Key Equation

Question 1

Total Cost =
(Two Answers )

Answer 1

Total Fixed Cost + Total Variable Cost (TC = TFC + TVC)

Or

AC x Q (TC = Average Cost x Quantity)

Question 2

Total Fixed Cost (TFC) =

(2 solutions)

Answer 2

TFC = TC - TVC (total cost - total variable cost)

Or

TFC = AFC x Q (average fixed cost x quantity)

Question 3

Total Variable Cost (TVC) =

(2 solutions)

Answer 3

TVC = TC - TFC (Total Cost - Total Fixed Cost)

Or

TVC = AVC x Q (Average Variable Cost x Q)

Question 4

Average Cost (AC) =

(2 solutions)

Answer 4

AC = TC / Q (Total Cost / Q)

Or

AC = AVC + AFC (Average Fixed Cost + Average Variable Cost)

Question 5

Marginal Cost (MC) =

Answer 5

MC = ∆TC / ∆Q

(Change in Total Cost / Change in Quantity)

Question 6

Average Product (AP) =

Answer 6

AP = TP / Q of LABOUR

(Total Product / Quantity of Labour)

Question 7

Marginal Product (MP) =

Answer 7

MP = ∆TP / ∆Q of LABOUR

(Change in Total Product / Change in Quantity of Labour)

Question 8

Total Revenue (TR) =

Answer 8

TR = P x Q

(Price x Quantity)

Question 9

Average Revenue (AR) =

Answer 9

AR = TR / Q

(Total Revenue / Quantity)

Question 10

Marginal Revenue (MR) =

Answer 10

MR = ∆TR / ∆Q

(Change in Total Revenue / Change in Quantity)

Question 11

How can you use Total Revenue (TR) simplify the equation for Average Revenue (AR)?

Answer 11

TR = P x Q

AR = TR / Q
AR = (P x Q) /Q
AR = P

(Q cancels out)

Question 12

Profit =

Answer 12

Profit = TR - TC

(Total Revenue - Total Cost)

Question 13

Supernormal Profit =

Answer 13

SN P = AR > AC

(Average Revenue > Average Cost)

Question 14

SUBNORMAL Profit =

Answer 14

SN P = AR < AC

(Average Revenue < Average Cost)

Question 15

Profit Maximisation occurs

Answer 15

MR = MC

(Marginal Revenue = Marginal Cost)
M = Most Money

Question 16

Revenue Maximisiation =

Answer 16

MR = 0

(Marginal Revenue = 0)

Question 17

Meaning of ,
AC = AR (Average Cost = Average Revenue)

Answer 17

• Normal Profit
• Sales Maximisation
• Break Even (no economic profit or loss)
• Entry Limit Price (takes way incentive joining the market)

Question 18

Allocative Efficiency is where …

(3 solutions)

Answer 18

D = S (Demand = Supply)

MSB = MSC (Marginal Social Benefit = Marginal Social Cost)

P = MC (Price = Marginal Cost)

Question 19

Productive Efficiency occurs …

(2 solutions)

Answer 19

Minimum Point on AC curve.

AC = MR (Average Cost = Marginal Revenue)

Question 20

X-efficiency occurs …

Answer 20

At ANY point on the AC (average cost) curve.

Question 21

Dynamic Efficiency occurs…

Answer 21

Long Run Supernormal Profit is necessary.

Question 22

Minimum Efficient Scale occurs …

Answer 22

At the lowest quantity level when the AC curve stops decreasing.

Question 23

Shutdown Condition (consider and will) occurs …

Answer 23

1. Considering to Shut Down
   AR = AVC (Average Revenue = Average Variable Cost)
2. Will Shut Down
   AR < AVC (Average Revenue < Average Variable Cost)

Question 24

Average Utility =

Answer 24

AU = TU / Q

(Total Utility / Quantity)

Question 25

Marginal Utility =

Answer 25

MU = ∆TU / ∆Q (Change in Total Utility / Change in Quantity)

Question 26

Utility maximisation occurs …

Answer 26

MU = 0 Marginal Utility = 0

Question 27

Social Cost (SC) =

Answer 27

SC = PC + EC (Private Costs + External Costs) EB can be + or -

Question 28

Social Benefit (SB) =

Answer 28

SB = PB + EB Private Benefits + External Benefits (EB can be + or -)

Question 29

Profit Maximisation in Labour Market occur …

Answer 29

MRP = MCL Marginal Revenue Product = Marginal Cost of Labour

Question 30

PED (Price Elasticity of Demand) =

Answer 30

PED = % ∆QD / % ∆P (% change in Quantity Demanded / % change in Price)

Question 31

PES (Price Elasticity of Supply) =

Answer 31

PES = % ∆QS / % ∆P (% change in quantity supplied / % change in price)

Question 32

XED (Cross Elasticity of Demand) =

Answer 32

XED = % ∆QDa / % ∆Pb (% change in quantity demanded of good A / % change in price of good B)

Question 33

YED (Income Elasticity of Demand) =

Answer 33

YED = % ∆QD / % ∆Y (% change in quantity demanded / % change in income)

Question 34

What are the three ways of finding GDP?

Answer 34

Output Method - value of all good and services produced in a year Income Method - add up all factor incomes (interest, rent, profit) Expenditure method - add up total amount of spending (AD)

Question 35

Nominal GDP =

Answer 35

N GDP = Quantity x Current Prices Quantity of goods and servecices made and sold

Question 36

Real GDP = Two Solutions

Answer 36

- RGDP = Quantity x Constant prices (prices in base years) - RGDP = NominalGDP / Price Index x 100 (IMPORTANT)

Question 37

GDP Deflator =

Answer 37

GDP D = NGDP / RGDP x 100 (Nominal GDP / Real GDP x 100)

Question 38

GNI =

Answer 38

GNI = GDP + Net Factor Income

Question 39

Green GDP =

Answer 39

GGDP = GDP - environmental costs

Question 40

Aggregate Demand (AD) =

Answer 40

AD = C + I + G + (X - M) C = consumption I = Investment G = Government Spending X = total exports M = total Imports

Question 41

Multiplier = (3 solutions)

Answer 41

Multiplier = 1 / (1 - MPC) (MPC = Marginal Propensity Consume) Or Multiplier = 1 / MPS (MPS = Marginal Propensity to Save) Or Multiplier = change in Y (national income)/ Change in G (GS)

Question 42

Unemployment rate =

Answer 42

UE Raté = unemployed / size of Labour force

Question 43

Index Number =

Answer 43

IN = current value / raw value in the base year x 100

Question 44

% ∆ (percentage change) =

Answer 44

% ∆= New - Original / Original x 100

Question 45

Gini Coefficient =

Answer 45

GC = Area between LC and LOPE / Total Area beneath LOPE LC = Lorenz Curve LOPE = Line of Perfect Equality

Question 46

Marshall-Lernes Condition occurs …

Answer 46

PEDx + PEDm > 1

Question 47

Terms of Trade =

Answer 47

Average Index Price of Exports / average Index Price of Imports x 100

Question 48

Taxable Income

Answer 48

Total Income - Tax Free Allowance

Question 49

Average Rate of Tax =

Answer 49

Total Income Tax Paid / Total Income x 100

Question 50

Marginal Rate of Tax =

Answer 50

= ∆ Total income tax pain / ∆ total income x 100

Question 51

GDP per capita.=

Answer 51

GDP / population