Economics Formulas Flashcards

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Questions and Answers

What is the Price Elasticity of Demand Formula?

(∆QDa/∆Pa)*(Pa/Qda)

What is the Income Elasticity of Demand Formula?

(∆QDa/∆Inc)*(Inc/QDa)

What is the Cross-Price Elasticity of Demand Formula?

(∆Qda/∆Pb)*(Pb/QDa)

What is Accounting Profit?

Total Revenue - Total Accounting (Explicit) Costs Signup and view all the answers

What is Economic Profit?

Accounting Profit - Implicit Opportunity Costs Signup and view all the answers

What is Normal Profit?

Accounting Profit - Economic Profit Signup and view all the answers

What is Total Revenue (TR)?

P x Q Signup and view all the answers

What is Average Revenue (AR)?

TR/Q Signup and view all the answers

What is Marginal Revenue (MR)?

∆TR/∆Q Signup and view all the answers

What is Total Cost (TC)?

Total Fixed Cost + Total Variable Cost Signup and view all the answers

What is Marginal Cost (MC)?

∆TC/∆Q Signup and view all the answers

What is Average Total Cost (ATC)?

TC/Q Signup and view all the answers

What is Average Fixed Cost (AFC)?

Total Fixed Cost/Q Signup and view all the answers

What is Average Variable Cost (AVC)?

Total Variable Cost/Q Signup and view all the answers

What is the Break-even point for perfect competition?

AR=ATC Signup and view all the answers

What is the Break-even point for imperfect competition?

TR=TC Signup and view all the answers

What is the Short-Run shutdown point for perfect competition?

AR < AVC Signup and view all the answers

What is the Short-Run shutdown point for imperfect competition?

TR Signup and view all the answers

Study Notes

Price Elasticity of Demand

Formula: (∆QDa/∆Pa)*(Pa/Qda) determines the responsiveness of quantity demanded to price changes.

Income Elasticity of Demand

Formula: (∆QDa/∆Inc)*(Inc/QDa) measures how quantity demanded changes as consumer income changes.

Cross-Price Elasticity of Demand

Formula: (∆Qda/∆Pb)*(Pb/QDa) assesses the responsiveness of demand for one good when the price of another good changes.

Accounting Profit

Defined as Total Revenue minus Total Accounting (Explicit) Costs, representing profit based solely on direct costs.

Economic Profit

Calculated as Accounting Profit minus Implicit Opportunity Costs.
Alternative expressions: AP = TR - Total Economic Costs, AP = TR - EC - IC indicate profit after considering opportunity costs.

Normal Profit

Represents a situation where Accounting Profit equals Economic Profit, meaning the firm is covering all costs, including opportunity costs.

Total Revenue (TR)

Total Revenue is calculated by multiplying price (P) by quantity (Q), indicating the total earnings from sales.

Average Revenue (AR)

Average Revenue is computed by dividing Total Revenue (TR) by quantity sold (Q), indicating the revenue per unit sold.

Marginal Revenue (MR)

Marginal Revenue is the change in Total Revenue divided by the change in quantity (∆TR/∆Q), reflecting the revenue generated from selling one additional unit.

Total Cost (TC)

Total Cost is the sum of Total Fixed Costs and Total Variable Costs, representing overall costs incurred by a firm.

Marginal Cost (MC)

Marginal Cost is defined as the change in Total Cost (∆TC) divided by the change in quantity (∆Q), indicating the cost of producing one more unit.

Average Total Cost (ATC)

Average Total Cost is the Total Cost (TC) divided by quantity produced (Q), showing the cost per unit.

Average Fixed Cost (AFC)

Average Fixed Cost is calculated by dividing Total Fixed Cost by quantity produced (Q), showcasing the fixed cost burden per unit.

Average Variable Cost (AVC)

Average Variable Cost is obtained by dividing Total Variable Cost by quantity produced (Q), reflecting the variable cost per unit.

Break Even for Perfect Competition

Occurs when Average Revenue (AR) equals Average Total Cost (ATC), indicating no economic profit or loss.

Break Even for Imperfect Competition

Achieved when Total Revenue (TR) equals Total Cost (TC), signaling that the firm covers all expenses.

Short-Run Shutdown Point for Perfect Competition

Identified when Average Revenue (AR) is less than Average Variable Cost (AVC), signifying a loss situation.

Short-Run Shutdown Point for Imperfect Competition

Reflected in Total Revenue covering enough to meet variable costs; if TR falls below variable costs, the firm should consider shutting down operations.

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Description

Test your knowledge of essential economics formulas with these flashcards. Each card highlights key concepts such as price elasticity, income elasticity, and profit definitions. Perfect for economics students wanting to solidify their understanding of fundamental principles.