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microecon Formulaes exam.docx

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Department
Economics
Course
ECO1102
Professor
David Gray
Semester
Fall

Description
Formulas exam Calculating the price elasticity of demand: Calculate the average of the two quantities, then the average of the two prices. Calculate the change in quantity and the change in prices, where one of the changes in the negative value. Using the midpoint method, the percentage change in quantity can be calculated, and the percentage change in price, using that, calculates the ratio of the quantity by price percentage change. This is one way in calculating the price elasticity of demand.  Formula for price elasticity of demand: Percentage change in quantity demanded / Percentage change in price If I used the midpoint method to calculate the price: 2(Q –1Q )/ 2(Q +1Q )/2]}/ 2(P –1P )/ 2(P + P )/2]} 1 Other Demand Elasticities: Income Elasticity of Demand:  Income Elasticity of Demand = Percentage change in quantity demanded / Percentage change in income Cross-price elasticity of demand:  Cross-price elasticity of demand= Percentage change in quantity demanded of good 1 / Percentage change in price of good 2 Elasticity of supply: Price elasticity of supply:  Price elasticity of supply= (Percentage change in quantity supplied) / Percentage change in price PPF shifts, point slides/shifts, opportunity cost, probably not circular-flow, inelastic/elastic. (Don’t use absolute value in elasticity problems if it talks about slope as a response.).7/ 1.4 PED= Absolute value of (percentage change in quantity/ percentage change in price) = {Q 2 Q )/ [(Q + Q )/2]}/ {(P – P )/ [(P + P )/2]} 1 2 1 2 1 2 1  Chapter 8  Tax revenue= T X Q ; T=taxes, Q= quantity  Deadweight loss= Change in total surplus o Also, DWL= Before market price – After market price Before the market price ceiling: (90, 750)  (0, 1200) A= ½ X b X h ½ * 90 * 450 = 20250  Consumer surplus (90, 750)  (0,300) A= ½ X b X h ½ * 90 * (750-300) = 20250  Producer surplus Total benefit= 20250 + 20250 = 40500 After the market price ceiling: (20, 400)  (20, 1100) (20, 1100)  (0, 1200) A = (½ * b * h) + bh [1/2 * 20 (1200 - 1100)] + [20 *700] = 15000  Consumer surplus (20, 400)  (0,300) ½ *20 * (400 – 300) = 1000  Producer surplus Total benefit= 15000 + 1000 = 16000 Deadweight loss: DWL = Before market price- After market price = 40500 – 16000 = 24500 Price + consumer surplus = the willingness to pay Chapter 13  Profit= Total revenue – Total Cost  Average total cost (ATC) = Total Cost / Quantity  ATC= Average variable cost + Average fixed cost  total cost = average total cost x quantity of output o Or, ATC= TC/Q  Marginal cost = Change in total cost/ Change in quantity o Or, MC = ∆TC / ∆Q o MC= derivative of Total Cost  Marginal Revenue = derivative of Marginal Revenue o Marginal Revenue= (Change in total revenue) / (Change in quantity) Some trends: AVC < ATC ; Average variable cost < Average Total Cost MC is always increasing AFC is always decreasing ATC goes down, intersects MC and then goes slowly up again, but never crossing MC and is always greater than AVC AVC goes down, intersects MC and then goes slowly up again, but never crossing MC and is always less than ATC Chapter 14  Total revenue (TR) = Price X Quantity (i.e. P X Q)  Average revenue = Total Revenue / Quantity; (AR = TR/Q)  Marginal revenue = Change in total revenue / Change in Quantity; (MR= ∆TR/ ∆Q)  Chang
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