Economic Value Analysis
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Document 1Updated by Sonya Plater May 18th, 2020Chapter Three Analytical Problems to look at: 1, 2, 3, 4 – I will be postinganswer keys for these questions in Week 2.Chapter Four Analytical Problems to look at: 1, 2, 3, 4 – I will be postinganswer keys for these questions in Week 3.Please read pp. 58 – 62 of your textbook.Most of this section of the chapter is review….. you know from your Economics201 course that when we set MB = MC we produce the right amount of thisproduct for society. This is important as we have limited resources and need touse our resources in the most efficient way. Plus we need to use our resourcesto produce what is most valued by society.If we do this, social welfare (combined consumer surplus and producer surplus)will be the largest it can be. But first let us make sure you remember consumersurplus and producer surplus…and value versus price versus cost …..Using the example on pp. 59 – 60 and Figure 4-1,When the price of this product is $20,i.) the value1 of consuming 40 units of this product is equal to $2,400.ii.) the total expenditure on 40 units of this product is equal to $800.iii.) consumer surplus on 40 units of this product is equal to $1,600.1 This is all the value that society gets from our consumption of this product. Why? Because weare part of society and all our value is equal to all society’s value. We will see later in this chapterthat this is not always the case.2vi.) the total revenue from selling 40 units of this product is equal to_________.v.) the total variable cost of producing 40 units of this product is equal to_________.vi.) producer surplus on 40 units of this product is equal to _________.vii.) social welfare from 40 units of this product is equal to _________.ORi.) the value of consuming 40 units of this product is equal to ________.ii.) the total variable cost of 40 units of this product is equal to_________.iii.) the net social value from 40 units of this product is equal to_________.BTW When you see a supply curve, you know that the market structure is__________________________.In your Economics 201 course and/or your Economics 202 course, you wouldhave looked at the trade-off between efficiency and equity. Societies that focuson being very efficient tend to produce a lot of output but it is not evenlydistributed within their population (the ‘pie’ is big but some slices are bigger thanothers). Societies that focus on being very equitable tend to distribute outputequally but there is less to go around (the ‘pie’ is small but everyone gets roughlythe same sized slice). As a society we decide how we want to live. Personally Ifind that if I have to live in a cage (how I look at gated communities) to enjoy abigger slice, I am not interested. But that is my opinion.In our next doc, we are going to look at what happens when there is value goingto others (besides the consumers of the product) when a product is consumedand also when there is a cost being incurred by others (besides the producers)when a product is produced.
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