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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