AP Microeconomics Unit 2 - 5 Formula Chart

A set of vocabulary flashcards covering key formulas and concepts from AP Microeconomics Units 2 through 5.

Total Revenue

Total Revenue = price x quantity.

Coefficient of Price Elasticity of Demand

Coefficient = % ∆ quantity demanded / % ∆ price.

Elastic Demand

Coefficient > 1.

Inelastic Demand

Coefficient < 1.

Unit Elastic Demand

Coefficient = 1.

Cross Elasticity of Demand

Coefficient = % ∆ quantity of 1st item / % ∆ price of 2nd item.

Normal Good

Income elasticity coefficient positive.

Inferior Good

Income elasticity coefficient negative.

Supply Elasticity

% ∆ quantity supplied / % ∆ price.

Total Cost

Total Cost = Total fixed cost + Total variable cost.

Average Total Cost

Average total cost = Total cost / Quantity output.

Marginal Cost

Marginal cost = ∆ Total Cost / ∆ Quantity output.

Profit Maximization Rule

Marginal Revenue = Marginal Cost or MR = MC.

Marginal Resource Cost

Marginal resource cost = ∆ Total Resource Cost / ∆ Quantity of Resource.

Externalities

Difference between social cost and private cost.

Negative Production Externality

Social cost > private cost; example: pollution.

Positive Production Externality

Social cost < private cost; example: technology.

Negative Consumption Externality

Social benefit < private benefit; examples: cigarettes, alcohol.

Positive Consumption Externality

Social benefit > private benefit; examples: education, vaccines.

Market Equilibrium

MPC = MPB; Marginal Private Cost = Marginal Private Benefit.