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Microeconomics formulas on Supply and Demand, Production Markets and Government units
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Formula Chart โ AP Microeconomics
Unit 2 โ Supply and Demand
Total Revenue = price x quantity
Coefficient of price elasticity of demand:
% โ quantity demanded % โ price
Coefficient > 1 = elastic demand Coefficient < 1 = inelastic demand Coefficient = 1 = unit elastic demand Coefficient = โ = perfectly elastic demand Coefficient = 0 = perfectly inelastic demand
Cross elasticity of demand: comparing 2 items: % โ quantity of 1st^ item % โ price of 2nd^ item
Cross elasticity coefficient positive = items substitute for each other Cross elasticity coefficient negative = items complement each other
Income elasticity of demand: % โ quantity % โ income
Income elasticity coefficient positive = normal good Income elasticity coefficient negative = inferior good
Supply elasticity: % โ quantity supplied % โ price
Tax Revenue = (Price w/tax โ price seller receives) x Quantity
Unit 3 โ Production Markets
Revenue:
Total Revenue = price x quantity
Q output
โ Q output
TR @ maximum when MR goes negative
In perfect competition, MR = price (demand) for individual sellers In perfect competition, individual seller price = market price (price taker) In imperfect competition, MR < price (Demand) In imperfect competition, individual seller IS THE MARKET (price maker)
Cost:
Total Cost = Total fixed cost + Total average cost
Total Cost = unit cost x quantity output
Average fixed cost = TFC Q output
Average variable cost = TVC Q output
Average total cost = TC Q output
Average total cost = AFC + AVC
Marginal cost = โ TC โ Q output
Product (aka output):
Average product = Total product Q input
Marginal product = โ TP โ Q input
TP @ maximum when MP goes negative
In perfect competition market supply = โ individual seller cost curves or S = โ mcโs
Utility maximization rule
Marginal Utility of Good A Marginal Utility of Good B Unit cost of A Unit cost of B
Average Revenue =
Marginal Revenue =
Total revenue test
P and TR then demand elastic P and TR then demand inelastic P and TR then demand elastic P and TR then demand inelastic
Unit 3 โ Production Markets continued
Profit:
Profit maximization rule for all markets:
Marginal Revenue = Marginal Cost or MR = MC
Total cost + total profit = total revenue also TR = Price x quantity
Total cost = unit cost x quantity
Total profit = unit profit x quantity
Unit 4 โ Resource Markets
Marginal revenue product = โ TR โ Q of resource
Marginal resource cost = โ T resource C aka Marginal factor cost โ Q of resource
Profit maximization rule when purchasing a single resource:
Marginal Revenue Product = Marginal Resource Cost
or MRP = MRC
In perfect competition market demand for labor = โ demand of all individual purchasers of labor or D = โ mrpโs
In perfect competition, MRP = product price x marginal product In imperfect competition, MRP = product price x marginal product MINUS price change on previous units sold In perfect competition, market wage = individual firms MRC (wage taker) In imperfect competition (monopsony), wage is MRP = MRC @ labor supply curve (wage maker) /MRC lies above S curve
Unit 5 - Government
Externalities: MSB = MSC
Negative production externality (overallocation): Social cost > private cost Example: pollution Fix: taxes, regulations
Positive production externality (underallocation): Social cost < private cost Example: technology Fix: subsidies, regulations
Negative consumption externality (overallocation): Social benefit < private benefit Examples: cigarettes, alcohol, gambling Fix: taxes, regulations
Positive consumption externality (underallocation): Social benefit > private benefit Examples: education, vaccines, smoke alarms Fix: taxes, subsidies or regulations
Least Cost Rule
Marginal product of labor Marginal product of capital Unit price of labor = Unit price of capital
Profit maximization rule for purchasing multiple resources
Marginal product of labor Marginal product of capital Unit price of labor Unit price of capital
Market Equilibrium MPC = MPB Marginal Private Cost = Marginal Private Benefit