1. ECONOMICS FOR BUSINESS AFTERSCHO☺OL – DEVELOPING CHANGE MAKERS CENTRE FOR SOCIAL ENTREPRENEURSHIP PGPSE PROGRAMME – World’ Most Comprehensive programme in social entrepreneurship & spiritual entrepreneurship OPEN FOR ALL FREE FOR ALL

2. ACCOUNTING ECONOMICS FOR BUSINESS Dr. T.K. Jain. AFTERSCHO☺OL Centre for social entrepreneurship Bikaner M: 9414430763 [email_address] www.afterschool.tk , www.afterschoool.tk

6. Page 123 P=MR=AR Remember the firm’s supply curve? AVC

10. Page 162 Firm’s supply curve starts at shut down level of output P=MR=AR

11. Page 162 Profit maximizing firm will desire to produce where MC=MR P=MR=AR

12. Page 162 Economic losses will occur beyond output O MAX , where MC > MR P=MR=AR

13. 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. Page 163 Building the Market Supply Curve

14. 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. + Page 163 Building the Market Supply Curve

15. 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. + = Page 163 Building the Market Supply Curve

17. Merging Demand and Supply Price Quantity D S P E Q E Market clearing price

18. Merging Demand and Supply Price Quantity D S P E Q E Demand curve

20. Merging Demand and Supply Price Quantity D S P E Q E Supply curve

22. 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. Page 165

23. 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. Page 165

24. Page 165 F G Product price Market Price of $4 A B Producer surplus at $4 is equal to area ABC

25. Page 165 F G Producer surplus at $6 is equal to area EDC Product price Suppose Price Increased to $6…

26. Page 165 The gain in producer surplus if the price increases from $4 is equal to area AEDB F G Producers are better off economically by responding to this price increase by producing output G C

27. 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 = +

28. An Example of Economic Welfare Analysis Page 169 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

29. An Example of Economic Welfare Analysis 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. Page 169

30. An Example of Economic Welfare Analysis Page 169 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.

31. Measuring Surplus Levels Page 168 Product price D S $4 10 $1 $7 Consumer surplus is equal to (10 x (7-4)) ÷2, or $15

32. Measuring Surplus Levels Page 168 Product price D S $4 10 $1 $7 Consumer surplus is equal to (10 x (7-4)) ÷2, or $15 Producer surplus is Equal to (10 x (4-1)) ÷2, or $15

33. Measuring Surplus Levels Page 168 Product price D S $4 10 $1 $7 Consumer surplus is equal to (10 x (7-4)) ÷2, or $15 Producer surplus is Equal to (10 x (4-1)) ÷2, or $15 Total economic surplus is therefore $30…

34. Market Disequilibrium

35. Market Surplus At the price P S , producers would supply Q S . Page 170

36. Market Surplus At the price P S , consumers would only want Q D . Page 170

37. Market Surplus At the price P S , a market surplus equal Q S – Q D exists Page 170

38. Market Shortage At the price P D , producers would only supply Q S . Page 170

39. Market Shortage C onsumers want Q D at this low price.

40. Market Shortage C onsumers want Q D at this low price. At the price P D , a market shortage equal Q D – Q S exists

41. 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.

42. 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 Page 172

43. Year Three Reactions P 2 P 3 Producers now decide to produce less at the lower price. This lower quantity pushes price up to P 3 in year 3. Page 172

44. Cobweb Pattern Over Time Market equilibrium The market converges to market equilibrium where demand intersects supply at price P E . In some markets, this adjustment period may only be months or even weeks rather than years assumed here.

45. Market-to-Firm Linkages

46. Some Important Jargon We need to distinguish between movement along a demand or supply curve, and shifts in the demand or supply curve.

47. 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”.

48. Increase in demand pulls up price from P e to P e * Decrease in demand pushes price down from P e to P e **

49. Increase in supply pushed price down from P e to P e * Decrease in supply pulls up price from P e to P e **

50. Merging Demand and Supply Price Quantity D S P E Q E Supply curve Demand curve

51. Firm is a “Price Taker” Under Perfect Competition Price Quantity D S P E Q E Price O MAX AVC MC The Market The Firm

52. If Demand Increases…… Price Quantity D S P E Q E Price AVC MC The Market The Firm 10 11 D 1

53. If Demand Decreases…… Price Quantity D S P E Q E Price AVC MC The Market The Firm 9 10 D 2

54. Firm is a “Price Taker” in the Input Market Price Quantity D S P E Q E Price L MAX MVP MIC Labor Market The Firm

55. Firm is a “Price Taker” in the Input Market Price Quantity D S P E Q E Price L MAX MVP MIC Labor Market The Firm

56. Effects of Increasing The Minimum Wage Price Quantity D S P MIN Q D Price L MAX MVP MIC Labor Market The Firm Q S

58. Some questions on accounting & economics

64. 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 ?

69. 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

74. 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

76. Consider the following data pertaining to Goti Ltd. for the month of March 2005: Particulars As 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

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

87. Which is the equilibrium point?

89. In the graph,which indifference curve shows least satisfaction?

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

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

98. Which is this – demand curve or supply curve?

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

105. When does the law of increasing return end?

110. What is the relation between demand & supply regarding factors of production

145. www.afterschoool.tk social entrepreneurship for better society