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Formula Chart AP Microeconomics Cheat Sheet, Cheat Sheet of Microeconomics

Microeconomics formulas on Supply and Demand, Production Markets and Government units

Typology: Cheat Sheet

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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:
% โˆ† quantity demanded
% โˆ† price
Coefficient > 1 = elastic demand
Coefficient < 1 = inelastic demand
Coefficient = 1 = unit elastic demand
Coefficient = โˆž = perfectly elastic demand
Coefficient = 0 = perfectly inelastic demand
Cross elasticity of demand: comparing 2 items:
% โˆ† quantity of 1
st
item
% โˆ† price of 2
nd
item
Cross elasticity coefficient positive = items
substitute for each other
Cross elasticity coefficient negative = items
complement each other
Income elasticity of demand: % โˆ† quantity
% โˆ† income
Income elasticity coefficient positive = normal
good
Income elasticity coefficient negative = inferior
good
Supply elasticity: % โˆ† quantity supplied
% โˆ† price
Tax Revenue = (Price w/tax โ€“ price seller
receives) x Quantity
Unit 3 โ€“ Production Markets
Revenue:
Total Revenue = price x quantity
TR
Q output
โˆ†TR
โˆ† 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 = โˆ† TC
โˆ† Q output
Product (aka output):
Average product = Total product
Q input
Marginal product = โˆ† TP
โˆ† Q input
TP @ maximum when MP goes negative
In perfect competition market supply = โˆ‘ individual
seller cost curves or S = โˆ‘ mcโ€™s
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
P๎˜ and TR๎˜‚ then demand elastic
P๎˜ and TR๎˜ then demand inelastic
P๎˜‚ and TR๎˜ then demand elastic
P๎˜‚ and TR๎˜‚ then demand inelastic
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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:

% โˆ† quantity demanded % โˆ† price

Coefficient > 1 = elastic demand Coefficient < 1 = inelastic demand Coefficient = 1 = unit elastic demand Coefficient = โˆž = perfectly elastic demand Coefficient = 0 = perfectly inelastic demand

Cross elasticity of demand: comparing 2 items: % โˆ† quantity of 1st^ item % โˆ† 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: % โˆ† quantity % โˆ† income

Income elasticity coefficient positive = normal good Income elasticity coefficient negative = inferior good

Supply elasticity: % โˆ† quantity supplied % โˆ† price

Tax Revenue = (Price w/tax โ€“ price seller receives) x Quantity

Unit 3 โ€“ Production Markets

Revenue:

Total Revenue = price x quantity

TR

Q output

โˆ†TR

โˆ† 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 = โˆ† TC โˆ† Q output

Product (aka output):

Average product = Total product Q input

Marginal product = โˆ† TP โˆ† Q input

TP @ maximum when MP goes negative

In perfect competition market supply = โˆ‘ individual seller cost curves or S = โˆ‘ mcโ€™s

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 = โˆ† TR โˆ† Q of resource

Marginal resource cost = โˆ† T resource C aka Marginal factor cost โˆ† 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 = โˆ‘ demand of all individual purchasers of labor or D = โˆ‘ mrpโ€™s

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