Assignment

of Business Mathematics
submitted in partial fulfillment of the requirement of
Business Mathematics
of
Bachelor in Business Administration (BBA)
Affiliated to

Submitted by: Submitted to:

Name: Koustuv Pokhrel Mr. Harish Luitel
Roll No: 38 Remarks:
Abstract:
Consumer and producer surplus are two important concepts in
economics that help to measure the benefits received by consumers
and producers in a market. Consumer surplus refers to the difference
between what a consumer is willing to pay for a product and what they
actually pay for it. Producer surplus, on the other hand, refers to the
difference between the price a producer receives for a product and the
minimum price they would be willing to accept for it. Understanding
these concepts is essential for policymakers and businesses to make
informed decisions about market regulation and pricing strategies.

Theory:
Consumer surplus is based on the idea of marginal utility, which is the
additional satisfaction a consumer gets from consuming an additional
unit of a good. The consumer is willing to pay up to the point where the
marginal utility equals the price. The difference between the price and
the amount the consumer is willing to pay is their consumer surplus.
Producer surplus is based on the concept of marginal cost, which is the
cost of producing an additional unit of a good. The producer is willing
to sell up to the point where the marginal cost equals the price. The
difference between the price and the minimum price the producer
would be willing to accept is their producer surplus.

Methodology:
To calculate consumer and producer surplus, economists use demand
and supply curves. The demand curve shows the relationship between
the price of a good and the quantity demanded, while the supply curve
shows the relationship between the price of a good and the quantity
supplied. The equilibrium price and quantity are where the demand
and supply curves intersect. Consumer surplus is calculated by finding
the area between the demand curve and the price line up to the
quantity purchased. Producer surplus is calculated by finding the area
between the price line and the supply curve up to the quantity sold.
Data Analysis:
Data can be collected from market surveys, government records, and
industry reports. Once the data is collected, economists can use it to
create demand and supply curves for a particular product or service.
They can then use these curves to calculate consumer and producer
surplus for different scenarios, such as changes in price or quantity.
Example:

The demand and supply functions for a good are given by P=58-0.2Q
and P=4+0.1Q respectively.

a. Calculate the equilibrium price and quantity.

b. Calculate the consumer surplus and producer surplus.
c. Find the value of total surplus.

Solution:

Here, P=58-0.2Q
P=4+0.1Q

a.For equilibrium,

Demand=Supply
or,58-0.2Q=4+0.1Q
or,0.3Q=34
∴Q=150

When, Q=180,

P=58-0.2-180=22

Hence, equilibrium price and quantity is 22 and 180 units respectively.

In the above figure, △ABC represents the consumer's surplus.

∴Consumer's surplus (CS)=Area of △ABC
=1/2 ×base×height
=90×36 =3240

Also, the △BCD represents the producer's surplus.

∴Producer's surplus (PS) =Area of △BCD
=1/2 ×base×height
=1620

c. We know,

Total surplus=CS+P.S=3240+ 1620=4560

Hence, the total surplus is Rs. 4560.

Conclusion:
Consumer and producer surplus are important concepts in economics
that help to measure the benefits received by consumers and
producers in a market. By understanding these concepts, policymakers
and businesses can make informed decisions about market regulation
and pricing strategies. Calculating consumer and producer surplus
requires the use of demand and supply curves, which can be
constructed using data from market surveys, government records, and
industry reports.