Buyer
₹70
Willingness to Pay
CS = ₹70 - ₹60 = ₹10
MANKIW · CHAPTER 7: PRINCIPLES OF MICROECONOMICS
Consumers, Producers, and Market Efficiency
"Who buys? Who sells? And does everyone benefit?"
Seller
₹45
Opportunity Cost
PS = ₹60 - ₹45 = ₹15
Agreed Price = ₹60
Buyer CS = ₹10Seller PS = ₹15Total Surplus = ₹25
"Why would each side say yes?"
Welfare Economics
The study of how the allocation of resources affects societal well-being. Core objective: maximize total surplus across all market participants.
Consumer
A buyer who values a good at their willingness to pay (WTP). Example: A student buying a sandwich at the college canteen for lunch.
Producer
A seller who incurs an opportunity cost to supply goods. Example: The canteen owner who spends ₹45 in ingredients and labor to make a sandwich.
Market
The arena where buyers and sellers interact. Examples: College canteen, neighborhood kirana store, or Amazon marketplace.
Positive vs. Normative Analysis
Positive analysis describes what is (facts, data, measurable outcomes). Normative analysis prescribes what ought to be (values, fairness, equity judgments). In welfare economics, efficiency is positive; equality is normative.