[BUGS BUNNY]

Prof....Now that you mentiong Law of Diminishing Returns/Marginal utility I distinctly remember a prof in XL interviews asking me about Law of Increasing Returns last year. Are these two the same? :eh:
If not what exactly is the law of inreasing returns and if they are the same then could you please explain the concept of marginal utility and the law of diminising returns

P.S. I know that you have touched upon the concept in your last post but still would be better if we could have a separate post on it.

-
Bugs

[TintinAndSnowy]

Originally Posted by prof_calculus

Hi Tintin,
you left alone poor Cuthbert, and I started learning economics to help great people in PG-land. You may name it the New Calculus Affair.

Originally Posted by prof_calculus

You have perhaps missed the lines above-

oops ... sorry yeah somehow had missed those lines earlier

Originally Posted by prof_calculus

Hope it is sufficient to answer you query. If you still have doubts, please let me know.
pc

it's very helpful ... couldn't have been better ... infact this tempted me to study more on eco ... shortly going to bombard you with more questions ...
thanks a lot!
TnS

[maheshtk_21]

First of all,great job Prof. Calculus and Bugs.
I am looking forward to learn a lot of economics on this thread.
I do not have an gd-pi calls par Eco mera fave subject hai.

These are a few related concepts that Calculus sir discussed-

the basic question of scarcity and choice in light of lionnel robbin's definition of economics-
http://faculty.ed.umuc.edu/~shadjida/Lectures/basconc3.htm#Scarcity,%20Choice%20and%20Opportunit y%20Cost

Opportunity cost - Wikipedia, the free encyclopedia

[prof_calculus]

Hi friends,
Sorry for the delay in posting. It was power cut since morning. That is why I could not start my computer and write today’s post.

Till the time I post more on fundamental concepts, kindly read some backgrounder on India Economy.

Indian Economy:
Some Historical Background (Part -1):
Indian economy at the advent of British rule in India, was predominantly an agrarian economy, characterized by self sufficient villages will very limited range of consumption. Industry was synonymous to handicraft. Life of common people was limited to a small geographical region. Market had a very limited scope. For intra village trade, barter system (commodity exchange) prevailed.
The Industrial revolution in Europe resulted in steep rise in demand for raw material (particularly cotton) for English industry. At the same time they also needed a market for their product (mainly mill woven fine cloth). India being a British colony supplied both. Transportation infrastructure including rail transport, was enhanced to facilitate of smooth supply of raw material, as well as enhanced access to remote potential markets.
Box-IIa

Rail transport started since 1853 (First train between Mumbai and Thane run on that year). It connected all major ports to remote places in India. In addition to enhancement of trade, it also resulted in better administrative management of India by British people.


The handicraft workers lost their jobs because they were replaced by English industry. The self sufficient village system based on interdependence of farmers and artisans, collapsed, and gave way to market economy. Importance of money as a medium of exchange, increased during this period. This development resulted in catastrophe for artisan, and consequently for rural economy.

The profit of industrial production went to Industrialists and traders, draining out the Indian Economy.

Though the British policies were primary meant for their own benefit, it somehow helped in modernization of India. The economy gradually transformed from barter system to a market oriented economic system.
English became the language of communication between the different geographical regions, rail transport facilitated the communication facilities for people. After the First World War, British interests helped the growth of Indian industry. This was the time TISCO was established In Jamshedpur. Several industries including cotton mills were established I various part of the country after WW-I.

[Rincewind]

Originally Posted by BUGS BUNNY

Prof....Now that you mentiong Law of Diminishing Returns/Marginal utility I distinctly remember a prof in XL interviews asking me about Law of Increasing Returns last year. Are these two the same? :eh:
If not what exactly is the law of inreasing returns and if they are the same then could you please explain the concept of marginal utility and the law of diminising returns

P.S. I know that you have touched upon the concept in your last post but still would be better if we could have a separate post on it.

-
Bugs

Hola.... this reminds me of a Hanna-Barberra cartoon, where Bugs Bunny dons a cape, scolar's cap and spectacles... and tells Elmer why exactly he should not try to kill wabbits... even though they really BUG him!!!

If its okay with Prof. Cuthbert Calculus, I would like to try my lay-man hand on the "Law of Increasing Returns" shekaboom...

Bugs, they ain't the same thing... infact they aren't even in the same ballpark.

For all IT guys, an easy way to understand this is remembering "Moore's Law for semiconductors" - the INTEL chappie who had that Nostradamus-ical foresight...

"The number of transistors in an IC shall double every 18 months"

Yuppp... now that's a single-industry corollary of the Law of Increasing Returns... so in terms of technological progress ... we have a steeper increase in complexity... as we are doing the easier job of (paraphrasing Newton... or was it Einstein!!) Standing on the shoulders of Giants

This, unlike the pragmatic Economics of Law of Diminishing Returns for resource mobilization, is for the future-smiths... the guys with the faraway look in their grey-blue eyes... So not exactly economics...

Points in support:

Time taken between first stone tools and agriculture >> Time taken between Steam Engine and Nuclear Reactors

Obviously ... Moore's Law and the spped of innovation in electronics and computers.

Points in Opposition:

Well... the idea that the great fount of human innovation will always have things to improve upon drastically... i.e. after harnessing nuclear fusion what???

All in all, its about whole world system rather than single entity (individual, company, society, market...) of economy.

Did I confuse enough or should I talk of Alvin Toffler???

P.S. Keep it in the folder of "General Awareness" rather than "Economics Gyaan"

[prof_calculus]

Some Basic Concepts:
It has been said that “Teach a parrot to say -demand and supply; and you will have an economist.”
Some concepts are very fundamental to the understanding of economics. We try to grasp them one by one:

Utility: means capacity to satisfy any want of a person.

Measurement of Utility: There are two different schools of measurement of utility. One pioneered by Marshall suggested that utility of a product can be measured by an imaginary unit called “utils”. It is called the cardinal approach towards utility.
Another groups led by Hick and Allen held the opinion that there can not be a quantifiable measurement of utility, and we can only estimate relative utilities of different products and rank them higher or lower in relation to each other. The second approach is known as ordinal approach.

Marginal Utility: The term “marginal” is a unique modifier. It has similar meaning at all places where it is used i.e. something derived from the last unit. Marginal utility means utility derived from the last unit of consumption at the time of measurement. It varies with each unit of consumption. This concept assumes cardinal (quantifiability) approach to measurement of utility, and it is measured by increase in total utility by consumption of the last unit.

Marginal cost is the cost incurred on last unit of production at any point of time.
Marginal revenue is the sale proceeds of the last unit of sale at any point of time.
Marginal score of Saurav Ganguli is 31 on 24.jan 2007. Prior to the second match at between India and WI, marginal score was 98 (first match).I want to highlight the fact that 'marginal' is a continuously varying concept. The average, as we all know, is the cumulative score divided by number of innings played till date. It varies at a rate much less than the marginal one.

about Law of Increasing Returns last year. Are these two the same?
If not what exactly is the law of increasing returns and if they are the same then could you please explain the concept of marginal utility and the law of diminishing returns

Law of Diminishing Marginal Utility:
If we understand the concept of ‘marginal’ properly, there will be no difficulty in getting the meaning of Law of Diminishing Marginal Utility. The utility derived from last unit declines with each additional unit of consumption.
Example: If a person is thirsty, he will get great utility from the consumption of first glass of water, and less utility from the consumption of second. It will decline with each additional glass of water consumed. Soon it will come down to zero, or even less.


Law of returns to scale:
If all the factors (capital, labour, and land) engaged in production of a commodity are increased in a certain uniform ratio K, the level of production may increase by a level (A) more than K (B) equal to K (C) less than K.
In the first case, the production is under increasing returns to scale, I.e. the level of production rises faster than the level of factors of production, showing increased efficiency of production at higher level.
In the second case, it is a situation of constant returns to scale.
The third case shows the law of diminishing marginal returns to scale at work.
The last case is a general one since all production processes ultimately show diminishing returns to scale. The first case that is ‘increasing returns to scale’ is a specific situation in production not observed frequently.

Some details about marginalism can be found at : wikipedia

[prof_calculus]

Thanks for so many thanks,

But where are your doubts ????

Either the material is too good (easy and comprehensible to most of you) or it is too Bad, and you people are being courteous.

Thank you all anyway.

[BUGS BUNNY]

Originally Posted by prof_calculus

Thanks for so many thanks,

But where are your doubts ????

Either the material is too good (easy and comprehensible to most of you) or it is too Bad, and you people are being courteous.

Thank you all anyway.

My guess would be that the material is pretty easy to understand as of now
Maybe as we move towards advanced topics, you might have more doubts pouring in

P.S. - One more topic thats been bugging me I have no idea why but this particular topic seems to be at the back of my mind..nagging away Capital Account Convertibility. I somehow couldnt find the time to google about it.
If you feel that ths topic could be dealt with after sometime...so be it

-
Bugs

[vinit456]

Originally Posted by BUGS BUNNY

P.S. - One more topic thats been bugging me I have no idea why but this particular topic seems to be at the back of my mind..nagging away Capital Account Convertibility. I somehow couldnt find the time to google about it.
If you feel that ths topic could be dealt with after sometime...so be it

-
Bugs

Not for a second do I intend to spam or interrupt and do hope my conrtibution isn't seen as an intrusion...

Copying some info I had posted on the UDT thread.

Capital Account-(source-wiki)
The capital account is one of two primary components of the balance of payments, the other being the current account.
The capital account records all transactions between a domestic and foreign resident that involves a change of ownership of an asset. It is the net result of public and private international investment flowing in and out of a country. This includes foreign direct investment, plus changes in holdings of stocks, bonds, loans, bank accounts, and currencies.

By convention, resident acquiring a domestic asset (a capital inflow). A capital account debit is recorded if a transaction leads to a domestic resident acquiring a foreign asset (a capital outflow). This convention ensures that the sum of the current and capital account balances is always zero.

(WIKI stop)

To kinda sum it up....... its basically the ease with which one can convert its assets/holding into foreign currency.


Why is it impt.?

In 1991, we faced our biggest crisis i.e. we had forex to pay of a week's imports.
In layman's terms NRI's and others had all withdrawn and taken their money from India leaving us with very little forex to pay off our imports. Residents would convert their assests i.e. domestic assest/holdings to foreign currency. Which meant that money was going out of our counrty what is known as capital outflows.

We had an embarrssing situation where we had to pledge our gold with bank of England for $405million.

For those who travel abroad and for studies would know that there is a certain limit to theamount of money they can convert to $. I am not sure what's exact amount permitted at this point but I am aware that there are restrictions placed on the amount of money that one could convert to foreign currency. All of this is done to ensure capital outflows and sufficient forex reserves.

It amy as well be used to keep a chek on the rupee as in compared to the $.

May be a tangent to the discussion but the whole issue of the Asian Economic Crisis has made us look into CAC with more concern. South east asian economies had faced their worst crisis and foreigners pulled all their money out of the economies which lead to huge economic instability. Thai currency Bhat went for a toss et al....

Also if ones googles Tarapore and Ashok Lahiri one would get enough info on the issue.

[prof_calculus]

Some concept on National Income:
Gross National Product
Gross National Product (GNP) is the total value of final goods and services produced in a year by a country's nationals (including profits from capital held abroad). The profits from a Honda factory in the India would count towards Japanese GNP.

Nominal GNP measures the value of output during a given year using the prices prevailing during that year. Over time, the general level of prices rise due to inflation, leading to an increase in nominal GNP even if the volume of goods and services produced is unchanged.

Real GNP measures the value of output in two or more different years by valuing the goods and services adjusted for inflation. For example, if both the "nominal GNP" and price level doubled between 1995 and 2005, the "real GNP" would remain the same. For year over year GNP growth, "real GNP" is usually used as it gives a more accurate view of the economy. It also has nothing to do with the population.

Gross Domestic Product
Gross Domestic Product (GDP) is the total value of final goods and services produced within a country's geographical boundaries in a year. GDP counts income according to where it is earned rather than who owns the factors of production.

The income of a foreign national working in India will be included in India’s GDP but not in India’s GNP.
The income earned by a Indian in UAE will be included in the GDP (but not GNP) of UAE. It will be included in the GNP of India,

To convert from GNP to GDP you must subtract factor income receipts from foreigners that correspond to goods and services produced abroad using factor inputs supplied by domestic sources.

To convert from GDP to GNP you must add factor input payments to foreigners that correspond to goods and services produced in the domestic country using the factor inputs supplied by foreigners.

National income and welfare

GNP per person is often used as a measure of people's welfare. Countries with higher GNP often score highly on other measures of welfare, such as life expectancy. However, there are serious limitations to the usefulness of GNP as a measure of welfare:

• Measures of GNP typically exclude unpaid economic activity, most importantly domestic work such as childcare. This can lead to distortions; for example, a paid childminder's income will contribute to GNP, whereas an unpaid mother's time spent caring for her children will not, even though they are both carrying out the same economic activity, and perhaps the unpaid is doing it in a better manner.
• GNP takes no account of the inputs used to produce the output. For example, if everyone worked for twice the number of hours, then GNP might roughly double, but this does not necessarily mean that workers are better off as they would have less leisure time.
• Comparison of GNP from one country to another may be distorted by movements in exchange rates. Measuring national income at purchasing power parity can help to overcome this problem at the risk of overvaluing basic goods and services like for example subsistence farming.
• GNP does not take into account many factors that may be important to quality of life, such as the quality of the environment (as distinct from the input value) and security from crime. This can lead to distortions - for example, spending on cleaning up of Ganga river is included in GDP of India, but the negative impact of the activities leading to pollution of Ganga is not taken into account.
• GNP is the mean wealth rather than median wealth. Countries with a skewed income distribution may have a relatively high per-capita GNP while the majority of its citizens have a relatively low level of income, due to concentration of wealth in the hands of a small fraction of the population.

For details: National Income Accounting at Wikipedia