Terms, Definitions, & Formulae

term
Price elasticity of demand

Price elasticity of supply

Income elasticity of
demand

Cross elasticity of
demand

Marginal Utility
Average Utility
Total Revenue

Marginal Revenue

Marginal Cost
Average Fixed Cost
Average Variable Cost

definition
Percentage change in
quantity demanded that
results from a 1% change
in product price
Percentage change in
quantity supplied that
results from a 1% change
in product price
Percentage change in
quantity demanded that
results from a 1% change
in income
Percentage change in
quantity demanded of
good X that results from
a 1% change in price of
good Y
The addition to utility
that results from
consuming one more unit
of a good
The utility per unit of a
good
The total paid by
consumers for all units of
a good purchased
The addition to revenue
that results from
producing one more unit
of a good
The addition to cost that
results from producing
one more unit of a good
The fixed cost per unit of
a good
The variable cost per unit
of a good

formula

notes

%Qd Qd Avg Qd (after Qd before Qd ) Avg Qd

%P
P Avg P
(after P before P) Avg P
%Qs Qs Avg Qs (after Q s before Qs ) Avg Qs

% P
P Avg P
( after P before P) Avg P
%Qd Qd Avg Qd (after Qd before Qd ) Avg Qd

%Inc Inc Avg Inc ( after Inc before Inc ) Avg Inc

Notice the basic structure is the same

for all the elasticity formulae.

%Qx Qx Avg Qx (after Q x before Qx ) Avg Qx

%Py
Py Avg Py
( after Py before Py ) Avg Py

MU = TU / Q
AU = TU / Q
TR = PQ
MR = TR / Q
MC = TC / Q
AFC = TFC / Q
AVC = TVC / Q

If a firm is perfectly competitive

in the product market,
MR = the price of the product

Terms, Definitions, & Formulae

term
Average Total Cost
Profit
Four-Firm Concentration
Ratio
Herfindahl Index
Marginal Physical
Product
(or just Marginal Product)
Marginal Revenue
Product
Marginal Resource Cost
Real Interest Rate
Future Value through
compounding
Present Value
(Discounting)
for single time period
Present Value
for multi-time period
PV of an annuity which
pays a fixed amount R
every year from now on
Balance of trade on goods
& services

definition

formula

notes

The total cost per unit of

a good
The amount by which
revenue earned exceeds
cost incurred
The sum of the shares of
the 4 largest firms in the
industry
The sum of the squares
of the shares of all firms
in the industry
The additional output
that results from hiring
one more unit of an input
The additional revenue
that results from hiring
one more unit of an input
The additional cost that
results from hiring one
more unit of an input
Rate of interest adjusted
for inflation
Value of money after
interest has accumulated

ATC = TC / Q

ATC = AVC + AFC

= TR TC

A negative profit is a loss.

CR = s1 + s2 + s3 + s4
H = s12 + s22 + ... + sn2

Notice: for CR, you use only 4

largest firms & shares are not
squared; for H, all firms are used &
the shares are squared.

MPP = Q / L
MRP = TR / L

Alternative formula: MRP=MRMPP

Caution: Do not confuse with MR.

MRC = TC / L

Caution: Do not confuse with MC.

real i = money i inflation rate

FV = PVt (1+i)t

Current value of income

received in the future

PV = FVt / (1+i)t

Current value of income

received in the future

PV = FV1/(1+i)1+FV2 /(1+i)2+ ... + FVn/(1+i)n

Current value of an
annuity

Annuity PV = R/i

Excess of exports over

imports

Exports Imports

Notice relationship between

compounding and discounting
formulae.

Trade deficit means more imports than

exports; trade surplus means more
exports than imports.