B Com Exam > B Com Notes > Micro economics
Micro economics - B Com PDF Download
| Download, print and study this document offline |
Please wait while the PDF view is loading
Page 1 Microeconomics Topic 8 “Apply principles of consumer/producer surplus to explain efficient level of production and sales in a market.” Reference: Gregory Mankiw’s Principles of Microeconomics, 2 nd edition, Chapter 7. Consumer Surplus Consumer surplus is the buyer's net gain from purchasing a good. Put another way, it is the excess of what a buyer would have been willing to pay for a good over what he actually had to pay for that good. Graphically, it is the area below the demand curve, above the price, and left of the quantity bought. For example, you might be willing, if you had to, to pay $20 to make an important phone call. If the price you actually have to pay for that phone call is $1, then you earn consumer surplus of $19 when you make the call. Figure 2.1 Price Demand Quantity 9 8 7 6 1 2 3 4 A: $3 of CS B: $2 of CS C: $1 of CS D: $0 of CS Total CS=3+2+1=$6 In figure 2.1, we suppose there are 4 consumers: A, B, C, and D. A is willing to pay $9 for one unit of the good. B will pay $8, C will pay $7, and D will pay $6. If the market price of the good is $6 per unit, then A earns consumer surplus of $3, since he was willing to pay $9, but only had to pay $6. Similarly, B earns $2 of consumer surplus (CS), and C earns $1 of CS. Customer D, the so-called "marginal" consumer, is willing to pay $6 for a unit, but since the market price is $6, D gets no consumer surplus. In practice, consumer surplus is pictured as in figure 2.2, as the area below the demand curve, above the price, and left of the quantity bought. Page 2 Microeconomics Topic 8 “Apply principles of consumer/producer surplus to explain efficient level of production and sales in a market.” Reference: Gregory Mankiw’s Principles of Microeconomics, 2 nd edition, Chapter 7. Consumer Surplus Consumer surplus is the buyer's net gain from purchasing a good. Put another way, it is the excess of what a buyer would have been willing to pay for a good over what he actually had to pay for that good. Graphically, it is the area below the demand curve, above the price, and left of the quantity bought. For example, you might be willing, if you had to, to pay $20 to make an important phone call. If the price you actually have to pay for that phone call is $1, then you earn consumer surplus of $19 when you make the call. Figure 2.1 Price Demand Quantity 9 8 7 6 1 2 3 4 A: $3 of CS B: $2 of CS C: $1 of CS D: $0 of CS Total CS=3+2+1=$6 In figure 2.1, we suppose there are 4 consumers: A, B, C, and D. A is willing to pay $9 for one unit of the good. B will pay $8, C will pay $7, and D will pay $6. If the market price of the good is $6 per unit, then A earns consumer surplus of $3, since he was willing to pay $9, but only had to pay $6. Similarly, B earns $2 of consumer surplus (CS), and C earns $1 of CS. Customer D, the so-called "marginal" consumer, is willing to pay $6 for a unit, but since the market price is $6, D gets no consumer surplus. In practice, consumer surplus is pictured as in figure 2.2, as the area below the demand curve, above the price, and left of the quantity bought. Figure 2.2 Price Quantity Demand $7 10 Consumer Surplus CS=(6x10)/2=$30 when price P=$7. $13 $4 14 When price P falls to $4, existing consumers gain (3x10)=$30 of CS When price P falls to $4, new consumers gain (3x4)/2=$6 of CS Figure 2.2 shows that when price is $7, consumer surplus is $30 (the yellow area). If the price falls to $4, existing consumers save $3 per unit on the 10 units they were already buying, for a gain of $30 (green) in consumer surplus. In addition, 4 more units are sold to buyers who wouldn't have wanted the good for $7, but who do want it for $4. These buyers gain $6 (blue) of consumer surplus when price falls from $7 to $4. Producer Surplus Producer surplus is the seller's net gain from selling a good. Alternatively, we could say it is the excess of what a seller is paid for a good above what he would have barely been willing to accept for it. Graphically, it is the area above the supply curve, below the price, and left of the quantity sold. Example: A seller sells a good for a price of $7. It costs him $4 to produce the good, so $4 is the lowest price he would be willing to accept. He earns producer surplus of $3. Page 3 Microeconomics Topic 8 “Apply principles of consumer/producer surplus to explain efficient level of production and sales in a market.” Reference: Gregory Mankiw’s Principles of Microeconomics, 2 nd edition, Chapter 7. Consumer Surplus Consumer surplus is the buyer's net gain from purchasing a good. Put another way, it is the excess of what a buyer would have been willing to pay for a good over what he actually had to pay for that good. Graphically, it is the area below the demand curve, above the price, and left of the quantity bought. For example, you might be willing, if you had to, to pay $20 to make an important phone call. If the price you actually have to pay for that phone call is $1, then you earn consumer surplus of $19 when you make the call. Figure 2.1 Price Demand Quantity 9 8 7 6 1 2 3 4 A: $3 of CS B: $2 of CS C: $1 of CS D: $0 of CS Total CS=3+2+1=$6 In figure 2.1, we suppose there are 4 consumers: A, B, C, and D. A is willing to pay $9 for one unit of the good. B will pay $8, C will pay $7, and D will pay $6. If the market price of the good is $6 per unit, then A earns consumer surplus of $3, since he was willing to pay $9, but only had to pay $6. Similarly, B earns $2 of consumer surplus (CS), and C earns $1 of CS. Customer D, the so-called "marginal" consumer, is willing to pay $6 for a unit, but since the market price is $6, D gets no consumer surplus. In practice, consumer surplus is pictured as in figure 2.2, as the area below the demand curve, above the price, and left of the quantity bought. Figure 2.2 Price Quantity Demand $7 10 Consumer Surplus CS=(6x10)/2=$30 when price P=$7. $13 $4 14 When price P falls to $4, existing consumers gain (3x10)=$30 of CS When price P falls to $4, new consumers gain (3x4)/2=$6 of CS Figure 2.2 shows that when price is $7, consumer surplus is $30 (the yellow area). If the price falls to $4, existing consumers save $3 per unit on the 10 units they were already buying, for a gain of $30 (green) in consumer surplus. In addition, 4 more units are sold to buyers who wouldn't have wanted the good for $7, but who do want it for $4. These buyers gain $6 (blue) of consumer surplus when price falls from $7 to $4. Producer Surplus Producer surplus is the seller's net gain from selling a good. Alternatively, we could say it is the excess of what a seller is paid for a good above what he would have barely been willing to accept for it. Graphically, it is the area above the supply curve, below the price, and left of the quantity sold. Example: A seller sells a good for a price of $7. It costs him $4 to produce the good, so $4 is the lowest price he would be willing to accept. He earns producer surplus of $3. Figure 2.3 Price Quantity Supply 1 2 3 4 1 2 3 4 A: $3 of PS B: $2 of PS C: $1 of PS D: $0 of PS In Figure 2.3, we imagine 4 sellers: A, B, C, and D. A would barely be willing to sell a unit of the good for $1, but if the going price of the good is $4, A earns producer surplus (PS) of $3. B would sell for $2, but since he charges $4 he earns PS of $2. C earns PS of $1, while D, the “marginal” seller, earns zero PS, since he is barely willing to sell for the going price of $4. Figure 2.4 Price Quantity 8 12 7 10 Supply Producer Surplus PS=(5x8)/2=$20 when price P=$7 When Price rises to $10, existing sellers gain 3x8=$24 When Price rises to $10, new sellers gain (3x4)/2=$6 2 In Figure 2.4, we see that at a price of $7, producer surplus is $20 (blue). If the price rises to $10, then existing sellers gain (3x8)=$24 each (yellow), while new sellers gain (3x4)/2=$6 (green). Page 4 Microeconomics Topic 8 “Apply principles of consumer/producer surplus to explain efficient level of production and sales in a market.” Reference: Gregory Mankiw’s Principles of Microeconomics, 2 nd edition, Chapter 7. Consumer Surplus Consumer surplus is the buyer's net gain from purchasing a good. Put another way, it is the excess of what a buyer would have been willing to pay for a good over what he actually had to pay for that good. Graphically, it is the area below the demand curve, above the price, and left of the quantity bought. For example, you might be willing, if you had to, to pay $20 to make an important phone call. If the price you actually have to pay for that phone call is $1, then you earn consumer surplus of $19 when you make the call. Figure 2.1 Price Demand Quantity 9 8 7 6 1 2 3 4 A: $3 of CS B: $2 of CS C: $1 of CS D: $0 of CS Total CS=3+2+1=$6 In figure 2.1, we suppose there are 4 consumers: A, B, C, and D. A is willing to pay $9 for one unit of the good. B will pay $8, C will pay $7, and D will pay $6. If the market price of the good is $6 per unit, then A earns consumer surplus of $3, since he was willing to pay $9, but only had to pay $6. Similarly, B earns $2 of consumer surplus (CS), and C earns $1 of CS. Customer D, the so-called "marginal" consumer, is willing to pay $6 for a unit, but since the market price is $6, D gets no consumer surplus. In practice, consumer surplus is pictured as in figure 2.2, as the area below the demand curve, above the price, and left of the quantity bought. Figure 2.2 Price Quantity Demand $7 10 Consumer Surplus CS=(6x10)/2=$30 when price P=$7. $13 $4 14 When price P falls to $4, existing consumers gain (3x10)=$30 of CS When price P falls to $4, new consumers gain (3x4)/2=$6 of CS Figure 2.2 shows that when price is $7, consumer surplus is $30 (the yellow area). If the price falls to $4, existing consumers save $3 per unit on the 10 units they were already buying, for a gain of $30 (green) in consumer surplus. In addition, 4 more units are sold to buyers who wouldn't have wanted the good for $7, but who do want it for $4. These buyers gain $6 (blue) of consumer surplus when price falls from $7 to $4. Producer Surplus Producer surplus is the seller's net gain from selling a good. Alternatively, we could say it is the excess of what a seller is paid for a good above what he would have barely been willing to accept for it. Graphically, it is the area above the supply curve, below the price, and left of the quantity sold. Example: A seller sells a good for a price of $7. It costs him $4 to produce the good, so $4 is the lowest price he would be willing to accept. He earns producer surplus of $3. Figure 2.3 Price Quantity Supply 1 2 3 4 1 2 3 4 A: $3 of PS B: $2 of PS C: $1 of PS D: $0 of PS In Figure 2.3, we imagine 4 sellers: A, B, C, and D. A would barely be willing to sell a unit of the good for $1, but if the going price of the good is $4, A earns producer surplus (PS) of $3. B would sell for $2, but since he charges $4 he earns PS of $2. C earns PS of $1, while D, the “marginal” seller, earns zero PS, since he is barely willing to sell for the going price of $4. Figure 2.4 Price Quantity 8 12 7 10 Supply Producer Surplus PS=(5x8)/2=$20 when price P=$7 When Price rises to $10, existing sellers gain 3x8=$24 When Price rises to $10, new sellers gain (3x4)/2=$6 2 In Figure 2.4, we see that at a price of $7, producer surplus is $20 (blue). If the price rises to $10, then existing sellers gain (3x8)=$24 each (yellow), while new sellers gain (3x4)/2=$6 (green). The Efficient Level of Production in a Market The efficient level of production is the quantity of output that results in the highest total surplus, which is the sum of consumer surplus and producer surplus. Figure 2.5 Price Quantity A B C D Supply Demand $12 6 10 15 $7=value to last buyer $16=cost to last seller F E Deadweight loss from underproduction=B+D Deadweight loss from overproduction=E+F Figure 2.5 shows the relative efficiency of different levels of production. At the equilibrium output of 10 units, consumer surplus is given by areas A + B (green + blue). Producer surplus is given by areas C+D (yellow + purple). Now suppose that output is reduced from 10 to 6 units, while the price remains the same. Consumer surplus is reduced to area A. (Recall that CS is the area below demand, above price, and left of the quantity bought.) Similarly, producer surplus is reduced to area C. Thus, total surplus is reduced to area A+C, and society suffers a deadweight loss equal to B+D (blue+purple), which is the loss in total surplus when production falls below the equilibrium quantity. Conclusion: the equilibrium output level is economically superior to any lower output level. Producing less than the equilibrium quantity is inefficient because total surplus is reduced. Put differently, at output levels below equilibrium, consumers’ willingness to pay for an extra unit of the good exceeds the sellers’ cost of producing an extra unit of the good. So from a welfare standpoint, more of the good should be produced. It is also possible to produce too much. Suppose that output rises from 10 to 15. At Q=15, the height of the demand curve is $7, while the height of the supply curve is $16. This means that it costs $16 to produce a unit that buyers value at only $7. The 15 th unit thus created a loss of (16-7)=$9. Consumer surplus falls by the area F --where the price of $12 Page 5 Microeconomics Topic 8 “Apply principles of consumer/producer surplus to explain efficient level of production and sales in a market.” Reference: Gregory Mankiw’s Principles of Microeconomics, 2 nd edition, Chapter 7. Consumer Surplus Consumer surplus is the buyer's net gain from purchasing a good. Put another way, it is the excess of what a buyer would have been willing to pay for a good over what he actually had to pay for that good. Graphically, it is the area below the demand curve, above the price, and left of the quantity bought. For example, you might be willing, if you had to, to pay $20 to make an important phone call. If the price you actually have to pay for that phone call is $1, then you earn consumer surplus of $19 when you make the call. Figure 2.1 Price Demand Quantity 9 8 7 6 1 2 3 4 A: $3 of CS B: $2 of CS C: $1 of CS D: $0 of CS Total CS=3+2+1=$6 In figure 2.1, we suppose there are 4 consumers: A, B, C, and D. A is willing to pay $9 for one unit of the good. B will pay $8, C will pay $7, and D will pay $6. If the market price of the good is $6 per unit, then A earns consumer surplus of $3, since he was willing to pay $9, but only had to pay $6. Similarly, B earns $2 of consumer surplus (CS), and C earns $1 of CS. Customer D, the so-called "marginal" consumer, is willing to pay $6 for a unit, but since the market price is $6, D gets no consumer surplus. In practice, consumer surplus is pictured as in figure 2.2, as the area below the demand curve, above the price, and left of the quantity bought. Figure 2.2 Price Quantity Demand $7 10 Consumer Surplus CS=(6x10)/2=$30 when price P=$7. $13 $4 14 When price P falls to $4, existing consumers gain (3x10)=$30 of CS When price P falls to $4, new consumers gain (3x4)/2=$6 of CS Figure 2.2 shows that when price is $7, consumer surplus is $30 (the yellow area). If the price falls to $4, existing consumers save $3 per unit on the 10 units they were already buying, for a gain of $30 (green) in consumer surplus. In addition, 4 more units are sold to buyers who wouldn't have wanted the good for $7, but who do want it for $4. These buyers gain $6 (blue) of consumer surplus when price falls from $7 to $4. Producer Surplus Producer surplus is the seller's net gain from selling a good. Alternatively, we could say it is the excess of what a seller is paid for a good above what he would have barely been willing to accept for it. Graphically, it is the area above the supply curve, below the price, and left of the quantity sold. Example: A seller sells a good for a price of $7. It costs him $4 to produce the good, so $4 is the lowest price he would be willing to accept. He earns producer surplus of $3. Figure 2.3 Price Quantity Supply 1 2 3 4 1 2 3 4 A: $3 of PS B: $2 of PS C: $1 of PS D: $0 of PS In Figure 2.3, we imagine 4 sellers: A, B, C, and D. A would barely be willing to sell a unit of the good for $1, but if the going price of the good is $4, A earns producer surplus (PS) of $3. B would sell for $2, but since he charges $4 he earns PS of $2. C earns PS of $1, while D, the “marginal” seller, earns zero PS, since he is barely willing to sell for the going price of $4. Figure 2.4 Price Quantity 8 12 7 10 Supply Producer Surplus PS=(5x8)/2=$20 when price P=$7 When Price rises to $10, existing sellers gain 3x8=$24 When Price rises to $10, new sellers gain (3x4)/2=$6 2 In Figure 2.4, we see that at a price of $7, producer surplus is $20 (blue). If the price rises to $10, then existing sellers gain (3x8)=$24 each (yellow), while new sellers gain (3x4)/2=$6 (green). The Efficient Level of Production in a Market The efficient level of production is the quantity of output that results in the highest total surplus, which is the sum of consumer surplus and producer surplus. Figure 2.5 Price Quantity A B C D Supply Demand $12 6 10 15 $7=value to last buyer $16=cost to last seller F E Deadweight loss from underproduction=B+D Deadweight loss from overproduction=E+F Figure 2.5 shows the relative efficiency of different levels of production. At the equilibrium output of 10 units, consumer surplus is given by areas A + B (green + blue). Producer surplus is given by areas C+D (yellow + purple). Now suppose that output is reduced from 10 to 6 units, while the price remains the same. Consumer surplus is reduced to area A. (Recall that CS is the area below demand, above price, and left of the quantity bought.) Similarly, producer surplus is reduced to area C. Thus, total surplus is reduced to area A+C, and society suffers a deadweight loss equal to B+D (blue+purple), which is the loss in total surplus when production falls below the equilibrium quantity. Conclusion: the equilibrium output level is economically superior to any lower output level. Producing less than the equilibrium quantity is inefficient because total surplus is reduced. Put differently, at output levels below equilibrium, consumers’ willingness to pay for an extra unit of the good exceeds the sellers’ cost of producing an extra unit of the good. So from a welfare standpoint, more of the good should be produced. It is also possible to produce too much. Suppose that output rises from 10 to 15. At Q=15, the height of the demand curve is $7, while the height of the supply curve is $16. This means that it costs $16 to produce a unit that buyers value at only $7. The 15 th unit thus created a loss of (16-7)=$9. Consumer surplus falls by the area F --where the price of $12 is above their willingness to pay for an extra unit of the good-- and producer surplus falls by the area E --where the price of $12 lies below their cost of producing an extra unit of the good. The deadweight loss of the excess production is measured by areas E+F (orange), which is the loss in total surplus when production rises above the equilibrium quantity. Conclusion: the equilibrium output level is economically superior to any higher output level. Producing more than the equilibrium quantity is inefficient because total surplus is reduced. Put differently, at output levels above equilibrium, the sellers’ cost of producing an extra unit of the good exceeds consumers’ willingness to pay for an extra unit of the good. So from a welfare standpoint, less of the good should be produced.Read More
FAQs on Micro economics - B Com
| 1. What is microeconomics? |  |
Microeconomics is the branch of economics that focuses on individual economic units such as households, firms, and industries. It examines how these units make decisions regarding the allocation of resources and the interactions between supply and demand in specific markets.
| 2. How does microeconomics differ from macroeconomics? | |
Microeconomics and macroeconomics are two main branches of economics. While microeconomics focuses on individual economic units, macroeconomics deals with the economy as a whole. Microeconomics analyzes the behavior of individual consumers and firms, while macroeconomics examines aggregate variables such as inflation, unemployment, and GDP.
| 3. What are the main principles of microeconomics? | |
The main principles of microeconomics include supply and demand, opportunity cost, marginal analysis, market equilibrium, and market failures. Supply and demand determine the prices and quantities of goods and services in a market. Opportunity cost refers to the value of the next best alternative that is forgone when making a decision. Marginal analysis involves examining the additional benefits and costs of producing or consuming one more unit. Market equilibrium occurs when the quantity supplied equals the quantity demanded. Market failures refer to situations where the market fails to allocate resources efficiently.
| 4. How does microeconomics apply to real-world situations? | |
Microeconomics applies to real-world situations by providing a framework to analyze and understand various economic decisions and behaviors. For example, it can help explain why prices of certain goods or services increase or decrease, how individuals and firms make choices in response to changes in prices, and why some markets are more competitive than others. Microeconomic principles are also used to study topics such as consumer behavior, production and cost analysis, market structures, and government policies.
| 5. What are some limitations of microeconomics? | |
Microeconomics has certain limitations. Firstly, it assumes that individuals and firms are rational decision-makers, which may not always be the case in reality. Additionally, microeconomics often simplifies the complexities of the real world by making assumptions, which may not fully capture the dynamics of actual economic systems. Furthermore, microeconomics focuses on specific markets and may not consider the interconnections and feedback effects between different markets. Lastly, microeconomics does not take into account factors such as income distribution, inequality, and social welfare, which are important considerations in a broader societal context.
Related Exams
About this Document
|
Nov 15, 2024 Last updated |
Document Description: Micro economics for B Com 2024 is part of B Com preparation. The notes and questions for Micro economics have been prepared according to the B Com exam syllabus. Information about Micro economics covers topics like and Micro economics Example, for B Com 2024 Exam. Find important definitions, questions, notes, meanings, examples, exercises and tests below for Micro economics.
Description
Full syllabus notes, lecture & questions for Micro economics - B Com - B Com | Plus excerises question with solution to help you revise complete syllabus | Best notes, free PDF download
Information about Micro economics
In this doc you can find the meaning of Micro economics defined & explained in the simplest way possible.
Besides explaining types of Micro economics theory,
EduRev gives you an ample number of questions to practice Micro economics tests, examples and also practice B Com tests.
Download as PDF
|
Explore Courses for B Com exam
|
|
Signup for Free!
Signup to see your scores go up within 7 days! Learn & Practice with 1000+ FREE Notes, Videos & Tests.
Related Searches
Free
,practice quizzes
,shortcuts and tricks
,mock tests for examination
,Micro economics - B Com
,Objective type Questions
,past year papers
,Semester Notes
,Important questions
,study material
,Sample Paper
,Extra Questions
,MCQs
,ppt
,Micro economics - B Com
,Viva Questions
,video lectures
,Previous Year Questions with Solutions
,Exam
,Summary
,Micro economics - B Com
;
Additional Information about Micro economics for B Com Preparation
Micro economics Free PDF Download
The Micro economics is an invaluable resource that delves deep into the core of the B Com exam.
These study notes are curated by experts and cover all the essential topics and concepts, making your preparation more efficient and effective.
With the help of these notes, you can grasp complex subjects quickly, revise important points easily,
and reinforce your understanding of key concepts. The study notes are presented in a concise and easy-to-understand manner,
allowing you to optimize your learning process. Whether you're looking for best-recommended books, sample papers, study material,
or toppers' notes, this PDF has got you covered. Download the Micro economics now and kickstart your journey towards success in the B Com exam.
Importance of Micro economics
The importance of Micro economics cannot be overstated, especially for B Com aspirants.
This document holds the key to success in the B Com exam.
It offers a detailed understanding of the concept, providing invaluable insights into the topic.
By knowing the concepts well in advance, students can plan their preparation effectively.
Utilize this indispensable guide for a well-rounded preparation and achieve your desired results.
Micro economics Notes
Micro economics Notes offer in-depth insights into the specific topic to help you master it with ease.
This comprehensive document covers all aspects related to Micro economics.
It includes detailed information about the exam syllabus, recommended books, and study materials for a well-rounded preparation.
Practice papers and question papers enable you to assess your progress effectively.
Additionally, the paper analysis provides valuable tips for tackling the exam strategically.
Access to Toppers' notes gives you an edge in understanding complex concepts.
Whether you're a beginner or aiming for advanced proficiency, Micro economics Notes on EduRev are your ultimate resource for success.
Micro economics B Com Questions
The "Micro economics B Com Questions" guide is a valuable resource for all aspiring students preparing for the
B Com exam. It focuses on providing a wide range of practice questions to help students gauge
their understanding of the exam topics. These questions cover the entire syllabus, ensuring comprehensive preparation.
The guide includes previous years' question papers for students to familiarize themselves with the exam's format and difficulty level.
Additionally, it offers subject-specific question banks, allowing students to focus on weak areas and improve their performance.
Study Micro economics on the App
Students of B Com can study Micro economics alongwith tests & analysis from the EduRev app,
which will help them while preparing for their exam. Apart from the Micro economics,
students can also utilize the EduRev App for other study materials such as previous year question papers, syllabus, important questions, etc.
The EduRev App will make your learning easier as you can access it from anywhere you want.
The content of Micro economics is prepared as per the latest B Com syllabus.
|
© EduRev
|
Education Revolution
|
Follow Us
|
Signup to see your scores
go up within 7 days!
Access 1000+ FREE Docs, Videos and Tests
Takes less than 10 seconds to signup