AP Microeconomics Formula Sheet

Total Revenue (TR)

Formula: P x Q = Total Revenue; determines the price elasticity of demand.

Price Elasticity of Demand (PED)

Formula: % Change Quantity/% Change in Price; Absolute value > 1 means elastic, < 1 means inelastic.

Cross-Price Elasticity Interpretation

Negative = Complements; Positive = Substitutes.

Income Elasticity of Demand

Formula: Negative = Inferior Good; Positive = Normal Good.

Profit-Maximizing Point

Firms maximize profit where Marginal Cost (MC) equals Marginal Revenue (MR) until MC < MR.

Cost-Benefit Analysis

Continue an activity until Marginal Cost (MC) equals Marginal Benefit (MB).

Utility Maximization Formula

MUA/PA = MUB/PB; Allocate spending to equalize marginal utility per dollar.

Lowest Cost Resource Combination

Formula: MPL/PL = MPC/PC; equalizes marginal product per dollar to minimize production costs.

Marginal Cost of Labor (MCL)

Formula: MC = WL/MPL; shows the marginal cost of labor.

Marginal Revenue Product (MRP)

Formula: Δ Total Revenue/Δ Quantity of resource or Marginal Product x Price.

Absolute Advantage

Ability to produce more output with the same inputs or the same output with fewer inputs.

Comparative Advantage

Ability to produce a good at a lower opportunity cost.

Opportunity Cost Formula (Outputs)

Other Over; Opportunity cost of A is B/A units of B.

Opportunity Cost Formula (Inputs)

It Over; Opportunity cost of A is A/B units of B.

Elastic Demand

A situation where the absolute value of price elasticity is greater than 1.

Inelastic Demand

A situation where the absolute value of price elasticity is less than 1.

Unitary Elastic Demand

A situation where the absolute value of price elasticity equals 1.

Utility Maximization Implication

Consume more of the good with higher utility per dollar; consume less of the good with lower utility per dollar.

Resource Allocation Effectiveness

Focus on equalizing ratios of marginal product per dollar for effective resource allocation.

Trade Scenario Analysis

Use comparative advantage formulas to effectively analyze trade scenarios.