Core Course-iii- Economics for Rural Studies – I

Rationale of course

This course is designed to give students basic idea of cognitive behaviour of human being in their different roles in market economy. The idea developed through this course would help students to analyse and design development perspectives of rural economies and its people. Course emphasises mainly on three fundamental facets of human behaviour consumption, production and exchange, which are universal in the context of market economy. The understanding of this fundamentals would surely help students in serious research in cognitive behavioural sciences in the context of rural economy and its development.

1. Utilitarian Approach--The History of Utility Theory – From Cardinal to Ordinal Approach. Utility in Cardinal Approach – Utility and choice, Total Utility and Marginal utility, Utility and choice - maximization, marginal utility theory of demand; Assumptions on preference ordering, indifference curve, marginal rate of substitution and convexity of IC, budget constraint, consumers' equilibrium; Price effect - substitution effect (Hicks and Slutsky), inferior goods and Giffen goods, income effect, ordinary demand curves. Revealed preference.

2. Law of Demand; Market Sensitivity and Elasticity--Importance of Elasticity in Choice-Decisions; Method of Calculation – Arc Elasticity. Point Elasticity – definition. Demand and Supply Elasticities – types of elasticity and factors effecting elasticity. Demand Elasticity and Revenue; Income and Cross Price elasticity;

3. Production --Technology, Production Functions and Isoquants, short run and long run, production with one and two variable inputs, total average and marginal products, law of diminishing return, marginal rate of technical substitution, elasticity of substitution, economics of scale. Types of production functions- Cobb-Douglas; Cost structure-implicit cost, explicit cost, accounting cost, sunk cost, economic cost, fixed cost, variable cost, total, average and marginal cost. Determinants of Short run cost, Cost Curves, cost minimization and expansion path, Short run versus long run cost curves.

4. Market Structure--Organization, Firms and Profit Maximization; Marginal Revenue, Marginal Cost and Profit Maximization. Perfect competition- short run competitive equilibrium of the firm, short run supply curve of firm and industry, Output choice and competitive equilibrium in long run, long-run industry supply; constant, increasing and decreasing cost.

5.Monopoly and barriers to entry – output determination and price rule, Pricing with market power – first, second and third degree price discrimination. Monopolistic competition – short run and long run equilibrium, excess capacity.; Oligopoly – Oligopoly equilibrium as Nash equilibrium, Cournot and Stackelberg Model, Competition versus collusion – the Prisoners’ Dilemma.

References--Samuelson and Nordhaus, Lipsey and Chrystal, Maddala and Miller, Pindyck and Rubinfeld Mankiw , Stockman