Accounting & Economics For Business 8 November

ECONOMICS FOR
BUSINESS
AFTERSCHO☺OL
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www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

ACCOUNTING ECONOMICS
FOR BUSINESS
Dr. T.K. Jain.
AFTERSCHO☺OL
Centre for social entrepreneurship
Bikaner M: 9414430763
tkjainbkn@yahoo.co.in
www.afterschool.tk, www.afterschoool.tk
X and Y are partners sharing profits
and losses in the ratio 2:1 they
added Jitu into partnership and
profit sharing ratio of the three is
now 2:2:1. what is the gaining /
sacrificing ratio of X & Y
• X = 2/3 – 2/5 = 4/15 (sacrificed)

• Y = 1/3 – 2/5 = - 1/15 (gained).
• Thus Y has gained and X has sacrificed.
If two letters are taken from HOME,
what is the probability that they are
not vowels?
• 2c2 / 4c2
• =1/6 answer.
• (c = combination, read the theories of
permutation and combination in
mathematics to understand this question
better).

Remember the firm’s
supply curve?
P=MR=AR
AVC

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What is the market condition in the
previous graph?
• Perfect market – because only in perfect
market, you have MR = AR.

What is equilibrium point?
• Where MR = MC
• In this question, this is also the point
where AR=MR = MC

How is shut down point identified
in the previous graph?
• MC = marginal cost
• AVC = average variable cost.
• The point where MC curves intersects
AVC. Remember MC curve also
reprensents the supply curve of the
company.

P=MR=AR
Firm’s supply curve

starts at shut down
level of output
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AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS
Profit maximizing firm
will desire to produce
where MC=MR
P=MR=AR
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Economic losses will occur
beyond output OMAX, where
MC > MR
P=MR=AR
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Page 162
Building the Market Supply Curve
Market supply curve can be thought of as the horizontal summation

of the supply decisions of all firms in the market. Here, at a price
of $1.50, Gary would supply 2 tons of broccoli and Ima would
supply 1 ton, giving a market supply of 3 tons.
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+ =

Page 163
How is industry demand
determined?
• There are different firms in an industry,
each willing to sell at its profit maximising
level (or anywhere above shut down
level). Combining these together gives you
equilibrium of the industry.

Merging Demand and
Supply
Price
D S
PE Market clearing price
QE Quantity

Merging Demand and
Supply
Price
D S
PE
Demand curve
QE Quantity

Merging Demand and
Supply
Factors that change
Price D*
D S demand:
 Other prices
 Consumer income
PE*  Tastes and preferences
PE  Real wealth effect
 Global events
QE QE* Quantity

Merging Demand and
Supply
Price
D S
Supply curve
PE
QE Quantity

Merging Demand and
Supply
S*
Price Factors that change
D S supply:
 Input costs
 Government policy
PE*
 Price expectations
PE
 Weather & disease
 Global events
QE* QE Quantity

Concept of Producer Surplus
Producer surplus is a fancy term economists

use for profit. We measure producer surplus
as the area above the supply curve and
below the market equilibrium price.
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Concept of Producer Surplus
Producer surplus is a fancy term economists

use for profit. We measure producer surplus
as the area above the supply curve and
below the market equilibrium price.
Total economic surplus is therefore equal to

consumer surplus plus producer surplus.
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Market Price of $4
A B
Product price
Producer surplus at $4
is equal to area ABC
F G
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Suppose Price Increased to $6…
Product price
Producer surplus at $6
is equal to area EDC
F G
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The gain in producer surplus
if the price increases from $4
is equal to area AEDB
Producers are better

off economically by
responding to this
price increase by
C producing output G
F G
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Economic Welfare Concepts
We can use the concepts of market demand
and supply to assess the effects of events
in the economy have upon the economic
well being of consumers and products in
a particular market during a specific period.
We do this using the total economic surplus

which is given by:
Total economic Consumer Producer

surplus = surplus + surplus
An Example of Economic Welfare Analysis
Assume a drought occurs

that results in a decrease
in supply from S to S*.
Before this happened,

consumer surplus was
area 3+4+5 while producer
surplus was equal to
area 6+7. Total economic
equals area 3+4+5+6+7
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After the decrease in

supply, consumer surplus
is just area 3. They lose
area 4 and area 5.
Producers gain area 4 but

lose area 7.

Consumers are therefore

worse off because of the
drought.
Producers are also worse
off if area 4 is less than
area 7.
Society loses area 5+7.

Measuring Surplus Levels
$7 D
S Consumer surplus is
equal to (10 x (7-4))÷2,
or $15
$4 Product price
$1
10

$7 D
equal to (10 x (7-4))÷2,
or $15
$4 Product price
Producer surplus is
Equal to (10 x (4-1))÷2,
or $15
$1
10

$7 D
equal to (10 x (7-4))÷2,
or $15
$4 Product price
Producer surplus is
Equal to (10 x (4-1))÷2,
or $15
$1
10
Total economic surplus

is therefore $30…
Market Disequilibrium

Market Surplus
At the price PS,

producers would
supply QS.
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Market Surplus
At the price PS,

consumers would
only want QD.
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Market Surplus
At the price PS,

a market surplus
equal QS – QD exists
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Market Shortage
At the price PD,

producers would
only supply QS.
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Market Shortage
Consumers
want QD at this
low price.

Market Shortage
Consumers
At the price PD,
want QD atshortage
a market this
low
equal
price.
QD – QS exists

Adjustments to Market
Equilibrium
Markets converge to equilibrium over time

unless other events in the economy occur.
One explanation for this adjustment which

makes sense in agriculture is the Cobweb
theory. This names stems from the spider
like trail the adjustment process makes.

Year Two Reactions
Producers use last year’s

Price (P1) as their expected
price for year 2 – will produce Q2
in year 2.
Due to surplus, this Q will then cause

Prices in year 2 to fall to P2
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Year Three Reactions
P3
P2
Producers now decide to

produce less at the lower
price. This lower quantity pushes
price up to P3 in year 3.

Page 172
Cobweb Pattern Over Time
Market
equilibrium
The market converges to

market equilibrium where
demand intersects supply
at price PE. In some
markets, this adjustment
period may only be months
or even weeks rather than
years assumed here.
Market-to-Firm
Linkages

Some Important Jargon
We need to distinguish between movement

along a demand or supply curve, and shifts
in the demand or supply curve.

Some Important Jargon
We need to distinguish between movement

along a demand or supply curve, and shifts
in the demand or supply curve.
Movement along a curve is referred to as a

“change in the quantity demanded or supplied”.
A shift in a curve is referred to as a “change
in demand or supply”.

Increase in demand Decrease in demand
pulls up price from pushes price down
Pe to Pe* from Pe to Pe**
Increase in supply Decrease in supply
pushed price down pulls up price from
from Pe to Pe* Pe to Pe**
Merging Demand and
Supply
Price
D S
Supply curve
PE
Demand curve
QE Quantity

Firm is a “Price Taker”
Under Perfect Competition
Price The Market The Firm
Price
D S
AVC MC
PE
QE OMAX
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Quantity
If Demand Increases……
The Market The Firm
Price D
D1
Price
S
AVC MC
PE
QE 10 11
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Quantity
If Demand Decreases……
The Market The Firm
Price Price
D2 D S
AVC MC
PE
QE 9 10
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Quantity
Firm is a “Price Taker” in
the Input Market
Price Labor Market The Firm
Price
D S
MVP
MIC
PE
QE LMAX
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Quantity
Firm is a “Price Taker” in
the Input Market
Price
D S
MVP
PE
MIC
QE LMAX
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Quantity
Effects of Increasing The
Minimum Wage
Price
D S
MVP
PMIN
MIC
QD QS LMAX
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Quantity
Summary
 Market equilibrium price and
quantity are given by the
intersection of demand and
supply
 Producer surplus captures the
profit earned in the market by
producers
 Total economic surplus is equal to
producer surplus plus consumer
surplus
 A market surplus exists when the
quantity supplied exceeds the
quantity demanded.
 A market shortage exists when the
www.afterschoool.tk quantity demanded
AFTERSCHO☺OL's exceeds
MATERIAL FOR PGPSE the
PARTICIPANTS
quantity supplied.
Some questions on
accounting & economics

SOLVE IT
• A draws a bill on B for Rs 30,000 for mutual
accommodation. A discounted that bill
• For Rs.28,000 from bank and remitted
Rs.14,000 to B. On due date A will send to B
• (a) Rs. 14,000
• (b) Rs,14,500
• (C) Rs.15,000
• (d) Rs.15,500

Solution
• The bill gave them 28000 out of which
both of them will share equally. Both of
them had to get 14000 each – and they
have got it. The discount was Rs. 2000
and both have shared it equally. Thus on
due date the payment of Rs. 30000 will be
made by B. He already has 14000 and he
will further get 15000 from A and he will
add 1000 from his share. Answer.
Solve it
• Sure Ltd. issued 5,000, 15% Debentures of
Rs.100 each at a premium of Rs 10 These
debentures were to be redeemed at a
premium of Rs.4 each after 5 years amount to
be credited to the debenture premium
account will be
• (a) Rs.25,000
• (b) Rs.50,000
• (C) Rs:40,000
• (d) Rs.60,000
• Solution : 5000 * 10 = 50000

Solve it
• Mr. Big who was the holder of 200 equity shares of
Rs.100 each on which Rs.75 per share has been called
up could not pay his dues on allotment and first call each
at Rs.25 per share. The Directors forfeited the above
shares and reissued 150 of such shares to Mr. Small at
Rs.65 per share paid-up as Rs.75 per share. The
amount to be transferred to Capital Reserve account will
be
• (a) Rs.1,500.
• (b) Rs. 2,250.
• (c) Rs. 5,000.
• (d) Nil.

Solution
• Amount received = 25*200 = 5000
• Discount allowed = 10 * 150 = 1500
• Remaining amount
• 15*150 = 2250
• Answer.

The Board of Directors of a
company decides to issue minimum
number of equity
shares of Rs. 10 each at 10%
discount to redeem Rs.5,00,000
preference shares.Maximum
amount of divisible profit available
for redemption is Rs. 3 lakhs. The
number of shares to be issued by
the company will be ?
Solution
• 5 – 3 = 2 lakhs to be collected
• Total shares to be issued :
• 2 lakhs / (Rs. 10 – 1)
• =22222 shares to be issued at a discount
of 10%.
• Answer.

What is an indifference curve?
• Suppose I can buy two goods from some
money and get equal satisfaction – there
is a point where I am indifferent between
them – (purchasing any of these will give
equal satisfaction) - A curve with
collection of locus of all such points is
called indifference curve. This curve can
be plotted in production function also
(various combination of capital and labour
that give you equal production).
What is break even point?
• The point where there is no profit no loss
is called break even point

P of Faridabad sent out goods
costing Rs. 45000 to Goti of
Bikaner at cost + 33%,1/10th of
goods were lost In transit. 2/3rd of
the goods received are sold at
20% above price. The amount of
sale value wilt be;
• Cost of goods sold = 45000*9/10*2/3
• =27000. Print price = 27000+1/3 = 36000
• 20% above print = 36000*1.2=43200(ans).
Debit balance as per Cash Book of ABC
Enterprises as on 31.3.2006 is Rs. 1,500.
Cheques deposited but not cleared amounts to
Rs.100 and Cheqes issued but not presented
of Rs.50. The bank gave interest amounting
Rs.50 and collected dividend Rs. 50 on behalf
of ABC Enterprises. Balance as per pass book
should be

Solution
• 1500 -100 +50 +50 +50
• =1550 answer.

Solve it
• A, B and C were partners in firm sharing
profits and losses in th ratio of 2:2:1
respectively with the capital balance of Rs.
50,000 for A and B, for C Rs. 25,000; C
declared to retire from the firm and
balance in reserve on the date was Rs.
15,000. If goodwill of the firm was valued
as Rs. 30,000 and profit on revaluation
was Rs. 7,050 then what amount Will be
transferred to the loan account of C?
Share of C
• Capital 25000
• Goodwill 30000*1/5 = 6000
• Reserve = 15000*1/5 = 3000
• Revaluation profit = 7050*1/5 = 1410
• Add these = 35410 will be transferred to
C’s loan account.

In the previous question question,
what will A get if he retires?
• Capital = 50000
• Goodwill 30000*2/5 = 12000
• Reserve = 15000*2/5 = 6000
• Revaluation profit = 7050*2/5 = 2820
• Add these = 70820 will be transferred to
A’s loan account.

The total cost of goods available for
sale with a company during the
current year is Rs.12,00,000 and
the totai sales during the period are
Rs.13,00,000. if the gross profit
margin of the company is 33 % on
cost, the closing inventory during
the current year

Solution
• Total sales = 13 lakhs
• Cost of this sale = 13 lakh * 100/133
• =975000
• Thus closing stock is 1200000-975000
• =225000 answer.

Consider the following data pertaining to Goti
Ltd. for the month of March 2005:
ParticularsAs on March 01, 2005 (Rs.) As
Stock 1,80,000 & on March 31, 2005 (Rs.)
90,000
The company made purchases amounting Rs.
3,30,000 on credit. During the month of March
2005, the company paid a sum of Rs.3,50,000
to the suppliers. The goods are sold at 25%
above the cost. The sales for the month of
March 2005 were

Solution – stock account
• Opening stock • Closing stock 90000
180000 • Goods used in
• Purchase 330000 manufacture =
• 420000

Solution
• Sale = cost of goods sold + Gross profit
• 420000 + 25%
• =525000
• Thus sale was Rs. 525000

Bhuwanesh Audi Ltd. dealer in second-hand
cars has the following five vehicles of different
models [ in their stock at the end of the financial
year 2004-2005: what is stock?
• The net realisable
• Cost : value were :
• Fiat 90,000 • Fiat 95,000
• Ambassador1,15,000 • Ambassador 1,55,000
• Maruti • Maruti
Esteem2,75,000 Esteem2,65,000
• Maruti 800 • Maruti 800
1,00,000 1,25,000
• Zen 2,10,000 • Zen 2,00,000
Solution
• We shall take lower of cost & realisable

value to compute the cost:
• Fiat 90,000
• Ambassador1,15,000
• Maruti Esteem2,65,000
• Maruti 800 =1,00,000
• Zen 2,00,000
• Total stock = 770000 answer.
Solve it
• On May 01,2003. Goti Ltd. Issued 7% 40
lakh convertible debentures of Its. 100
each at a premium of 20’ Interest is
payable on September30 and March 31.
esers sear. The interest runs from the
date of issue, the amt. of interest
expenditure debited to profit and loss
Account for the year ended 2004 will be:

Solution
• Interest will be charged for 11 months.
• 40,00,000 *11/12* 7/100
• =256666 answer.

Study the production possibility curve below. X axis
is for consumer goods, capital goods is denoted by
Y axis.

Which points in PPC represent
equal production?
• A,B,C,D

highest production?
• W

lowest production?
• U

Which is the equilibrium point?

Solution
• Q == because this is the point, where
highest indifference curve touches the
budget line.

In the graph,which indifference
curve shows least satisfaction?

Solution
• IC 1

If a consumer’s income increases,
which ICs will he touch?

Solution
• The consumer will shift from IC3 to IC4
and then to IC 5.

Which is the budget line? What will
happen, if income decreases and
price of X also decreases?

Solution
• Budget line is YL.
• The point L will not shift much. But the
point Y will shift toward below and the
budget line will shift below.

What is FII?
• Foreign institutional investors
• They invest money in the secondary
market – in stock markets etc.

What is private placement?
• When a company directly sells its equity to
an investor, it is called private placement.

What is book building?
• The process by which shares of a
company are given support by another
company is called book building. The
company which undertakes book building,
tries to ensure that the shares don’t fall
below certain level.

Which is this – demand curve or
supply curve?

Solution
• Supply curve

What is PPC?
• Production possibility curve

What is labour mobility?
• Labour is one of the factors of production
(the other factor is capital). When the
labour is able to move from one place to
another, it is called labour mobility.

In the following case, there is shift
in a curve, identify the reason of
shift?

Solution
• Supply has decreased. Answer.

What is basis point?
• In international markets, when firms go to
raise funds, they get loan at LIBOR +
basis point. For example, if interest rate is
LIBOR + 300 basis point, and LIBOR is 5,
then the rate of interest is 5.3%.
• These basis points show change from
LIBOR (London Inter Bank Offered Rate).

When does the law of increasing
return end?

Solution
• As you can see there are three stanges:
• 1. increasing returns
• 2. constant returns
• 3. decreasing returns
• The law of increasing returns ends at point

N. answer.

what is GDP, and how is it
measured?
• GDP= Gross Domestic Product.
• There are 3 ways to measure it:
3. Calculate total earnings of every one and
sum it up.
4. Calculate expenses of each individual in
the nation and sum it up.
5. Identify total production of goods and
services in the nation by each unit and
sum it up.
What is utility and what is its
impact?
• Utility is the benefit that a consumer derives
from consuming some product or service.
• Utility reduces with each unit of consumption
• There are 2 concepts regarding utility :
• 1. Cardinal utility – the utility can be
measured
• 2. ordinal utility – utility cannot be measured.

What do you understand from
diminishing marginal utility?
• Utility reduces with each additional unit
consumed. Thus diminishing marginal
utility means the utility will reduce with
each unity being consumed.
• Marginal utility means the utility derived
from one additional unit consumed.

What is the relation between
demand & supply regarding factors
of production
(a) Labor Demand (b) Production Function
Real wage, Inc ome, output,
Y
W/P
W/P1 Y 5 F(L)
Y2
W/P2
Y1
L 5 Ld(W/P )
4. ... output,
..
2. .. . reduces L1 L2 Labor,L L1 L2 Labor,L
the real wage 3. ...which raises
for a given
employment,..
nominal wage,..
(c) Aggregate Supply
Pric e level,
P Y 5 Y1 a(P 2 Pe)
P2
6. The aggreg
P1 supply curve
summarizes
these changes
1. An increase
in the price Y1 Y2 Inc ome, output
Y
level
..
5. ... and income.

What are the factors of production?
• There are many, some of them are :
2. Labour
3. Capital
4. Technology
5. Entrepreneurship
We generally take only 2 factors while doing

analysis : these are 1. capital 2. labour
What is short run and what is long
run?
• Short run is the period in which we cannot
increase the capacity of the plant. Long run
is the period in which we can increase or
decrease the capacity of the plant and also
install or close a plant.
• In short run only one factor can be changed –
labour – other factors are constant
• In long run both labour and capital can be
changed. Plant capacity be altered.

What is bank rate ?
• The rate at which the central bank ( RBI in
the case of India or FED bank in the case
of the USA) gives loan to other bank is
called bank rate.

What is PLR?
• Prime lending rate – it is the rate at which
a bank gives loan to prime customer.
Prime customer means the customer,
whose economic conditions are very good
and who is credit worthy.

What is CRR & SLR?
• CRR = cash reserve ratio (it denotes the
ratio of cash held by banks against the
deposits)
• SLR = statutary liquidity ratio (it denotes
the ratio of investments in government and
approved securities by the banks).

Suppose the total deposits are 1
lakh crores in India – RBI reduces
CRR by 1%, what will happen?
• 1% of 1 lakh crore = 1000 lakh crores.
Thus liquidity in the market will increase
by 1000 lakh crore Rupees – as bank will
be able to give more loans and will be able
to give money easily. Due to ease in
liquidity, the industry will benefit as it will
be able to get more funds easily.
However, inflation may increase due to
this.
Which is called banker of banks or
banker of last resort?
Central bank (RBI in India).

What is liquidity?
• Availability of cash / cash equivalent is
called liquidity.

What is sensex?
• It is index of stock prices based 30
selected scrips. These 30 scrips are those
which are selected on the basis of market
capitalisation & business volumet.
• It is presented by BSE (Bombay stock
exchange).

What is NIFTY?
• It is index of stock prices based 50
selected scrips. These 50 scrips are those
which are selected on the basis of market
capitalisation & business volumet.
• It is presented by NSE (National stock
exchange).

What is NPA?
• Non performing assets –in banks, the
major assets are loans given to
companies / units / people. Some times
some loans become overdue - those
loans (assets) which are not performing –
means not making regular payments of
their outstanding amounts are called NPA.
• NPA word is used for banking industry.

What is CAC?
• Capital Account Convertibility.
• When foreign exchange is converted into
capital account freely even in capital
account, it is called capital account
convertibility.
• Capital account here mean money raised
for capital projects / investment purpose
etc.
What is LC?
• Letter of credit, = when a bank gives loan
against export documentation, it is called
LC. For example, if you export some
goods, the buyer send you acceptance of
the bill and the bank of the buyer gives
guarantee, then your bank can give you
loan agains these documents. This is
called LC.

What is packing credit?
• When you have received an order from an
importer for some goods and you want to
make goods as per the order, then you
may take packing credit from the banks. In
packing credit the bank gives you loan for
purchasing raw material, and other
working capital expenses. It is given for
period till exports are sent – later LC is
given.
What is forex reserves?
• Foreign exchange reserves of a country is
called forex reserve.
• It will increase in following cases : If FDI
will increase, FII will invest more money
and exports will increase, increase of
tourists to your country, repatriation of
money by NRIs (non residents Indians),

What is IRS?
• INTEREST RATE SWAP
• Banks use these instruments to minimise
their risks.

What is ALM?
• Asset liability management – banks try to
match the cash flows of cash inflow and
cash outflow through ALM. They try to
match their assets and liabilities.
• Banks’s assets are its loans
• Bank’s liabilities are its deposits
• Matching them is called ALM.

What is hedging?
• When banks use various instruments like
swaps, options etc. to reduce their risk
exposure it is called hedging.

What FCD?
• Fully convertible debentures.

What is market capitalisation?
• No. of shares multiplied to the market
price per share.
• For example, the share of reliance is
quoted at Rs. 1250. suppose there are
100 shares in the market. The market
capitalisation is 125000.

What do you understand from
reverse mortgage?
• In mortgage, a person goes to bank and puts his
land / building as mortgage to obtain loans
(humge amount simultaneously) from bank and
then he used to repay it in long time. In reverse
mortgage, the bank gives land / building to the
other person and gives money also on monthly
basis and takes back the land / building after
long time. (many old age persons are resorting
to this option for maintaining their living)

What is microfinance?
• Raising small deposits (let us say Rs. 10
per month) – pooling this money together
and Giving loan in very small amount (let
us say Rs. 2000) so that a person may
start a micro-enterprise – and can become
self dependent. It is very successful
business model –as has been proved by
Gramin Bank and SEWA.

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an employee
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Workshops from
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• IIF, Delhi
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• Apex Institute of Management, Jaipur
• Aravali Institute of Management, Jodhpur
• Xavier Institute of Management, Bhubaneshwar
• Pacific Institute, Udaipur
• Engineering College, Hyderabad

Flexible Specialisations:
• Spiritualising business and society
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• Accounting & Information system (with CA / CS /CMA)
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Salient features:
• The only programme of its kind (in the whole world)
• No publicity and low profile course
• For those who want to achieve success in life – not just a
degree
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the education by distance mode. / you may attend weekend
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with the time
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material

Components
• Pedagogy curriculum and approach based on IIM Ahmedabad and ISB
Hyderabad (the founder is alumnus from IIMA & ISB Hyderabad)
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• Study exchange programme (with institutions out of
India)
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Branches
• AFTERSCHO☺OL will shortly open its
branches in important cities in India
including Delhi, Kota, Mumbai, Gurgaon
and other important cities.
Afterschooolians will be responsible for
managing and developing these branches
– and for promoting social entrepreneurs.

Case Studies
• We want to write case studies on social
entrepreneurs, first generation
entrepreneurs, ethical entrepreneurs.
Please help us in this process. Help us to
be in touch with entrepreneurs, so that we
may develop entrepreneurs.

Basic values at AFTERSCHO☺OL
• Share to learn more
• Interact to develop yourself
• Fear is your worst enemy
• Make mistakes to learn
• Study & discuss in a group
• Criticism is the healthy route to mutual support
and help
• Ask fundamental questions : why, when, how &
where?
• Embrace change – and compete with yourself
only
www.afterschoool.tk
social entrepreneurship for better
society

Accounting & Economics For Business 8 November

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ECONOMICS FOR

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

• X = 2/3 – 2/5 = 4/15 (sacrificed)

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

Firm’s supply curve

Market supply curve can be thought of as the horizontal summation

Market supply curve can be thought of as the horizontal summation

Market supply curve can be thought of as the horizontal summation

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

PE Market clearing price

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

Producer surplus is a fancy term economists

Producer surplus is a fancy term economists

Total economic surplus is therefore equal to

Producers are better

We do this using the total economic surplus

Total economic Consumer Producer

Assume a drought occurs

Before this happened,

After the decrease in

Producers gain area 4 but

www.afterschoool.tk Page 169

Consumers are therefore

www.afterschoool.tk Page 169

www.afterschoool.tk Page 168

www.afterschoool.tk Page 168

Total economic surplus

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

At the price PS,

At the price PS,

At the price PS,

At the price PD,

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

Markets converge to equilibrium over time

One explanation for this adjustment which

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

Producers use last year’s

Due to surplus, this Q will then cause

Producers now decide to

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

The market converges to

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

We need to distinguish between movement

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

We need to distinguish between movement

Movement along a curve is referred to as a

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL FOR PGPSE PARTICIPANTS