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Currenc-I Primer PDF
Currenc-I Primer PDF
Title / Heading
The Economics and International Business Club of IIM Indore, aims to strengthen the understanding of
economics amongst the students such that they are able to better appreciate its applications across the
fields of management in global business. We conduct several competitions and quizzes all year round which
act as a platform for the students to exchange ideas using economics concepts in micro and macro
environment business conditions. Macroscan, our bi-monthly digital magazine reflects our conscious effort
to keep Planet-I updated with the latest happenings in the world of economics and business news.
Currenc-I in association with NISM (National Institute of Securities Markets) also arranges workshops and
certification exams on campus, giving the participants an opportunity to expand their knowledge on topics
such as Investment Advisory, Securities Market etc.
Title / Heading
Prepared
Prepared in association
in association with
with thethe Placement
Placement Preparation
Preparation Committee,
Committee, IIMIIM Indore
Indore
Economics Basics
Elasticity measures the degree of responsiveness of quantity demanded(or supplied) to change in price of the good
• Price Elasticity- Measures change in quantity demanded(or supplied) in response to change in price of the good
Price Elasticity = ΔQ (%age Change in Demand) / ΔP (%age change in Price)
When Price elasticity= 0, demand is said to be perfectly inelastic; demand does not change when price changes
Eg: Demand for Salt (although in reality no demand is perfectly inelastic)
When Price elasticity= Infinity, demand is said to be perfectly elastic; small change in price of a product causes a major
change in its demand
Eg: Demand for a luxurious good
• Income Elasticity- Measures percentage change in quantity demanded(or supplied) due to change in income
Income Elasticity = ΔQ(%age Change in Demand) / ΔI(%age change in Income)
Consumer surplus
Law of diminishing marginal utility
The law states that every additional unit of input It refers to the value that consumers derive from
provides lesser utility than the previous unit consumed purchasing a good. For example, if you would be willing
by individual. to spend $10 on a good, but you are able to purchase it
Example: Consuming one candy bar may satisfy a for just $7, your consumer surplus from the transaction
person’s sweet tooth. If a second candy bar is is $3. You’re getting $3 more value from
consumed, the satisfaction of eating that second bar the good than it cost you.
will be less than the satisfaction gained from eating the
first. If a third is eaten, the satisfaction will be even Producer surplus
less. It refers to the value that producers derive from
transactions.
For example, if a producer would be willing to sell a good
• In businesses, Law of DMU applies to the number of
for $4, but he is able
labor you employ for production to sell it for$10, he achieves
• In all types of market, the firm maximizes the
producer surplus of $6.The
profit by increasing the factors of production to
total producer
that limit where additional benefit is just equal to the surplus achieved would be
cost of production
represented by the dotted area
in the chart.
Currency: Higher interest rates increase the value of country's currency by attracting
foreign investment and thereby increasing its demand.
Economy: The benefit of having high or low interest rates depends on the state of
the economy. When the economy is weak; low interest rates encourage people to
spend which increases the demand for goods and services. High interest rates are
necessary at other times. With limited resources, a persistent increase in demand
leads to high inflation. Increased spending also raises our import bill and puts
pressure on foreign reserve levels. In such a situation, higher interest rates can help India’s long term interest rate
the economy by discouraging people from excessive spending, which would help (Total, % per annum, Aug 2012
cool the economy and bring it back to normality – Feb 2019)
You are required to send in a one page writeup on any one of the following problem statements.
1. Uncertainty around Brexit has deterred investment and slowed the UK economy. Many firms
have even decided to relocate their operations and staff from Britain to the EU. As the Chancellor
of the Exchequer draft a policy that could help revive investor sentiment and protect jobs.
2. You are a member of the economic policy framing committee in Iran. You will be attending a high
profile meeting to discuss the strategic measures which must be employed in light of the recent
US sanctions. What policy suggestions would you make to reduce the impact of sanctions on the
weakening economy? Delineate with respect to short and long term view.
3. As a member of the Congress Working Committee, draft a resolution on how the party plans to
make the NYAY scheme fiscally viable. You may use the 2018 budget for reference.