Economics - IIT JAM (Paper EC): Optimisation, Identities and Inference
IIT JAM Economics (paper code EC) is a three-hour, 100-mark computer-based paper: Section A holds 30 one-mark MCQs with one-third negative marking, Section B 10 two-mark multiple-select items with partial credit, and Section C 20 two-mark numerical-answer items. It tests solving, not recall.
Microeconomics: optimisation and market power
Consumer problems are constrained optimisations: maximise U subject to a budget. With Cobb–Douglas U = x^a y^b, expenditure shares are a/(a+b) and b/(a+b); the Slutsky equation splits any price effect into substitution and income parts. Producers maximise profit where MR = MC: a competitive firm has P = MC, while a monopolist prices at P = MC/(1 + 1/ε), giving a Lerner index (P − MC)/P = −1/ε. Shutdown occurs below minimum AVC, not minimum ATC.
Macroeconomics
Identities must be exact: Y = C + I + G + NX and S − I = (G − T) + NX. In IS–LM, a vertical LM schedule makes fiscal policy powerless. In Solow, the steady state solves sf(k) = (n + δ + g)k, so output per worker rises with the saving rate and falls with depreciation, population growth and technical progress.
Statistics and econometrics
OLS is BLUE under Gauss–Markov. Heteroskedasticity leaves coefficients unbiased but invalidates conventional standard errors; omitting a relevant regressor biases the rest. A p-value is P(data at least this extreme | H0), never P(H0 true).
Worked example
Demand is Q = 120 − 3P. At P = 10, Q = 90, so ε = (dQ/dP)(P/Q) = −3 × 10/90 = −1/3. Demand is inelastic, so a price rise increases revenue; equivalently MR = P(1 + 1/ε) = 10(1 − 3) = −20. Revenue peaks where ε = −1: Q = 60, P = 20, R = 1200.
Traps that cost marks
Treating elasticity as a slope - always multiply by P/Q. Forgetting that MR on linear demand falls twice as fast as price. Quoting a deflator change as real growth. Leaving numerical answers unrounded when two decimals are demanded. Guessing in Section A, where the penalty is one-third.