Economic Formulas

Price Elasticity of Demand (PED)

% change in quantity demanded / % change in price

Elastic Demand

PED > 1

Inelastic Demand

PED < 1

Price Elasticity of Supply (PES)

% change in quantity supplied / % change in price

Elastic Supply

PES > 1

Inelastic Supply

PES < 1

Income Elasticity of Demand (YED)

% change in quantity demanded / % change in income

Inferior Good

YED < 0

Normal Good

YED > 0

Necessity Good

0 < YED < 1

Luxury Good

YED > 1

Cross Price Elasticity of Demand (XED)

% change in quantity demanded of good A / % change in price of good B

Substitute Goods

XED > 0

Complementary Goods

XED < 0

Consumer Surplus

Willingness to pay – market price

Producer Surplus

Market price – minimum supply price

Community (Social) Surplus

Consumer surplus + producer surplus

Market Surplus

Quantity supplied > quantity demanded

Market Shortage

Quantity demanded > quantity supplied

Government Tax Revenue

Consumer tax burden + producer tax burden

Accounting Profit

Total revenue – explicit costs

Economic Profit

Total revenue – (explicit costs + implicit costs)

Average Product (AP)

Total product / labour input

Marginal Product (MP)

Change in total product / change in labour

Total Cost (TC)

Total fixed cost + total variable cost

Average Total Cost (ATC or AC)

Total cost / quantity OR AFC + AVC

Marginal Cost (MC)

Change in total cost / change in quantity

Average Fixed Cost (AFC)

Total fixed cost / quantity

Average Variable Cost (AVC)

Total variable cost / quantity

Total Revenue (TR)

Price × Quantity

Average Revenue (AR)

Total revenue / quantity

Demand Curve for Firm

AR = Price = Demand

Marginal Revenue (MR)

Change in total revenue / change in quantity

Supernormal (Economic) Profit

(TR > TC) OR (AR – AC) × Q

Subnormal Profit (Loss)

(TC > TR) OR (AC – AR) × Q

Normal Profit

TR = TC OR AR = AC

Profit Maximisation

MR = MC

Revenue Maximisation

MR = 0

Growth Maximisation

AR = AC

Allocative Efficiency

P = MC OR AR = MC

Productive Efficiency

MC = AC at minimum AC

GDP (Income Method)

Wages + profits + rent

GDP (Expenditure Method)

C + I + G + (X – M)

Gross National Income (GNI) / GNP

GDP + net property income from abroad

Net Property Income from Abroad

Income earned from foreign assets – income paid to foreign assets

GDP per Capita

GDP / population

Aggregate Demand (AD)

C + I + G + (X – M)

Multiplier (MPC formula)

1 / (1 – MPC)

Multiplier (Leakages formula)

1 / (MPS + MPM + MPT)

Multiplier Effect

Change in real GDP / change in government spending

Money Multiplier

1 / minimum reserve requirement

Real GDP

(Nominal GDP / GDP deflator) × 100

GDP Deflator

(Nominal GDP / Real GDP) × 100

Economic Growth Rate

(Real GDP current year – Real GDP previous year) / Real GDP previous year × 100

Consumer Price Index (CPI)

Cost of basket in given year / cost of basket in base year × 100

Inflation Rate

(CPI current year – CPI previous year) / CPI previous year × 100

Unemployment Rate

Number unemployed / labour force × 100

Natural Rate of Unemployment

Frictional + structural + seasonal unemployment

Gini Coefficient

A / (A + B)

Perfect Equality (Gini)

Gini = 0

Perfect Inequality (Gini)

Gini = 1

Average Tax Rate

Total tax paid / total income × 100

Marginal Tax Rate

Change in tax paid / change in income × 100

Disposable Income

Total income – income tax

Opportunity Cost

Input of good X / input of good Y

Exchange Rate Conversion

If 1 SGD = X USD, then 1 USD = 1/X SGD

Current Account Balance

Trade in goods + trade in services + net income flows + net transfers

Balance of Payments Identity

Current account = capital account + financial account + net errors and omissions

Marshall–Lerner Condition

PED of exports + PED of imports > 1

Human Development Index (HDI)

Higher value indicates higher level of development

Gender Inequality Index (GII)

Higher value indicates greater gender inequality

Real Interest Rate

Nominal interest rate – inflation rate

Terms of Trade

Export price index / import price index × 100