Business Economics powerpoint presentation

Business economics

1. Pricing practices Group C-13 345 – Pearl Jain 346 – Piya Jain 347 - Pragya Jain 348 – Pranav Jain 349 – Pratham Jain 350 – Priyansh Jain 351 - Priyansh Jain

2. Consumer surplus Consumer surplus is the difference between willingness to pay for a good and the price that consumers actually pay for it. Each price along a demand curve also represents a consumer's marginal benefit of each unit of consumption. The difference between a consumer's marginal benefit for a unit of consumption, and what they actually pay, represents how much benefit a consumer get's from the price they are paying.

3. Producer surplus Producer surplus  represents the difference between the price a seller receives and their willingness to sell for each quantity. Each price along a supply curve also represents a seller's marginal cost of producing each unit of production. Therefore the difference between what the price that the seller for each unit, and what it cost for the seller to produce that last unit, represents the seller's benefit from the price they are getting.

4. Total welfare Consumer and producer surplus together represent the total surplus, or total welfare in a market. Total welfare is the total extra benefit or happiness enjoyed by producers and consumers who feel they got a good price for the product being exchanged (paid less than they were willing to pay or received more than they were willing to accept).

5. Pricing practice in monopoly vs perfectly comparative market A monopoly occurs when a firm lacks any viable competition and therefore has absolute market power and can set a price above the firm's marginal cost. In a perfectly competitive market, there are many producers and consumers, price equals marginal cost and firms earn an economic profit of zero

6. Total surplus in perfectly competitive market Consumer surplus (blue area in the graph): Area above the equilibrium price Ppc and below the demand curve Producer surplus (red area in the graph): Area below the equilibrium price Ppc and above the supply curve Total surplus = Consumer surplus (blue area in the graph) + Producer surplus (red area in the graph)

7. Total surplus in perfectly competitive market Consumer surplus (blue area in the graph): Area above the equilibrium price Pm and below the demand curve Producer surplus (red area in the graph): Area below the equilibrium price Pm and above the supply curve Total surplus = Consumer surplus (blue area in the graph) + Producer surplus (red area in the graph)

8. Deadweight loss High monopoly prices lead to a deadweight loss of consumer welfare because output is lower and price higher than a competitive equilibrium. High prices mean some consumers are priced out of the market because of a fall in effective demand. The monopolist makes abnormal (supernormal) profit (price > AC) but the loss of consumer surplus is greater than the gain in producer surplus leading to a net loss of welfare.

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