Assignment 1

Is Keynesian Economics relevant in today era? Do you think the

Covid-19 pandemic will change the economic order of the world? Give
reasons in support of your answers.
Yes, I think that Keynesian economics do exist in today era. As Keynesian theory states that
government will help in meeting the demand of the people through their monetary and fiscal policies.
And in today’s situation, only government policies will help in reviving the economy. The demand
supply effect will not able to fix this situation automatically as there is no production which leads to
below average supply of goods and services.
In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the
economy; instead, it is influenced by a host of factors and sometimes behaves erratically, affecting
production, employment, and inflation.
Keynesian economists generally argue that as aggregate demand is volatile and unstable, a market
economy often experiences inefficient macroeconomic outcomes in the form of economic recessions
(when demand is low) and inflation (when demand is high), and that these can be mitigated by
economic policy responses, in particular, monetary policy actions by the central bank and fiscal policy
actions by the government, which can help stabilize output over the business cycle. Keynesian
economists generally advocate a managed market economy – predominantly private sector, but with
an active role for government intervention during recessions and depressions.
Covid-19 pandemic will change the economic order of the world
Yes, I think Covid-19 will change the economic order of the world. The Covid-19 pandemic affects
every aspect of human life from our health to the economic system. While the human race has known
widespread famine, war, and plague in the past, the sum of changes occasioned by Covid-19 is
unprecedented, because the impact has almost simultaneously reached all regions of the world. On the
economic front, COVID-19 has acted as an accelerant of major trends already in progress.
Not only India is facing this pandemic so economic order of the world will be affected. Due to the
reduction in GDP, all countries especially India is facing a hard challenge. So, in coming few months
there will be the possibility that all countries will reduce their tariffs, their export duties. This will
surely help all the countries to heal their loss. Although inflation will rise after this pandemic gets
over but If this does not happen then inflation will rise more rapidly and people will not able to afford
the goods and items in future. Productions will be slowed as their will be less demand as people may
not have enough money in hand. This can be dealt by helping each other. If all the countries will
reduce the duties then trade will be easier and there is an exchange of money between the countries.
Economic activity will begin and by time we will see a change in situation, a better one.
The present condition is entirely different than what was seen in the past because of the globalized
nature of the economy. National economies are more interlinked to other nation’s economies than
ever before. While impact on one nation’s economy can have resounding impact on other nations, the
impact of pandemic on each nation individually has had a manifold impact on the global economy at
large.
The role of government has also undergone a monumental change in this crisis. Governments around
the world have spread themselves thin by increasing healthcare expenses as well as pumping fiscal
stimulus into the economy. However, fiscal spending has its limitations, especially at a time when
revenues are not being generated. It reinforces the point that corporates would ultimately have to
assume greater roles in delivering on their social responsibility goals and help sustain their business
ecosystem
Overall, the pandemic has made us rethink economic institutions and mankind’s approach towards the
environment. Hence, it has also propelled a reimagination of the role of the market and the state. The
society may come out of this catastrophe with some positive changes, but it may also set in motion
some negative practices. The task for nations would be to navigate these opportunities and challenges.
All in all, this may herald the beginning of a new economic order.

Reasons:
Inflation will rise due to high demand of necessity goods as there is average production, also
leads to reduction in GDP.
It mainly effecting the middle class, as poor people are getting help from the government, rich
class people can easily afford their living in this lockdown, but middle-class person with an
average money/income is facing too much who is not even getting government support.
Medical facility will cost too much in near future. And also, there will be the possibility that,
there will be shortage of doctors as while treating the patients of corona they also get infected.
This will also lead to unemployment, the country India already facing too much
unemployment and now this will worsen off the situation. Other than India, the other
country’s like US also face too much unemployment. Around 22 Million of people in US
became jobless in 4-week period. Data from Spain shows nearly 900,000 people have lost
their jobs since its lockdown started in mid-March. The official unemployment figure has
risen to 3.5 million - the highest level since April 2017.
An article on 20 April 2020, states that “The International Monetary Fund says Asian
economies will see zero growth for the first time in 60 years”
Businesses are coping with lost revenue and disrupted supply chains as factory shutdowns and
quarantine measures spread across the globe, restricting movement and commerce.
The Chinese economy is likely to be hit further by reduced global demand for its products due
to the effect of the outbreak on economies around the world.
This will help the people to have money in their hand which will help them to increase their
purchasing power.
Around 50% of India’s population is dependent on agriculture which is also adversely
affected by this pandemic.
Due to this lockdown, savings of the people is reducing day by day which may affect the
investment as people of India believe more in Savings rather than investment. So, people will
first save their money and then invest later on which means it will affect the investment of the
country.
The Chinese economy may be benefitted with this pandemic as they are supplying testing kits
to other neighbouring countries which helps CHINA to increase their trade.
The big industries like construction industry will face the real challenge as no more
construction will be started immediately due to lack of availability of money.
This is also affecting our human resource as well as people with very low earnings will not
able to pay off their debs which may force them to commit suicide.
Growth rate is 0% now a days and will take years to revive.
This pandemic also effects the tourism industry as even after the pandemic gets over, people
will not be allowed to move from one country to another, and same goes for trade also. Trade
will also be affected as government won’t allow people to move through countries even for
the trade as it will create a risk of spreading COVID 19. Also impact the earnings of foreign
exchange.
A recent news of crude oil, is the biggest and real example of worst economic conditions
globally.
 Now, talking about the real problem, the economy will face is shortage of food as well as
shortage of water. As we know government is trying to sanitise the country which involves
lots and lots of water and people using water excessively for washing hands may lead to
shortage of water.
Not only this, but they also impacted the share market. Now a days, share market is also not
performing well. And it is expected that in the near future it will not perform better. This
pandemic made the scenario worst and government should do regarding this after the
pandemic because government is the only body who can use their policies to make the
conditions better.
The Indian economy is expected to lose over ₹32,000 crore (US$4.5 billion) every day during
the first 21-days of complete lockdown which was declared following the coronavirus
outbreak. Under complete lockdown less than a quarter of India's $2.8 trillion economy is
functional. Up to 53% of businesses in the country will be significantly affected. Supply
chains have been put under stress with the lockdown restrictions in place; initially there was a
lack of clarity in streamlining what is an "essential" and what isn’t. Those in the informal
sectors and daily wage groups are the most at risk. A large number of farmers around the
country who grow perishables are also facing uncertainty. Various businesses such as hotels
and airlines are cutting salaries and laying off employees. The live events industry has seen an
estimated loss of ₹3,000 crore (US$420 million).

Assignment 2
What according to you is the use of calculus in economics? What are its
benefits? Give examples.
Calculus is the mathematical study of continuous change, in the same way that geometry is the study
of shape and algebra is the study of generalizations of arithmetic operations. It has two major
branches, differential calculus and integral calculus; the former concerns instantaneous rates of
change, and the slopes of curves, while integral calculus concerns accumulation of quantities, and
areas under or between curves. These two branches are related to each other by the fundamental
theorem of calculus, and they make use of the fundamental notions of convergence of infinite
sequences and infinite series to a well-defined limit.

Calculus is used in every branch of the physical sciences, actuarial science, computer science,
statistics, engineering, economics, business, medicine, demography, and in other fields wherever a
problem can be mathematically modeled and an optimal solution is desired. It allows one to go from
(non-constant) rates of change to the total change or vice versa, and many times in studying a
problem we know one and are trying to find the other.

Economic analysis often uses quantitative methods when reviewing specific information in an
economy. Quantitative methods are mathematical or statistical calculations that provide economists
with indicators for comparing the current economic analysis to those of previous periods.
Economists often use various types of math to ensure their personal judgments, inferences or
theories are supported by meaningful calculations.

Calculus is the most common type of math found in economics. Calculus includes the use of various
formulas to measure limits, functions and derivatives. Many economists use differential calculus
when measuring economic information. Differential calculus is the specific measuring of a derivative
that relates to a specific function. In basic terms, a function usually represents a straight line known
as a tangent. This represents a functions normal operation. The derivative is any change in the
tangent that represents a deviation (up or down) in the original line.

Economic models are a staple of economic analysis. Economists use models to describe various
functions in the economic marketplace. The supply and demand graph are a basic example of an
economic model. Differential calculus is applied to original supply and demand models to determine
how different factors will shift the lines representing supply or demand in the economic market.
Economic models are also used to prove or disprove various inferences or theories proposed by
economists.

In recent years, economic decision making has become more and more mathematically
oriented. Faced with huge masses of statistical data, depending on hundreds or even
thousands of different variables, business analysts and economists have increasingly
turned to mathematical methods to help them describe what is happening, predict the
effects of various policy alternatives, and choose reasonable courses of action from the
myriad of possibilities. Among the mathematical methods employed is calculus.

Benefits

 Calculus, by determining marginal revenues and costs, can help business managers maximize
their profits and measure the rate of increase in profit that results from each increase in
production. As long as marginal revenue exceeds marginal cost, the firm increases its profits.
 The mathematical approach to economics can claim to many advantages, including:

1. The language of mathematics is concise and precise.

2. There exists a wealth of mathematical theorems at our service.
3. If we state explicitly all assumptions as a prerequisite to using mathematical theorems in
economics, it keeps us from the minefield of erroneous
4. Conclusion
5. It allows us to treat the general n-variable case.

 To optimize functions.
As a simple example, suppose we are thinking about a firm that must choose its price in
order to maximize profit. Provided the profit function satisfies a few regularity properties
(i.e. is continuous, concave, and smooth), locating the profit maximizing price amounts to
identifying the price for which the profit function has zero slope (see figure below). Since we
can calculate the slope by differentiating, calculus gives us the means to identify the optimal
price.
 To perform 'comparative statics' analysis:
In the simple problem above, the firm must choose its price to maximize profit. But often the
result of this exercise will depend on a number of other factors. For example, the optimal
price will probably depend upon competitive the market is, or how closely substitutable rival
products are. A relevant question for economics is therefore "if I make the market more
competitive, what will happen to the price?" The typical way of answering this question
would be to calculate the optimal price, p, as a function of market competitiveness, h, and
then compute the derivative: p′(h).* Indeed, p′(h) is the answer to the question "how much
would p change if I change h a little bit?" Most types of policy involve going into a market
 and changing something, so the ability to predict what the effects of such a change are likely
to be is very useful.

o We study the activity of a business (or possibly a whole industry) and restrict our analysis to
a time period during which background conditions (such as supplies of raw materials, wage
rates, and taxes) are fairly constant. We then show how derivatives can help the
management of such a firm make vital production decisions. Management, whether or not it
knows calculus, utilizes many functions of the sort, we have been considering.

o Examples of such functions are

C(x) = cost of producing x units of the product,
R(x) = revenue generated by selling x units of the product,
P(x) = R(x) − C(x) = the profit (or loss) generated by producing and
(selling x units of the product.)

o Note that the functions C(x), R(x), and P(x) are often defined only for nonnegative integers,
that is, for x = 0, 1, 2, 3.... The reason is that it does not make sense to speak about the cost
of producing −1 cars or the revenue generated by selling3.62 refrigerators. Thus, each
function may give rise to a set of discrete points on a graph, as in Fig. 1(a). In studying these
functions, however, economists usually draw a smooth curve through the points and assume
that C(x) is actually defined for all positive x. Of course, we must often interpret answers to
problems in light of the fact that x is, in most cases, a nonnegative integer.
Calculus is at the backbone of economics because it provides an analytically efficient way to
understand the intricacies of decision-making and optimal choices.

EXAMPLE: Calculus used to find out Slope as marginal rate of change

The most obvious way to see how calculus helps us interpret economic and relational data is to
compare context, rate, and marginal functions.

Take, for example, the total cost of labour, TC:

For a given value of Q, say Q = 10, we can interpret this function telling us that: when we produced
10 units of this ideal, the total cost was $ 190. We would like to learn more about how costs change
during the production cycle, so we do not calculate the average cost, which is the total cost divided by
the number of units produced, or Q:

So, when we produced 10 units of this good, the average cost per unit is $ 19. This is tricky, however,
because we do not know how costs change or change as we produce. For example, the first unit (Q =
1) costs 10 to produce. Obviously, if the ratio is ultimately 19, and the first phase costs 10, then the
cost of producing the unit must change as we produce different units. Alternatively, in order to be
technologically advanced, the total cost change is not always the same when changing Q. Let us
define this change in the total cost of a given change in Q as a background cost.
Sounds familiar? The slope is defined as the rate of change of the Y variable (total cost, in this case)
for a given change in the variable X (Q, or units of good). Therefore, taking the initial findings, or
calculating the slope formula can determine the cost behind a particular good.

What about the change in marginal cost? That way, we can not only evaluate costs to some extent, but
see how our back costs change as we increase or decrease our production level. Due to our calculus
background, it is clear that changes in marginal cost or change in slope can be accounted for by taking
the second derivative.

These three equations now give us a considerable amount of information regarding the cost process,
in a very clear format. For example, calculate the marginal cost of producing the 100th unit of this
good.

Now, suppose your supervisor wants you to be able to predict the cost per unit of 101. You can back
up the cost of the march, or you can see that the second issue tells you that the back cost is expected to
change by two increases, each increase by one unit in Q. Therefore,

To summarize, you can start with the function, take the first and second derivatives and have more
information about the relationship between the variables and variables, including absolute values,
changes in price values, and changes in price values.

Assignment 3
Explain Nash Equilibrium with the help of a few real-life situations.
In game theory, a Nash equilibrium is an array of strategies, one for each player, such that no player
can obtain a higher pay off by switching to a different strategy while the strategies of all other
players are held fixed. The concept is named after John Forbes Nash Jr.

For example, if Ford, and GM choose production levels for pickup trucks, a commodity whose market
price depends on aggregate production, an equilibrium is an array of production levels, one for each
firm, such that none can raise its profits by making a different choice.

Nash equilibrium is a fundamental concept in the theory of games and the most widely used method
of predicting the outcome of a strategic interaction in the social sciences. A game (in strategic or
normal form) consists of the following three elements: a set of players, a set of actions (or pure-
strategies) available to each player, and a payoff (or utility) function for each player. The payoff
functions represent each player’s preferences over action profiles, where an action profile is simply a
list of actions, one for each player. The Nash Equilibrium is a decision-making theorem within game
theory that states a player can achieve the desired outcome by not deviating from their initial
strategy.

A pure-strategy Nash equilibrium is an action profile with the property that no single player can
obtain a higher pay off by deviating unilaterally from this profile. This concept can best be
understood by looking at some examples.

Consider first a game involving two players, each of whom has two available actions, which we call A
and B. If the players choose different actions, they each get a payoff of 0. If they both choose A, they
each get 2, and if they both choose B, they each get 1. This “coordination” game may be represented
as follows, where player 1 chooses a row, player 2 chooses a column, and the resulting payoffs are
listed in parentheses, with the first component corresponding to player 1’s payoff:

The action profile (B, B) is an equilibrium, since a unilateral deviation to A by any one player would
result in a lower payoff for the deviating player. Similarly, the action profile (A, A) is also an
equilibrium.

As another example, consider the game “matching pennies,” which again involves two players, each
with two actions. Each player can choose either heads (H) or tails (T); player 1 wins a dollar from
player 2 if their choices are the same, and loses a dollar to player 2 if they are not. This game has no
pure-strategy Nash equilibria.

One more example of Nash equilibrium. Imagine two robber who are being accused of robbery by
the police. The police have no evidence but decide to take both robbers to separate rooms and give
them the chance to confess for their crime. They cannot communicate with each other in order to
decide whether to confess or not.

Each of the robber know the following:

o If both of them confess, they each get 5 years of prison

o If none of them confesses, they each get 1 year of prison
o If one of them confesses and the other does not, the confessor gets 0 years of prison
(collaboration is rewarded by the police) and the non-confessor gets 10 years of prison (he
pays for the entire crime).

Clearly in this situation, the collectively optimal outcome for robbers is for nobody to confess, so
that they each get only 1 year of prison. However, will this outcome be attained as predicted by
classical theory:
If the other burglar confessed, your self-interest is to confess, to get 5 instead of 10 years of prison.

If the other burglar did not confess, your self-interest is to confess, to get 0 instead of 1 year of
prison.

We conclude that no matter what the other robber does, your best response is to confess. Since
both robber’s reason in the same way, they will both end up confessing, which leads to the Nash
equilibrium: both robbers confess no matter what the other burglar does, and they both end up
getting 5 years of prison, even though this is not the collectively optimal outcome for them. Both of
them would in fact be better off if they agreed not to confess, but their personal temptations make
this agreement infeasible.

In some cases, instead of simply choosing an action, players may be able to choose probability
distributions over the set of actions available to them. Such randomizations over the set of actions
are referred to as mixed strategies. Any profile of mixed strategies induces a probability distribution
over action profiles in the game. Under certain assumptions, a player’s preferences over all such
lotteries can be represented by a function (called a von Neumann-Morgenstern utility function) that
assigns a real number to each action profile.

Formally, an 𝑛-player game consists of a set 𝐼 ={1, … , 𝑛} of players, a set 𝑆𝑖 of strategies for each
player 𝑖 ∈ 𝐼, and a set of goal functions 𝑔𝑖 ∶ 𝑆1 × ⋯ × 𝑆𝑛 → ℝ that represent the preferences of each
player 𝑖 over the 𝑛-tuples, or profiles, of strategies chosen by all players.

A strategy profile has a higher goal-function value, or payoff, than another if and only if the player
prefers it to the other. Let 𝑆 = 𝑆1 ×⋯×𝑆𝑛 denote the set of all strategy profiles, with generic element
𝑠, and let (𝑡𝑖 , 𝑠−𝑖) denote the strategy profile (𝑠1,… , 𝑠𝑖−1, 𝑡𝑖 , 𝑠𝑖+1, … , 𝑠𝑛) obtained from 𝑠 by
switching player 𝑖’s strategy to 𝑡𝑖 ∈ 𝑆𝑖 while leaving all other strategies unchanged. An equilibrium
point of such a game is a strategy profile 𝑠 ∗ ∈ 𝑆 with the property that, for each player 𝑖 and each
strategy 𝑡𝑖 ∈ 𝑆𝑖, 𝑔𝑖 (𝑠∗) ≥ 𝑔𝑖 (𝑡𝑖, 𝑠∗−𝑖).

That is, a strategy profile is an equilibrium point if no player can gain from a unilateral deviation to a
different strategy.

Some real-life examples of Nash equilibrium:

If there are two mil stores near your house, your Nash Strategy when buying milk in the
morning would be to go to the cheapest store, given each store’s price. And similarly, the
Nash Strategy for the storekeeper would be to price their milk just below their competitor in
order to attract you, given their competitor’s price and your strategy of going for the
cheapest store.
In sports, all professional athletes would be better off if no one used performance-enhancing
drugs. The problem is that when no one uses these drugs, an individual athlete is tempted to
use them in order to perform better than everyone else. This then leads everyone to
consume performance-enhancing drugs, and any athlete who decides not to consume these
drugs would suffer from a major comparative disadvantage.
Nash equilibrium also applies to environmental policies regarding CO2 emissions. The world
as a whole need to stop climate change, but each country individually has an economic
interest in emitting CO2 for their industrial production, which leads to global inaction.
Students desperately looking for internships because everyone else will have one to show on
their CV.
Suppose Jai and veer are registering for the new semester. They both have the option to
choose either a finance course or a psychology course. They only have 30 seconds before the
registration deadline, so they do not have time to communicate with each other. If Jai and
veer register for the same class, they will benefit from the opportunity to study for the
exams together. However, if they choose different classes, neither of them will get any
benefit. In the example, there are multiple Nash equilibrium. If Jai and veer both register for
the same course, they will benefit from studying together for the exams. Thus, the outcomes
finance/finance and psychology/psychology are Nash equilibria in this scenario.
Two people enter a bus. Two adjacent cramped seats are free. Each person must decide
whether to sit or stand, there is Nash equilibrium.
Elections used to be fought on ideas and policies, now much of the work in government is to
develop announcements that can determine the ‘optics’ and ‘atmospherics’ of the
government’s ‘narratives. It appears to be a Nash Equilibrium strategy for political parties to
adopt the strategy that will win votes. Maybe today that means less detail such as outcomes
and more focus on what will grab the voters’ attention. After all, political parties have to
compete with Netflix, football, etc. to get attention today. So, a political strategy that will
generate most voter interest may be mutually exclusive to policy that maximizes social,
economic and environmental outcomes for society.
Following traffic signals is an example of Nash equilibrium at work. When another car is
speeding toward you, you do not stop at the red light because a police officer will give you a
ticket if you go. You stop because you do not want to die.