Formulas Flashcards
Marginal utility
MU = ∆TU/∆Q
total utility / quantity
Equi-marginal principle formula
MUₐ/Pₐ = MUᵦ/Pᵦ = MU𝒸/P𝒸 … = MUₙ/Pₙ
marginal utility / price, for different products
Price effect
substitution effect + income effect
Social cost/benefit
private cost/benefit + external cost/benefit
Net social benefit
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
Marginal social cost/benefit
marginal private cost/benefit + marginal external cost/benefit
Average product of labour
APʟ = TPʟ / Qʟ
Qʟ is the number of units or the amount of labour employed
Marginal product of labour
MPʟ = ∆TPʟ / ∆Qʟ
Qʟ is the number of units or the amount of labour employed
Marginal cost
MC = ∆TC / ∆Q
Average cost
ATC = TC / Q
Total cost
TC = TFC + TVC
Total revenue
TR = P x Q
Marginal revenue
MR = ∆TR / ∆Q
Average revenue
AR = TR / Q = P
Marginal revenue product of labour
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
Wage effect
substitution effect + income effect
MCʟ under perfect competition
MCʟ = wage rate
hence
MRPʟ = wage
Formula alongside circular flow of income
National output ≡ National expenditure ≡ National income
Factor cost adjustment
(-) indirect taxes
+ subsidies
GDP terminology formula
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)
Average propensity to consume / save
APC = total cost (c) / total income (y)
APS = total savings / total income
APC + APS = 1
Marginal propensity to consume / save
MPC = ∆ consumption / ∆ income
MPS = ∆ savings / ∆ income
MPC + MPS = 1
Consumption function (2)
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
Multiplier
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)
Investment formulas
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)
Credit creation and the money supply
New deposit x money multiplier = New money supply
Money multiplier is 1/cash ratio
Fisher equation
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
Macro relationship
r ∝ currency ∝ inflation
