Formulas

Question 1

Marginal utility

Answer 1

MU = ∆TU/∆Q

total utility / quantity

Question 2

Equi-marginal principle formula

Answer 2

MUₐ/Pₐ = MUᵦ/Pᵦ = MU𝒸/P𝒸 … = MUₙ/Pₙ

marginal utility / price, for different products

Question 3

Price effect

Answer 3

substitution effect + income effect

Question 4

Social cost/benefit

Answer 4

private cost/benefit + external cost/benefit

Question 5

Net social benefit

Answer 5

is a measure of social welfare, eg. for capital projects

social benefit - social cost

NB: the higher the figure the better, the figure can be negative

NB: occurs when MSB = MSC

Question 6

Marginal social cost/benefit

Answer 6

marginal private cost/benefit + marginal external cost/benefit

Question 7

Average product of labour

Answer 7

APʟ = TPʟ / Qʟ

Qʟ is the number of units or the amount of labour employed

Question 8

Marginal product of labour

Answer 8

MPʟ = ∆TPʟ / ∆Qʟ

Qʟ is the number of units or the amount of labour employed

Question 9

Marginal cost

Answer 9

MC = ∆TC / ∆Q

Question 10

Average cost

Answer 10

ATC = TC / Q

Question 11

Total cost

Answer 11

TC = TFC + TVC

Question 12

Total revenue

Answer 12

TR = P x Q

Question 13

Marginal revenue

Answer 13

MR = ∆TR / ∆Q

Question 14

Average revenue

Answer 14

AR = TR / Q = P

Question 15

Marginal revenue product of labour

Answer 15

MRPʟ = MPPʟ x Price

extra unit of labour = extra output produced x extra revenue gained

MPPʟ is the marginal physical product of labour

Price is the price of the final good

Question 16

Wage effect

Answer 16

substitution effect + income effect

Question 17

MCʟ under perfect competition

Answer 17

MCʟ = wage rate
hence
MRPʟ = wage

Question 18

Formula alongside circular flow of income

Answer 18

National output ≡ National expenditure ≡ National income

Question 19

Factor cost adjustment

Answer 19

(-) indirect taxes
+ subsidies

Question 20

GDP terminology formula

Answer 20

GDP at factor cost + NPYA =
GNP at factor cost

GNP at factor cost - depreciation =
NNP at factor cost

NNP at factor cost = National income

NPYA (net property incomes from abroad)

Question 21

Average propensity to consume / save

Answer 21

APC = total cost (c) / total income (y)

APS = total savings / total income

APC + APS = 1

Question 22

Marginal propensity to consume / save

Answer 22

MPC = ∆ consumption / ∆ income

MPS = ∆ savings / ∆ income

MPC + MPS = 1

Question 23

Consumption function (2)

Answer 23

C(f) = C̄ + Cy (Y)

C̄ is autonomous consumption, needed to live

Cy is the marginal propensity to consume (MPC)

Y is income

at equilibrium you have enough to pay for you consumption, C = y

If you add disposable income:

C(f) = C̄ + Cy (Y - Yᴛ)

Yᴛ is the marginal rate of tax

Investment is said to be autonomous so if you add investment,

AE = C + I = C̄ + Cy (Y) + I

Question 24

Multiplier

Answer 24

1 / Withdrawals (∆J)
1/ MPS
1 / 1 - MPC

∆RNI / ∆J

1/MPS + MPT

1/MPS + MPT + MPM

(the greater the withdrawals the smaller the multiplier)

Question 25

Investment formulas

Answer 25

Gross investment = replacement investment + net (new) investment

eg. 50 machines = 20 worn out machines + 30 new machines (inc in capacity leads to economic growth)

In = capital output ratio (Yₜ₋₂ - Yₜ₁)

Question 26

Credit creation and the money supply

Answer 26

New deposit x money multiplier = New money supply

Money multiplier is 1/cash ratio

Question 27

Fisher equation

Answer 27

MV = PQ

MV is what is bought (nominal gdp)
PQ is what is sold (nominal gdp)

M is the money supply
V is the velocity of circulation
P is the average price level (inflation)
Q is the quantity of goods and services sold

Question 28

Macro relationship

Answer 28

r ∝ currency ∝ inflation