Key Equation Flashcards
Total Cost =
(Two Answers )
Total Fixed Cost + Total Variable Cost (TC = TFC + TVC)
Or
AC x Q (TC = Average Cost x Quantity)
Total Fixed Cost (TFC) =
(2 solutions)
TFC = TC - TVC (total cost - total variable cost)
Or
TFC = AFC x Q (average fixed cost x quantity)
Total Variable Cost (TVC) =
(2 solutions)
TVC = TC - TFC (Total Cost - Total Fixed Cost)
Or
TVC = AVC x Q (Average Variable Cost x Q)
Average Cost (AC) =
(2 solutions)
AC = TC / Q (Total Cost / Q)
Or
AC = AVC + AFC (Average Fixed Cost + Average Variable Cost)
Marginal Cost (MC) =
MC = ∆TC / ∆Q
(Change in Total Cost / Change in Quantity)
Average Product (AP) =
AP = TP / Q of LABOUR
(Total Product / Quantity of Labour)
Marginal Product (MP) =
MP = ∆TP / ∆Q of LABOUR
(Change in Total Product / Change in Quantity of Labour)
Total Revenue (TR) =
TR = P x Q
(Price x Quantity)
Average Revenue (AR) =
AR = TR / Q
(Total Revenue / Quantity)
Marginal Revenue (MR) =
MR = ∆TR / ∆Q
(Change in Total Revenue / Change in Quantity)
How can you use Total Revenue (TR) simplify the equation for Average Revenue (AR)?
TR = P x Q
AR = TR / Q
AR = (P x Q) /Q
AR = P
(Q cancels out)
Profit =
Profit = TR - TC
(Total Revenue - Total Cost)
Supernormal Profit =
SN P = AR > AC
(Average Revenue > Average Cost)
SUBNORMAL Profit =
SN P = AR < AC
(Average Revenue < Average Cost)
Profit Maximisation occurs
MR = MC
(Marginal Revenue = Marginal Cost)
M = Most Money
Revenue Maximisiation =
MR = 0
(Marginal Revenue = 0)
Meaning of ,
AC = AR (Average Cost = Average Revenue)
- Normal Profit
- Sales Maximisation
- Break Even (no economic profit or loss)
- Entry Limit Price (takes way incentive joining the market)
Allocative Efficiency is where …
(3 solutions)
D = S (Demand = Supply)
MSB = MSC (Marginal Social Benefit = Marginal Social Cost)
P = MC (Price = Marginal Cost)
Productive Efficiency occurs …
(2 solutions)
Minimum Point on AC curve.
AC = MR (Average Cost = Marginal Revenue)
X-efficiency occurs …
At ANY point on the AC (average cost) curve.
Dynamic Efficiency occurs…
Long Run Supernormal Profit is necessary.
Minimum Efficient Scale occurs …
At the lowest quantity level when the AC curve stops decreasing.
Shutdown Condition (consider and will) occurs …
- Considering to Shut Down
AR = AVC (Average Revenue = Average Variable Cost) - Will Shut Down
AR < AVC (Average Revenue < Average Variable Cost)
Average Utility =
AU = TU / Q
(Total Utility / Quantity)
Marginal Utility =
MU = ∆TU / ∆Q
(Change in Total Utility / Change in Quantity)
Utility maximisation occurs …
MU = 0
Marginal Utility = 0
Social Cost (SC) =
SC = PC + EC
(Private Costs + External Costs)
EB can be + or -
Social Benefit (SB) =
SB = PB + EB
Private Benefits + External Benefits
(EB can be + or -)
Profit Maximisation in Labour Market occur …
MRP = MCL
Marginal Revenue Product = Marginal Cost of Labour
PED (Price Elasticity of Demand) =
PED = % ∆QD / % ∆P
(% change in Quantity Demanded / % change in Price)
PES (Price Elasticity of Supply) =
PES = % ∆QS / % ∆P
(% change in quantity supplied / % change in price)
XED (Cross Elasticity of Demand) =
XED = % ∆QDa / % ∆Pb
(% change in quantity demanded of good A / % change in price of good B)
YED (Income Elasticity of Demand) =
YED = % ∆QD / % ∆Y
(% change in quantity demanded / % change in income)
What are the three ways of finding GDP?
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)
Nominal GDP =
N GDP = Quantity x Current Prices
Quantity of goods and servecices made and sold
Real GDP =
Two Solutions
- RGDP = Quantity x Constant prices (prices in base years)
- RGDP = NominalGDP / Price Index x 100
(IMPORTANT)
GDP Deflator =
GDP D = NGDP / RGDP x 100
(Nominal GDP / Real GDP x 100)
GNI =
GNI = GDP + Net Factor Income
Green GDP =
GGDP = GDP - environmental costs
Aggregate Demand (AD) =
AD = C + I + G + (X - M)
C = consumption
I = Investment
G = Government Spending
X = total exports
M = total Imports
Multiplier =
(3 solutions)
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)
Unemployment rate =
UE Raté = unemployed / size of Labour force
Index Number =
IN = current value / raw value in the base year x 100
% ∆ (percentage change) =
% ∆= New - Original / Original x 100
Gini Coefficient =
GC = Area between LC and LOPE / Total Area beneath LOPE
LC = Lorenz Curve
LOPE = Line of Perfect Equality
Marshall-Lernes Condition occurs …
PEDx + PEDm > 1
Terms of Trade =
Average Index Price of Exports / average Index Price of Imports x 100
Taxable Income
Total Income - Tax Free Allowance
Average Rate of Tax =
Total Income Tax Paid / Total Income x 100
Marginal Rate of Tax =
= ∆ Total income tax pain / ∆ total income x 100
GDP per capita.=
GDP / population
