FORMULA SHEET. Microeconomics. Allocative Efficiency Condition. P = MC, or more precisely, Marginal Social Benefit (MSB) = Marginal Social Cost (MSC)

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1 FORMULA SHEET Microeconomics Allocative Efficiency Condition P = MC, or more precisely, Marginal Social Benefit (MSB) = Marginal Social Cost (MSC) Average Fixed Cost Total Fixed Cost (TFC) AFC= Quantity of Output (Q) Average Product Total Product AP = Quantity of Input Average Profit Total Profit Average Profit = Quantity Average Revenue Total Revenue Average Revenue = Quantity Average Total Cost Total Cost (TC) ATC= Quantity of Output (Q) Average Variable Cost TotalVariable Cost (TC) AVC= Quantity of Output (Q) Formula Sheet 275

2 Cross-Price Elasticity of Demand Percentage Change in QuantityDemanded of Good X Percentage Change in Price of Good Y Distributive Efficiency Condition MUF MUC = P P F C Elasticity of Supply Percentage Change inquantity Supplied Percentage Change inprice (Use the point or arc formula as indicated below for the price elasticity of demand, substituting the quantity supplied for the quantity demanded.) Factor of Production Hiring Rule: Hire Until MRP = MFC (in other books, MFC is sometimes called MRC) Gini Coefficient C Cumulative % of Income Line of Perfect Equality Lorenz Curve A Cumulative % of Families B shaded area area of triangle ABC Marginal Cost ΔTC ΔTVC MC = = ΔQ ΔQ 276 Cracking the AP Economics Macro & Micro Exams

3 Marginal Product of Labor TP MP = Δ L ΔL Marginal Revenue TR MR = Δ ΔQ Marginal Revenue Product of Labor (MRP L ) MRP L = MP L MR output Optimal Combination of Resources Condition MP w = MP L K r Optimal Consumption Rule MU = MU X Y P P X Y Price Elasticity of Demand Simple Point Formula % ΔQ % ΔP d ΔQ Q Q = = ΔP P P Q Qold P P d new old new old old More Precise Arc Formula Qnew Qold Qnew + Qold 2 Pnew + Pold Pnew + Pold 2 Formula Sheet 277

4 Price for a Competitive Firm P = MR = AR Production Efficiency Condition w r = MP MP L K or MP r K = MP w L orp =min ATC Profit Profit = TR TC Profit-Maximizing Output Level (if output should be produced at all), rule for finding MR = MC Slope Rise Run Slope of the Total Product Curve Rise Run = Change in Total Product Change in the Number ofunits of an Input = Marginal Product Socially Optimal Level of Output MSB = MSC Total Costs Total Costs = Total Fixed Costs + Total Variable Costs, TC = TFC + TVC 278 Cracking the AP Economics Macro & Micro Exams

5 MACROECONOMICS Aggregate Expenditure in a Simple Model Without Government or Foreign Sectors AE = C + I Allocative Efficiency Condition P = MC, or more precisely, Marginal Social Benefit (MSB) = Marginal Social Cost (MSC) Autonomous Spending Multiplier 1 Multiplier = 1 MPC = 1 MPS Balanced Budget Multiplier Balanced Budget Multiplier = 1 MPC 1 MPC MPC 1 MPC = 1 MPC = Bank s Reserve Ratio Reserve Ratio = Budget Deficit Bank Reserves Total Deposits Budget Deficit = Federal Government Spending Tax Collections (A negative deficit indicates a surplus.) Financial Account Balance Financial Account Balance = Foreign Purchases of Home Assets Home Purchases of Foreign Assets Formula Sheet 279

6 Consumer Price Index Base Year Quantities Current Year Prices CPI = 100 Base Year Quantities Base Year Prices Consumption Function C = C a + MPC(Y) Current-Account Balance Current-Account Balance = Trade Balance + Services Balance + Unilateral Distributive Efficiency Condition MUF MUC = P P F C Equality of Leakages and Injections S + T + M = I + G + X Equation of Exchange MV = PQ Gross Domestic Product GDP = C + I + G + (X M) GDP = NI + Depreciation + Indirect Taxes Subsidies + Net Income of Foreigners Gross Domestic Product Deflator Current Year Quantities Current Year Prices GDP Deflator = 100 Current Year Quantities Base Year Prices 280 Cracking the AP Economics Macro & Micro Exams

7 Income in a Simple Model Without Government or Foreign Sectors Y = C + S Inflation Between Two Years Inflation Between Years Y and Z = CPI inyear Z CPI inyear Y Marginal Propensity to Consume Change in Consumption MPC= Change in Income Marginal Propensity to Save Change in Saving MPS = Change in Income Marginal Propensity to Save and Marginal Propensity to Consume Sum MPC + MPS = 1 Merchandise Trade Balance Merchandise Trade Balance = Value of Merchandise Exports Value of Merchandise Imports Nominal Interest Rate Nominal Interest Rate = Real Interest Rate + Anticipated Inflation Okun s Law % increase in unemployment above natural rate 2 = % decrease in output (The 2 in the equation is an approximation.) Formula Sheet 281

8 Production Efficiency Condition w r MP = MP L K Real GDP Nominal GDP 100 CPI for thesameyearasthe nominalfigure *CPI or GDP deflator Real Interest Rate Real Interest Rate = Nominal Interest Rate Anticipated Inflation Rule of Doublingtime = %change per year With 10% inflation, prices double in 70 = 7 years. 10 Slope Rise Run Tax Multiplier MPC Tax Multiplier = MPS Total Amount of Deposits Resulting from an Initial Deposit That Is Ultimately Held as Reserves 1 Simple Money (or Deposit) Multiplier = Required Reserve Ratio Unemployment Rate Unemployed Labor Force 282 Cracking the AP Economics Macro & Micro Exams