3 Lagrangean Method concepts you must know

Lagrangean method is a way of locating local optimum subject to constraints. Suppose we have an objective function f(x,y) and we want to find an optimum of this function subject to the constraint g(x,y) =c. In order to find optimum, form a lagrangean function L(x,y,λ; c) = f(x,y) + λ(c-g(x,y)), where λ is the lagrangean multiplier.

In this series of videos, we formally derive the first order conditions and second order conditions of lagrangean method. Then, to support our formal proof, we provide some example of how lagrangean method works in practice Continue reading →

7 Optimization in Economics videos

Individuals, firms or Government maximize their utility/profits/social welfare subject to constraints. They maximize utility/welfare/profits or minimize expenditure/costs. Hence optimization plays an important role in economics. We will look at the optimization of single-valued or multi-valued functions. In this series, we will look at the motivation behind first order and second order conditions and then we discuss some simple applications of optimization of multi variate functions in economics

Continue reading →

5 Functional Forms concepts you must know

In these videos, we describe what are functional forms? Up until now, we have seen models, involving linear dependent variables and linear independent variables. Now, we will see cases, involving non-linear dependent and non-linear independent variables. Continue reading →

5 Multicollinearity Videos

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When there is high correlation between two independent variables, then that is called the problem of multicollinearity. Why problem? Because you cannot separate out the effects of these independent variables on the dependent variable.

In these videos, we will learn the following :

What is Multicollinearity?
An example of Multicollinearity
Exact Multicollinearity: A situation where regression could not be run. Why?
What are the consequences of ignoring multicollinearity?
How to identify Multicollinearity? Continue reading →

6 Multiple Variable Regression Concepts and Omitted Variable Bias

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This post starts the new chapter in our econometrics course. From now on, we move to regression of several variables, instead of just one variable. Once again we derive OLS estimates or normal equations in a multiple variable model ( precisely, 3 variable model).

Then, we pick up hypothesis testing in multiple linear regression model. How to test several coefficients jointly? How to test linear combination of coefficients?

Last video, explains, yet another very important concept : omitted variable bias. What happens, if you remove one very important variable from the regression model? How does that affect OLS estimates, are they still unbiased? Continue reading →

6 Hypothesis Testing (Simple Linear Regression) videos

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Here we present the concept of Hypothesis testing. We start with the simple linear regression model and test for the following:

Statistical significance of one variable
Joint statistical significance of all variables taken together

We begin by introducing hypothesis testing, then explaining one tailed and two tailed t tests and end this discussion by explaining test for goodness of fit Continue reading →

12 Simple Linear Regression Conceptual Videos

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Simple Linear Regression Model. These videos will help you understand all basic proofs and theorems related to it. We discuss following issues in these videos

Normal equations simple linear regression model

We start by deriving normal equations in a simple linear regression model and get the OLS estimates of constant and slope parameter Continue reading →

9 Perfect Competition Videos

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These videos will hep you to understand the basics of perfect competition. It starts with, what is meant by profit maximization and where do these perfectly competitive firms maximize their profits?

Mathematical as well as graphical interpretation of both necessary and sufficient conditions of profit maximization will help you comprehend the basics of perfect competition.

Two important and related concepts, Marginal Revenue and elasticity of demand, are discussed, where we derive MR = P(1+1/e) and (P-MC)/P formula. This is supplemented by an example of constant elasticity demand function

Lastly, how is supply curve of the firm is drawn is explained in the last two videos. Continue reading →

Minimizing cost for a Cobb Douglas production function

Minimizing cost for a Cobb Douglas production function Continue reading →

TC, AC and MC of a Cobb Douglas Production function

TC, AC and MC of a Cobb Douglas Production function Continue reading →

10 Assumptions of Classical Linear Regression Model

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These videos are discussing the initial basics econometrics course. Simple linear regression model is given by Yi = β1 + β2Xi + ui where ui~N(0,σ2). Here, we set out different assumptions of classical linear regression model.

Two main (and excellent) references for this course are :

Basic Econometrics by D. Gujarati

Introductory Econometrics with Applications by Ramu Ramanathan

I hope you like these videos..

Continue reading →

5 Production theory concept videos

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In these videos, we discuss production theory. We answer questions such as, what is meant by production function? Are all the inputs feeding into production function, variable or some of them are fixed? This leads us to distinction between short run and long run.

We find how producer produces efficiently in both SR and LR? What is meant by efficiency in production? What are isoquants and isocost lines? What are the properties of Isoquants? Then we discuss different types of isoquants and their MRTS? Why MRTS fall along an isoquant (generally)?

Lastly, we discuss the concept of returns to scale, with the help of a graph and numerical example

I hope you like these videos! Continue reading →

2 uncertainty basic concepts

We all live in an uncertain world, how to model uncertainty in economic problems? We learn this in these two videos. In the first video, an introduction to expected utility theory is given, whereby with the help of a numerical example, expected value of a gamble and expected utility are found.

In the second video, using different utility functions over wealth, it is shown that a person can be risk lover, risk averse and risk neutral. Continue reading →

3 basic videos on Buying and Selling Model

In these videos, we look at the model, where there is no outside income but the value of endowment defines consumer’s income.

First video, sets the base of the model by distinguishing between gross demand and net demand. Second video, discusses how to draw budget line in this model. Continue reading →

3 SE and ME decomposition videos for Normal Goods, Perfect Substitutes and Perfect Complements

For next two days we will discuss substitution and income effects. What are these? When the price of a good changes, it changes demand for that commodity. Well, this entire change can be broken down into two effects, one substitution effect and other income effect.

In these videos, we have presented the decomposition of price effect into substitution effect and income effect for normal goods, perfect complements and perfect substitutes. Continue reading →