Equations

Question 1

Total Product

Answer 1

output per factor X number of factors

Question 2

average product

Answer 2

TP / units of variable input

Question 3

Marginal product

Answer 3

change in TP / change of variable input

Question 4

total cost

Answer 4

TC = TFC+TVC
TC = ATC X Q

Question 5

total fixed cost

Answer 5

TFC = TC - TVC
TFC = AFC X Q

Question 6

total variable cost

Answer 6

TVC = TC - TFC
TVC = AVC X Q

Question 7

Average total cost

Answer 7

ATC = TP/Q
ATC = AFC + AFV

Question 8

Average fixed cost

Answer 8

AFC = TFC/Q
AFC = ATC - AVC

Question 9

average variable cost

Answer 9

AVC = TVC/Q
AVC = ATC - AFC

Question 10

Marginal cost

Answer 10

MC=derivative of TC/ derivative of Q

Question 11

total revenue

Answer 11

TR= P X Q

Question 12

Average revenue

Answer 12

AV=TR/Q=P

Question 13

Marginal revenue

Answer 13

MR=∆TR/∆Q

Question 14

AD Equation

Answer 14

C+I+G+(X-M)

Question 15

GNI

Answer 15

GNI is the total income received by the residents of a country in a year, regardless to where the factors of production owned by the residents are located.

Question 16

GNP

Answer 16

GNP = GDP + net income from abroad (ex foreign investment from abroad)

Question 17

GDP Deflator

Answer 17

measures the level of prices of all final goods and services produced in an economy
GDP Deflator = (New price)/(Base year price) x 100

Question 18

Calculating the GDP using the GDP deflator

Answer 18

Real GDP = (Nominal GDP)/(GDP deflator) x 100

Question 19

Unemployment rate

Answer 19

Unemployment rate= (number of unemployed workers)/(labour force) x 100

Question 20

Green GDP

Answer 20

GDP - depreciating environmental capital - expenditure arising from fixed damages done to the environment

Question 21

Multiplier effect (definition)

Answer 21

how an increase in the initial price leads to a higher increase in national income (real GDP).

Question 22

Marginal propensity to consume (MPC) (definition)

Answer 22

the portion of additional income used for consumption

Question 23

Marginal propensity to save (MPS) (definition)

Answer 23

the portion of income used for savings

Question 24

Marginal propensity to tax (MPT) (definition)

Answer 24

the proportion of additional income paid as tax

Question 25

Marginal propensity to import (MPM) (definition)

Answer 25

the portion of income spent on imports

Question 26

marginal propensity equation / what they equal

Answer 26

MPC + MPS + MPT + MPM = 1

Question 27

Total income generated in a household (multiplier effect equation) / Keynesian multiplier

Answer 27

Total income generated = Initial injection X 1/(1-MPC) = 1/(MPS+MPT+MPM) or MPS+MPT+MP=MPC-1

Question 28

Economic growth

Answer 28

GDP in Year 2−GDP in Year 1/ GDP in Year 1x 100 ​

Question 29

Inflation rate

Answer 29

(price index in year n - price index in previous year) / price index in previous year) X 100

Question 30

price index in year n

Answer 30

(value of basket in year n) / (value of basket in base year) X 100

Question 31

average tax rate

Answer 31

(tax amount) / (income amount) X 100

Question 32

Marshall-Lerner condition for the devaluation/depreciation in currency

Answer 32

PEDx + PEDm > 1 = improvement in CAD PEDx +PEDm =1 = no change PEDx + PEDm <1 = worsening of CAD

Question 33

Terms of trade

Answer 33

(index of export prices) / (index of import prices)

Question 34

terms of trade price index

Answer 34

(average price) / (average base year)

Question 35

balance of trade

Answer 35

the difference between a country's total exports and total imports

Question 36

When does a firm shut down in the short run?

Answer 36

If TR < TVC (total revenue < total variable costs). Key: The firm continues operating if it can cover variable costs, even if it’s making a loss overall.

Question 37

When does a firm exit in the long run?

Answer 37

If TR < TC (total revenue < total costs, including fixed costs). Key: In the long run, all costs must be covered to stay in business.

Question 38

How do you calculate profit (π)?

Answer 38

π = TR – TC. If negative, it’s a loss. Example: £950 – £1350 = -£400 (a loss).

Question 39

Why might a firm operate at a loss in the short run but exit in the long run?

Answer 39

Short run: Covers variable costs. Long run: Must cover all costs (fixed + variable).

Question 40

How to remember the shutdown rule?

Answer 40

"Stay if TVC is covered, flee if TC isn’t."

Question 41

How to derive MR from TR?

Answer 41

Take derivative: MR = d(TR)/dQ = a - 2bQ

Question 42

How to find monopoly Q?

Answer 42

Set MR=MC → solve for Q Example: 100-4Q=Q → Q=20

Question 43

What is the profit-maximizing condition for a monopolist?

Answer 43

Set Marginal Revenue (MR) = Marginal Cost (MC)

Question 44

How to solve any Coase Theorem problem?

Answer 44

Calculate totals: Find combined payoffs for all parties in both scenarios (action vs. no action) Find the deal range: Minimum payment = Harm-doer's loss from stopping Maximum payment = Affected party's gain from stopping

Question 45

Marginal revenue product formula

Answer 45

Marginal product of labour X price of product

Question 46

How to determine optimal hiring in competitive markets?

Answer 46

Calculate MRP= MPL × Price Hire workers where MRP ≥ Wage Stop when MRP < Wage

Question 47

How do risk-neutral buyers calculate their offer price in a market with unknown quality (e.g., used cars)?

Answer 47

Offer Price=(Prob. High Quality×High Value)+(Prob. Low Quality×Low Value)

Question 48

How to calculate expected value of a lottery?

Answer 48

EV=∑(Probability×Outcome) EV = (Probability₁ × Outcome₁) + (Probability₂ × Outcome₂) + ... Steps: Multiply each possible outcome by its probability Sum all these values

Question 49

Excludable + non-rivalrous good?

Answer 49

Collective good

Question 50

Rivalrous + non-excludable (e.g., public forests)

Answer 50

Common good

Question 51

Excludable + rivalrous (e.g., food, clothing)

Answer 51

Private good

Question 52

Policy response to high inflation?

Answer 52

Monetary tightening (↑ rates) → AD shifts left. Example: Fed raising federal funds rate to curb inflation

Question 53

What do inflation shocks and potential output shocks shift?

Answer 53

Inflation shocks: SRAS Potential output shocks: LRAS Mnemonic: "Short-term pain (SRAS), Long-term gain (LRAS)."

Question 54

What does rising inflation eliminate via self-correction?

Answer 54

Expansionary gaps (via leftward SRAS shift). Mnemonic: "Too hot (expansionary) → Inflation cools it down." Common Mistake: Confusing with recessionary gaps (fixed by falling inflation).

Question 55

If money demand is MD= 60 - 5r and money supply is fixed at MS = 40, what is the equilibrium interest rate?

Answer 55

1. Set MD = MS (60 - 5r = 40) 2. solve = 4

Question 56

What is the expenditure approach formula for GDP (Y)?

Answer 56

Y=C+I+G+NX Where: C = Consumption I = Investment G = Government Spending NX = Net Exports (Exports - Imports)

Question 57

How is national savings (S) calculated?

Answer 57

S=Y−C−G Or equivalently: S=I+NX

Question 58

Output grows $100B→$200B, population 100M→150M. What happens to output per person?

Answer 58

1. Initial: $100B/100M = $1,000 2. New: $200B/150M ≈ $1,333 (33% increase) Answer: (b) increases <100% Mnemonic: "Population growth dilutes per-person gains."

Question 59

$1,000 income: $850 spend, $50 cash save, $100 stocks. Savings?

Answer 59

(d) $150; 15% Key: - Savings = Cash + Investments - Rate = (Savings/Income)×100

Question 60

Household save↓$4M, business save↑$4M, GOVT deficit↓$4M → Private? Public?

Answer 60

(c) Private no change; Public increases Key: - Private = Household + Business (-4+4=0) - Public: govt Deficit↓ = Saving↑

Question 61

Autonomous Expenditure Formula:

Answer 61

A = C₀ + I + G + NX - MPC×T (C₀ = autonomous consumption, T = taxes)

Question 62

What is the Marginal Rate of Substitution (MRS) and how is it interpreted?

Answer 62

Formula: MRS = MU₁ / MU₂ (Marginal Utility of Good 1 over Good 2) A higher MRS means the consumer values one good much more than the other. If MRS = 2, the consumer is willing to trade 2 units of Good B for 1 unit of Good A. For perfect substitutes, MRS is constant.