econ midterm: formulas

E_d

• E_d = (change in Q.D. / (sum of qty. / 2) ) / (change in price / (sum of price / 2) )

  • Ed > 1 (elastic)

  • Ed < 1 (inelastic)

  • Ed = 0 (perfectly inelastic)

  • Ed = infinity (perfectly elastic)

  • Ed = 1 (unit elastic)

total revenue

• TR = price (P) * qty. demanded

  • inelastic: TR ^ and P ^ (and vice versa)

  • elastic: P ^ and TR decreases (and vice versa)

Es

• E_s = (change in Q.S. / (sum of Q.S. / 2) ) / (change in price / (sum of price/2) )

  • Es > 1 (elastic)

  • Es < 1 (inelastic)

  • Es = 1 (unit elastic)

  • Es = 0 (perfectly inelastic, vertical line)

cross elasticity of demand

• E_xy = percentage change in Q.D. of product X / percentage change in price of product Y

  • positive: substitutes

  • negative: complements

income elasticity of demand

• E_i = % change in qty. demanded / % change in income

  • positive: normal good

  • negative: inferior good

marginal utility

change in total utility / change in qty. demanded

marginal utility per dollar spent

MU of product A / price of A

accounting profit

A.P. = total revenue - explicit costs

economic profit

E.P. = total revenue - explicit costs - implicit costs

total costs

TC = TFC + TVC

average fixed costs (AFC)

AFC = TFC / qty. of output produced

average variable costs (AVC)

AVC = TVC / qty. of output produced

average total costs (ATC)

• ATC = TC / qty. of output produced

  or

• ATC = AFC + AVC

marginal cost

• MC = change in TC / change in qty. of output

  • where AVC intersects MC, cost is lowest

marginal productivity of labor

MPl = change in TP / change in Ql (qty. labor)

consumer equilibrium

MU A / price A = MU B / price B