Economics (Arthashastra)

• Chanakya (4th century BC) was an Indian

teacher, philosopher, economist, jurist and royal
advisor.
• He is traditionally identified as Kauṭilya or
Vishnugupta.
• As such, he is considered the pioneer of the field
of political science and economics in India, and
his work is thought of as an important precursor
to classical economics.
• Two books are attributed to Chanakya:
 The Arthashastra discusses monetary and fiscal
policies, welfare, international relations, and war
strategies in detail.
 Chanakya Niti , also known as Chanakya Neeti-
shastra is a collection of aphorisms, said to be
selected by Chanakya from the various shastras.

L.R.B. Arts, Comm. & S.S.R.B. Sci. College, Arni

Today's Most Mischievous Misquotation

Every individual endeavors to employ his

capital so that its produce may be of greatest
value. He generally neither intends to
promote the public interest, nor knows how
much he is promoting it. He intends only his
own security, only his own gain. And he is in
this led by an invisible hand to promote an
end which was no part of his intention. By
pursuing his own interest he frequently
promotes that of society more effectually than
when he really intends to promote it.
The first page of The Wealth of
Nations, 1776 London edition

L.R.B. Arts, Comm. & S.S.R.B. Sci. College, Arni

Why become an Economist

• The absolute best reason to study economics is having an interest in

economics.
• Economics is a way of looking at problems, balancing unlimited wants with
limited resources. If that interests you, then you should study it.
• Career wise an Economics degree does currently offer a high degree of
employability in the field with a high remuneration for what is basically
educated guesswork.
• Outside of this it does promote and demonstrate strong analytical skills and
research ability alongside, by its nature, a strong awareness of current events
and their wider impact.
• And in a practical sense, I have noticed that potential employers do seem
impressed during interviews when you emphasise the particular field you
majored in at its end, as it tends to be slightly more esoteric than the rather
standard Social Science/Humanities objectives.
• Most professional economists I know chose the field because it’s a disciplined
approach to studying current events.

L.R.B. Arts, Comm. & S.S.R.B. Sci. College, Arni

Someday, If you are expert Economist…

L.R.B. Arts, Comm. & S.S.R.B. Sci. College, Arni

How to Become an Economist?

• Getting Qualified:
 Take math, statistics, and economics classes in high school.
 Get your bachelor's degree.
 Consider getting a master's degree.
 Look into getting your PhD.
• Starting Out in Your Career:
 Find a job at a consulting firm or a scientific and technical company.
 Consider teaching part-time.
 Work for the government.
 Be patient in your climb up the career ladder.
• Going on the Job:
 Hone your analytical skills.
 Stay current.
 Work on your social skills, too.
 Dive into your critical-thinking abilities.

L.R.B. Arts, Comm. & S.S.R.B. Sci. College, Arni

Mathematical economics

• Mathematical economics is the application of mathematical methods to

represent theories and analyze problems in economics.
• By convention, the applied methods refer to those beyond simple geometry,
such as differential and integral calculus, difference and differential
equations, matrix algebra, mathematical programming, and other
computational methods.
• An advantage claimed for the approach is its allowing formulation of
theoretical relationships with rigor, generality, and simplicity.
• Broad applications include:
 optimization problems as to goal equilibrium, whether of a household,
business firm, or policy maker
 static (or equilibrium) analysis in which the economic unit (such as a
household) or economic system (such as a market or the economy) is modeled
 comparative statics as to a change from one equilibrium to another induced
by a change in one or more factors
 dynamic analysis, tracing changes in an economic system over time

L.R.B. Arts, Comm. & S.S.R.B. Sci. College, Arni

Functional Relationships….

• In mathematics,
y = f (x) is read “y is a function of x.
• This relationship indicates that the value of y depends in a systematic way on
the value of x.
• The variable y is referred to as the dependent variable. The variable x is
referred to as the independent variable.

L.R.B. Arts, Comm. & S.S.R.B. Sci. College, Arni

Economic & Business Relationships

• Economic and business relationships may be represented in a variety of ways,

including tables, charts, graphs, and algebraic expressions.
• For example the following equation summarizes total revenue (TR) for a firm
operating in a perfectly competitive industry.
TR = f (Q) = PQ

• The total revenue (TR) in Figure illustrates the general class of mathematical
relationships called linear functions. A linear function may be written in the
general form y = f (x) = a + bx; where a and b are known constants. The value
a is called the intercept and the value b is called the slope.

L.R.B. Arts, Comm. & S.S.R.B. Sci. College, Arni

The slope of a linear function….

• In Equation, the parameter b is called the slope, which obtained by dividing

the change in the value of the dependent variable (the “rise”) by the change in
the value of the independent variable (the “run”) as we move between two
coordinate points. The value of the slope may be calculated by using the
equation

• In terms of our total revenue example, consider the quantity total revenue
combinations (Q1, TR1) = (1, 18) and (Q2, TR2) = (3, 54). In this case, a
measure of the slope is given by the expression

which, in this case, is the

price of the product.
L.R.B. Arts, Comm. & S.S.R.B. Sci. College, Arni
In Economic Optimization…
• Many problems in economics involve the determination of “optimal”
solutions. For example, a decision maker might wish to determine the level of
output that would result in maximum profit.
• The process of economic optimization essentially involve three steps:
1. Defining the goals and objectives of the firm
2. Identifying the firm’s constraints
3. Analyzing and evaluating all possible alternatives available to the decision
maker
• In essence, economic optimization involves maximizing or minimizing some
objective function, which may or may not be subject to one or more
constraints
The extreme values can be read
directly from
Figure, they also may be
determined directly from the
underlying p function.
Derivative of a function…
• Consider, again, the function
y = f (x)
• The first derivative of a function (dy/dx) is simply the slope of the function
when the interval along the horizontal axis (between x1 and x2) is made
infinitesimally small.
• Technically, the derivative is the limit of the ratio Dy/Dx as Dx approaches
zero, that is,

• Calculus offers a set of rules for using derivatives (slopes) for making
optimizing decisions such as minimizing cost (TC) or maximizing total profit
(p).
• Various rules of differentiation holds true in this scenario, like, Product rule,
Chain rule , Quotient rule etc.
Partial derivatives & Multivariate optimization
• Consider the following function:

• the first-order conditions for a maximum or a minimum are given by

• The second-order conditions for a maximum are given by

• Similarly, the second-order conditions for a minimum are given

Game theory
• John von Neumann, working on the theory of games, broke new
mathematical ground in 1944 by extending functional analytic methods
related to convex sets and topological fixed-point theory to economic analysis.
• Their work thereby avoided the traditional differential calculus, for which the
maximum–operator did not apply to non-differentiable functions.
• Continuing von Neumann's work in cooperative game theory influenced
economic research in politics and economics. For example, research on the
fair prices in cooperative games led to changed rules.
• John Nash used fixed–point theory to prove conditions under which the
bargaining problem and noncooperative games can generate a unique
equilibrium solution.
• In 1994, Nash, received the Nobel Memorial Prize in Economic Sciences their
work on non–cooperative games.
• Later work extended their results to computational methods of modeling.

L.R.B. Arts, Comm. & S.S.R.B. Sci. College, Arni

Agent-based computational economics
• Agent-based computational economics (ACE) as a named field is relatively
recent, dating from about the 1990s as to published work.
• It studies economic processes, including whole economies, as dynamic
systems of interacting agents over time.
• ACE models apply numerical methods of analysis to computer-based
simulations of complex dynamic problems for which more conventional
methods, such as theorem formulation, may not find ready use.
• Starting from specified initial conditions, the computational economic system
is modeled as evolving over time as its constituent agents repeatedly interact
with each other. In these respects, ACE has been characterized as a bottom-up
culture-dish approach to the study of the economy.
• The method is said to benefit from continuing improvements in modeling
techniques of computer science and increased computer capabilities.
• The ultimate scientific objective of the method has been described as
"test[ing] theoretical findings against real-world data in ways that permit
empirically supported theories .

L.R.B. Arts, Comm. & S.S.R.B. Sci. College, Arni

Creating foremost Assets…….

Relationship and Trust

This is the inspiration of our growth.

Preparation for accredition and LRB

theArts,
journey continues…..
Comm. & SSRB Sc. College,
17 of 40
Arni