analysis in Economics A linear partial equilibrium market model. The effect of an excise tax in a competitive market. Non linear market model General Market Equilibrium. Equilibrium in a linear. National Income Model Topic: 3 Linear Models and Matrix Algebra Theory of matrix multiplication. Laws of matrix operations. Types of matrices: Square, identity, null, idempotent, diagonal, transpose and their properties. Conditions for non singularity of a matrix. Minors and cofactors. Determinant & its properties. Solution of linear equations through Gaussian method, Cramer's rule and Inverse of a matrix method. Properties of inverse of a matrix. Use of matrix approach in market & national income models. Topic: 4 Input–Output Analysis Input-output model, its structure and its derivation. The use of input output model in Economics. Topic: 5 Differentiation Rules of differentiation. Differentiation of a function .of one variable. Sum, difference, product, quotient, chain, power, inverse, logarithmic & exponential. Functions, Combinations of rules. Higher order derivatives. Economic applications of derivative. Concept of maxima & minima, elasticity and point of inflection. Profit & Revenue maximization under perfect competition, under monopoly. Maximizing. excise tax revenue in monopolistic competitive market, Minimization of cost etc. PART B Topic: 6 Partial & Total Differentiation Partial differentiation & its rules. Higher order & cross partial derivatives (Young's theorem). Total differential & total derivatives. Implicit functions rule of differentiation. Optimizing cubic functions & their economic application. Topic: 7 Economic Applications of Partial & Total Differentiation Comparative static analysis: a linear Partial equilibrium market model, a linear National Income model. Partial Elasticities. Production functions Analysis. Maximization & Minimization of unconstrained functions & their economic. applications: Profit maximization by a multi-product firm under perfect Competition & monopoly, Price discrimination, Multi-plant monopoly, .input decisions etc. Topic: 8 Optimization: Constrained & Extrema Free and constrained optimization, extrema of a function of two variables: graphical analysis, Lagrange method. Utility maximization & Cost minimization. Homogenous Production function, Cobb Douglas Production function. Jaccobian determinants. CES Production Function. Translog Function. Topic: 9 Linear Programming Ingredients of linear Programming. Graphical approach, simplex method, economic application of linear programming. Concept of primal & dual. Duality theorems. Solving of Primal via dual. Economic interpretation of a dual. Recommended books: 1. Chiang, A.C., Fundamental Methods of Mathematical Economics, McGraw Hills, (Latest Edition). 2. Baumol W. L., Economic Dynamics, Macmillan, (Latest edition). 3. Budnick, Frank, Applied Mathematics for Business, Economics and Social Sciences. 4. Dowling E. T., Mathematics for economists, Schum Series (latest edition). 5. Weber E. Jean, Mathematical Analysis, Business and Economic Applications (Latest Edition) I-Harper and Row Publishers, New York. NOTE: Assignment No. 1 will be formulated from Part A and Assignment No. 2 will be based on Part B. DEPARTMENT OF ECONOMICS BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN ASSIGNMENT NO.1 M.A. ECONOMICS, PART-I, MATHEMATICAL ECONOMICS, PAPER - 4, INSTRUCTOR: DR. IMRAN SHARIF CHAUDHRY Q1:(a) Explain the different types of function and give examples from economics. (b)If A = {2, 3, 4, 5}, B = {3, 5, 7}, C = {1, 2, 3, 4, 5, 6} verify the distributive laws. Marks:10+10 Q2:(a) Differentiate between partial and general market equilibrium. Also construct the twocommodity model to find out equilibrium level of prices. (b) If the national income model is as: Y = C + I° + G° C = a + b (Y – T) T = d + ty (i) List out parametric, their sign and economic meaning (ii) Identify the exogenous variables (iii) Find the equilibrium level of national income Marks:10+10 Q3:(a) Write out the advantages and disadvantages of matrix algebra (b) State and prove the properties of transpose of a matrix (c) If A = I – X (XX)-1X, then verify that A is an idempotent matrix Marks:10+10 Q4:(a) State and prove the first prove properties of determinant by using the following matrix 2 3 1 A= 0 5 6 3 1 1 (b) If input matrix and final demand vector 0.2 0.3 0.2 A = 0.4 0.1 0.2 0.1 0.3 0.2 (i) (ii) (iii) Q5: d= 10 5 6 Explain the economic meanings of 0.4 and 6 Explain the economic meanings of third column sum Find the solution output levels of three industries Write short note of the following:(i) (ii) (iii) (iv) (v) Input – output model Rank of a matrix Derivation of quadratic formula Theorems of polynomial equation Mathematical and non-mathematical economics Marks:10+10 Marks:04+04+04+04+04 DEPARTMENT OF ECONOMICS BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN ASSIGNMENT NO.2 M.A. ECONOMICS, PART-I, MATHEMATICAL ECONOMICS, PAPER - 4, INSTRUCTOR: DR. IMRAN SHARIF CHAUDHRY Q1:(a) Analyze the comparative static with its limitation and compare with static analysis. (b) State the limit theorems involving a single and two functions. Why is this concept of limit important in Economics? Marks:10+10 Q2:(a) Write out different rules of differentiation with numerical examples. (b) Explain the economic uses of derivative with examples. (c) The total money supply has two components: bank deposits D and Cash holding C, which we assume to bear a constant ratio C/D = c, 0<c<1. The high-powered money H is defined as the sum of cash holding held by the public and the reserved held by the banks. Bank reserve are a function of bank deposits, determined by the reserve ratio r, 0<r<1. (i) Express the money supply M as a function of high-powered money H. (ii) Would an increase in the reserve ratio r raise or lower the money supply? (iv) How would an increase in the cash-deposit ratio c affect the money supply? Marks:05+09+06 Q3:(a) Construct the partial market equilibrium and find out equilibrium price and quantity. Also, examine the comparative-static properties of this equilibrium quantity and check your results by graphical analysis. (b) A monopolist is facing the following demand function:Q1 = 21 – 0.1P1, Q2 = 50 – 0.4 P2 where Q = Q1 + Q2 and its cost C = 2000 + 10Q1 + 10Q2 Find the profit maximizing level of output and prices. Marks:10+10 Q4:(a) Explain the economic applications of exponential and logarithmic derivatives. (b) Define the following concepts:(i) Concave function (ii) Convex function (iii) Quasiconcavity (iv) Quasiconvexity (c) Define the homogeneous function and determine whether the following functions are homogenous, If so, of what degree? (i) Q = X3 – XY2 + 3Y3 + X2Y (ii) Q = XY2 + 2XW W Also determine return to scale of each of the following production function. Marks:06+08+06 Q5: Write short note of the following:Marks:05+05+05+05 (i) (ii) (iii) (iv) Economic interpretation of ‘e’ Optimization of multivariable functions in economics Interpretation of the Lagrange multiplier Taylor’s series of expansion Paper 4: STATISTICS FOR ECONOMISTS PART A Topic: 1 Introduction Descriptive and inferential statistics; Variable and constant, population and sample, parameter and statistic; The four basic activities in statistics: Designing a plan for data collection, Exploring the data, Estimating an unknown quantity, Hypothesis testing; Type of measurement scales: Nominal, Ordinal, Interval and Ratio; Types of data: Univariate, Bivariate and Multivariate data, Primary and secondary data, Quantitative data and qualitative data, Time series, Cross-sectional and pooled data; Significant digits and rounding off numbers; Errors: Biased and unbiased. Topic: 2 Presentation of Data and Measures of Central Tendency Introduction; Classification; Tabulating numerical data: The frequency distribution, The cumulative frequency distribution, The relative frequency' distribution, The percentage frequency distribution; Graphic and diagrammatic representation: Bar chart, Pi chart, Histograms, Frequency curves and Histograms;' Histograms by Hand: Stem-and-Leaf. Measure of central tendency; Introduction; Types of Averages: Mean: Arithmetic mean, Geometric mean, Harmonic mean, Trimmed mean and Winsorized mean; Quintiles: Median, Quartiles, Deciles, Percentiles; The mode; Box plot and detailed box plot; Empirical relation between Mean, Median and Mode; The cumulative distribution function: Finding the percentile ranking for a given number, Finding the percentile for a given percentage; Summary measures and type of data. Topic: 3 Measures of Dispersion, Shewness and Kurtosis Absolute and relative measure of dispersion; Different measures of dispersion: The Range, Quartile deviation, Mean deviation, Variance and standard deviation: Definition and interpretation of variance and standard deviation, Computation of Variance .and standard deviation, Step deviation method or coding method, Coefficient of variation, Standardized variable, Properties of standard deviation and variance; Skewness: Karl Pearson's coefficient of skewness, Bowley's coefficient of skewness; Kurtosis. Topic: 4 Probability and Probability Distribution A survey of probability concepts: Classical probability, Empirical concept, Subjective probability; some rules of probability: Rules of addition, Rules of multiplication; Tree diagrams; Conditional' Probability, Bayes Theorem; Counting rules: The multiplication formula, The permutation formula, The combination formula. Discrete probability distribution, Random variables, Discrete random variable" Continuous random variable; The mean, variance and standard deviation of a probability distribution; Binomial probability distribution, and its computation, Cumulative probability distributions, Properties of Binomial probability distribution. The normal probability distributions: Properties of normal distribution, Applications of the standard normal distribution, Areas under the normal curve, Finding areas under the normal curve; The normal approximation to the binominal; Continuity correction factor. Topic: 5 Survey Sampling and Sampling Distributions. Sampling the population, Advantages of sampling, Representative samples, Sample. design and sample survey, Sampling frame, Probability and nonprobability sampling, Sampling with and without replacement, Sampling .and non-sampling error, sampling bias; Probability sampling and non-probability sampling methods; Sampling distribution of the mean; The central limit theorem; Sampling distribution of differences between means; Sampling distribution of sample proportion; Sampling distribution of differences between proportions. Topic: 6 Estimation and confidence Intervals Point estimates and confidence intervals; Estimation by confidence interval: Confidence interval estimate of a population mean (Known Variance), Confidence interval estimate of a population mean (Unknown Variance) Confidence interval for differences of means, Confidence interval for differences of means; Confidence interval for population proportion, Confidence interval for differences between proportions; One sided confidence interval; Sample size for estimating population mean. PART B Topic: 7 Hypothesis Testing One sample test of hypothesis; One Sample; One tail and two tails tests of Significance; Testing for a population mean with a known population standard deviation: Two-tailed test, one-tailed test; P-Value in hypothesis testing; Testing for a population mean: Large sample, Population standard deviation unknown; Testing hypotheses about population proportion when sample size is large; Type II error. Testing of two Sample Hypothesis: Population means, Population proportions; comparing populations with small samples. Topic: 8 Chi Square Application Introduction; .Goodness-of-fit test: Equal expected frequencies; Goodness-of-tit lest: Unequal. expected frequencies; Limitations of Chi square; Using the goodness-'of-fit test to test for normality; Contingency Table Analysis. Topic: 9 Analysis of Variance Introduction, The F-distribution; Comparing two population variances; ANOVA assumptions; ANOVA test; Inferences about pairs of treatment means; Two-way analysis of variance. Topic: 10 Simple Linear Regression and Correlation Analysis Scatter diagram; Standard methods for obtaining regression line: (i) Inspection, (ii) .Semi average, (iii) Least squares principle; Assumptions underlying linear regression; Measures of variations: Standard error of the estimate, Coefficient of determination; Prediction in Regression Analysis; Interpolation verses extrapolation; Correlation analysis; Scatter diagram; The coefficient of correlation: Properties/characteristics of coefficient of correlation, Correlation and causation; The relationship among the correlation coefficient, the coefficient of determination and the standard error of estimate; Inference about the slope and correlation coefficient; t-test t for the slope, F- test for the slope, t-test for correlation coefficient; Estimation of the mean values and predication of individual values; Confidence interval and predication interval estimate; Rank correlation. Topic: 11 Multiple Linear Regression and Correlation Analysis Multiple Linear regression model, Interpretation of partial regression coefficients; Estimation of multiple linear regression model with two explanatory variables by using Least squares principle, Matrix approach, Deviation form; Pitfalls and problems in multiple regression:. Multicollinearity, Variable selection, Model misspecification; Multiple standard error of estimate; Coefficient of multiple determination (adjusted and unadjusted); Evaluating the' regression equation: Using a scatter diagram, Correlation matrix, Global test, Individual variable significance test, Qualitative independent variables; Multiple regressions in terms of linear correlation coefficients; Multiple correlation and partial correlation; Nonlinear regression models; Dealing with nonlinear relationship and unequal variability. Topic: 12 Applied Statistics Index Numbers, Un-weighted index numbers; Simple aggregative index; Weighted indexes; Laspeyre's price index, Paaseche's price index; MarshalEdgeworth price index; Fisher’s ideal index; Consumer Price Index (CPI), Producer Price Index (PPI), CPI versus GDP Deflator; Issues in constructing and using index numbers; Application of index numbers to business and economics. An overview of time series analysis; Component Factors of the classical multiplication time series model and their estimation: Secular trend; Cyclical variation, Seasonal variation, Irregular variation; Smoothing the annual time series and using it in forecasting: Moving averages, Weighted moving averages, Exponential smoothing; Using trend and seasonal component in forecasting; Time series and forecasting; The multiplicative model, Calculating the seasonal indexes; Deseasonalization the time series, Using deseasonalized time series to identify trend, Seasonal adjustments, Model based on monthly data, Cyclical component; Modeling cyclic behavior using box-Jenkins ARIMA processes; Using regression analysis in forecasting; Qualitative approach to forecasting: Delphi method,. Expert judgment, Scenario writing, Intuitive approaches; Choosing an appropriate forecasting model; Some observations on time series analysis. Recommended Text books: I. Lind, Douglas A., Marshal, William G. and Mason, Robert D., Statistical Techniques in Business and Economics (11th edition). Boston: McGraw Hill, 2003. 2. Chaudhry, Sher Mohammad and Kamal, Shahid, Introduction to Statistical Theory (7th edition). Lahore: lImi Kitab Khana, 2002. 3. J. Siegel, .Andrew F., Practical Business Statistics (5th edition). Boston: McGraw Hill, 2003. 4. New bold, Paul, Carlson, William L. and Thorne, Betty M, Statistics for Business and Economics (5th edition), New Jersey: Prentice Hall, 20m. . 5. Keller, Gerald and Warrack, Brian, Statistics for Management and Economics (5th edition). Boston: Duxbury Thomson Learning, 2000. Additional Readings 1. Bereson Mark L., Levine, David M. and Krehbiel, Timothy c., Basic Business Statistics: Concepts and Applications (91h edition). New Jersey: Prentice Hall, 2004. 2. Barron, Michael M., Statistics for Economics Accounting and Business Studies (Latest Edition), New York, Prentice Hall. 3. Carlson, William L. and Thorne, Belly, Applied Statistical Methods for Economics and Social Sciences (Latest edition). New Jersey: Prentice Hall. 4. Moore, David S, The Basic Practice of Statistics' (2nd edition). New York: frceman,2000 NOTE: Assignment No. 1 will be formulated from Part A and Assignment No. 2 will be based on Part B. DEPARTMENT OF ECONOMICS BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN M.A ECONOMICS PART-I Paper VI: Major Issues in Pakistan’s Economy COURSE INSTRUCTOR: Shahzad Hussain PART A Topic: 1 Overview of Pakistan Economy Development Experience, Approaches, Policies and Outcomes. Identification of Issues: The era of 1950's, 1960's, 1970's, 1980's 1990's and 2000's. Structural Change and Sources of Growth. Emergence of Economic Issues, Human Resource Development, Unemployment, Poverty, Income Distribution, Debt, Deficit etc. Growth with limited development in Pakistan. Topic: 2 Development Planning and Resource Mobilization Agricultural Development Policies and Priorities, Major Targets of Development Plans and Emerging Issues; Neglects and Successes: Mobilization of Domestic Resources; Shortages, Deficits and Role of Foreign Aid. Agricultural Vs. Industrial Development Debate. Agricultural Adequacy. Topic: 3 Agriculture and Industrial Development: Emerging Issues Pattern of' Agricultural and Industrial Development, Land Reforms and Its Impacts, the Role of Green Revolution and its Impacts: Present Status.' Agricultural Price Policy and Income Tax. Sectoral Terms of Trade. Industrial Development Policies and Strategies. Development of Large and Small Industries. Value Added: Manufacturing Goods Vs. Primary Goods, Production. Agriculture Vs. Industry: Development Debate. Topic: 4 Sectoral Development, Employment Patterns and Unemployment Sectoral Priorities and Development Issues. Human Resource Development and Emerging Issues: Population Growth, Labor Force Participation Rate and Employment Pattern, Unemployment and Underemployment, Forecasting Manpower Needs and Employment. Strategies to combat unemployment. . Criteria to Measure. Unemployment/Underemployment: Time Criterion, Productivity Criterion and New Index of Unemployment: Application to Pakistan and Empirical Evidences. Good Governance, Social Action Plan and its Impact. Role of Institution in Development. Social Sectors development Vs. High Return Sectors: Growth trade off. PART B Topic: 5 International Debt and Dependency Concepts of Foreign Aid and Debt. Borrowing Vs. Domestic Reserve Mobilization (failure). Size of Foreign Debt, Debt Servicing and its Impacts. Strategies to combat with High Debt Servicing Policy, Foreign Trade. Promotion, Cutting nondevelopment Expenditures, Rescheduling and its Impacts. Debt Management in Pakistan and Its Impacts. Debt Modeling and Future Implications. Topic: 6 Poverty and Income Distribution Pattern of Income Distribution: Rural and Urban. Definitions and Approaches to Measure Poverty: Income Approach, Expenditure Approach, Basic Needs Approach, Poverty of Participatory Index (POPI).' How to Combat .Poverty; Growth Strategy, basic Needs, Labor Intensive Investment: Education / Training etc. and Social Action Plan (SAP) , its Role and Critical Review, Evasion of Policies / Strategies to Combat Poverty and improving Income Distribution: Critical Evaluation. Neglect of Human Resource Development, Child Labor. Factors Productivity Issues. Topic: 7 Inflation, Foreign Trade Deficit and Emerging Issues Sources of Inflation in Pakistan. Policies to Combat Inflation and their Impacts. Trade performance, Instability and its Impacts. Policies to Combat Deficit and Trade Instability, WTO and Its Impacts. Reforms and Further Needs. Expected Impacts of WTO and Challenges. Terms of Trade Issues, Market Access and Health Related Rates. Recommended Books: 1. Aslam M., Perspective on Development Planning In Pakistan, Allied Book Centre; Lahore, 2001-2002. 2. Chaudhary M. Aslarn and Ahmad Eatzaz: Globalization, WTO and Trade Liberalization in Pakistan, FerozSons, Lahore (2004). 3. Chaudhary M. Aslam, Human Resource Development and Management in Pakistan, Ferozsons, Lahore (1989). 4. Ishrat Hussain, Pakistan: The Economy at the Gross Roads - Past Policies and Present Imperatives, Oxford Univ. Press, Karachi, 1988. 5. Khan, Shahrukh R., 50 Years of Pakistan's Economy - Traditional Topics and Contemporary Concerns. Oxford Univ. Press, Karachi (2000). 6. Mahbool-ul-Haq Centre for' Human Development (MHCHD), Poverty Profile of Pakistan, (1989) Oxford University Press. 7. Human Development In South Asia, Annual Report. 8. Saeed, Khawaja Amjad, The Economy of Pakistan, Karachi: Oxford University Press,2004 9. Zaidi, Akbar, (1999), Issues in Pakistan Economy, Oxford .Univ. Press, Karachi. 10. World Development Reports, World Bank. NOTE: Assignment No. 1 will be formulated from Part A and Assignment No. 2 will be based on Part B. BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN DEPARTMENT OF ECONOMICS Major Issues in Pakistan’s Economy ASSIGNMENT NO: 1 Note: Attempt all questions. Answers should be brief and relevant. Q1: Explain the decade-wise development experience of Pakistan. Also highlight important economic issues. Q2: a) b) Q3: a) b) Critically assess the agricultural development policies of Pakistan adopted by different governments. Discuss the role of foreign aid in development process of Pakistan. How did green revolution affect the economy of Pakistan? Critically evaluate the industrial development policies of Pakistan and also suggest some policy measures for industrial development in Pakistan. Q4: Describe the unemployment situation in Pakistan. Also suggest remedial measures to reduce unemployment. Q5: Discuss the development of social sectors in Pakistan. How these sectors can play their role in development process? BAHAUDDIN ZAKARIYA UNIVERSITY, MULTAN DEPARTMENT OF ECONOMICS Major Issues in Pakistan’s Economy ASSIGNMENT NO: 2 Note: Attempt all questions. Answers should be brief and relevant. Q1: Why does Pakistan’s economy rely on foreign aid and debt? How the economy can get rid of high debt? Q2: Discuss the causes of poverty in Pakistan. How poverty can be reduced in a developing country like Pakistan? Q3: What are the causes of inflation in Pakistan? Also discuss policies to combat inflation problem. Q4: Evaluate the trade performance of Pakistan. What are effects of WTO policies on trade pattern of Pakistan? Q5: Explain income distribution pattern in Pakistan. Suggest some policies to reduce income inequalities. Paper- : MANAGERIAL ECONOMICS Part-A: Topic: 1 Nature, Scope and Overview of Managerial Economics The Nature and Scope of Managerial Economics. The Managerial decision making process. Theory of the firm. Profit maxil~1ization, Cost Minimization Economic optimization: Economic relations of variables- The Incremental concept in Economic Analysis. Demand, Supply and Equilibrium. Topic: 2 Demand Analysis, Estimation and Forecasting The Basis for Demand. The Market Demand function. Demand sensitivity analysis: Elasticity, Price Elasticity of Demand with Managerial applications. Income Elasticity of Demand with Managerial. Applications. Application of Regression Analysis: Demand estimation. Demand forecasting. Topic: 3 Product and Cost Analysis Production functions. Total, Marginal and Average Product. Revenue and Cost in Production. Production function estimation. Productivity Measurement. Homogenous and Homothetic Production Function. Short run and long run. Cost curves. Learning curves and application. Cost-value-profit analysis. Cost estimation: Topic: 4 Linear Programming Production planning for .a single product Production planning for a multiple products" Graphic specification and solution. Simplex method of solution. The dual in linear programming. Shadow prices in linear programming. Topic: 5 Decision Making Under Risk and Uncertainty Introduction. Risk Analysis of Decision Alternatives. Adjustment for Risk in Decision Making. The Expected Value Criterion. The Standard Deviation Criterion. The Coefficient of Variation Criterion. The Certainty Equivalent Criterion. The Maxima and Maximax Criterion. The Decision Tree and Joint Probabilities. Optimal decision Strategy. Limit Pricing and preventing entry. Part-B: Topic: 6 Pricing Analysis and Decisions A Review of Market Structures and basic Pricing Models. Perfect Competition. Monopoly. Monopolistic Competition. Oligopoly. Selected Pricing Models. Marginalist Pricing. Mark up pricing. New Product Pricing. Oligopoly Model. Contestable Markets. Pricing Strategies for Firms and Market Power Monopolistic Competition. Price Discrimination, Monopsony and Price Product. Topic: 7 A Critique of Traditional Theory of Firm Full Cost Pricing Model. Mark-up Pricing Model. Problem fro Marginal Price- . Formula. Limit Pricing Models. Topic: 8 Managerial Theories and Models of the Firm Baumol's Theory of Sales Revenue Maximization. Marris's Model of Managerial Enterprise. Williamson's Model of Managerial Discretion Topics, Behavioral Model by Cyert and March. Topic: 9 Public Sector Productoin and Pricing of Goods Public and Private Goods and their pricing mechanism. Decreasing cost Industry and pricing. Externalities and Market Pricing issues. Rent seeking and control. Government Policy and International Trade, tariff and pricing. 'Import Competitiveness and tax, International pricing Techniques / Strategies. Topic: 10 Capital Budgeting and Investment Pre-requisites of Capital Budgeting. Investment Criteria and Decisions. . Cash flow estimation, Internal Rate of Return, Profitability-Index Criterion' and other criterion. Optimal Capital Budget. Suggested Readings: (Books): 1. Douglas, E. J., Managerial Economics, Prentice Hall, (1990). 2. Hirschey, M. Managerial Economics, (10th edition) U.S.A. Thomson South-Western, (2003) 3. Hirschey, M. and J.L. Pappas; Fundamentals of Managerial Economics, Dryden Press, (l99~).Kent P, aQd P Young., Managerial Economics: Economic Tools for Today's Decision Makers., (4th Edition) Pearson (2003). 4. Kcat, P., and P., Young, Managerial Economics; MacMillan, (1992). 5. Koutsoyiannis, A., Modern Microeconomics, MacMillan, (1979). 6. Mansfield .E., (1998), Managcral Economics, Theory, Application and Cases. W. W. Norlion & co. 7. Michael R., Baye, (2000), Managerial Economics and Business Strategy, McOraw Hills. 8. Pappas, James,' Brigham Eugene F and Hirschcy Mark., (latest edition), Managerial Economics, Dryden Press, Chicago. 9. Salvatore, D. Managerial Economics, McGraw Hill, (2001). 10. Thomas, Maurice.,' Managerial Economics: In a Global Economy (71h Edition) New York: McGraw Hills, (2002). Suggested Readings (Articles): 1. Goering, Gregory E. "Managerial Style and the Strategic Choice of Executive Incentives. “Managerial & Decision Economics 17th January/ February 1996, 71-82 2. Chevalier, Judith A., and Scharftein, David S. "Capital-market Imperfections and Countercyclical Markups: Theory and Evidence. “American Economic Review 86 (September; 1996): 703-725. 3. Kohoe, Michale R “Quality Uncertainty and Price in Monopoly Markets”. Journal of Industrial Economics 44 (March 1996) 25- 32 4. Swaney, James A. “Comparative Risk Analysis: Limitations and Opportunities”. Journal of economic Issues 30 (June 1996) 463 – 473 5. De Fraja, Gianni. “Entrepreneur or Manager: Who Runs the Rirm? “Journal of industrial economics 44 March 1996: 89-98