formulas)
cost-benefit analysis: benefits – costs = net benefits
model + empirical evidence = hypothesis
Opportunity cost product A = Loss product B / Gain product A
marginal benefit per dollar spent: MBA / PA
optimizing buyer will choose: MBa / Pa = MBb / Pb
Consumer Surplus = ½ x (Base of triangle x Height of triangle)
Price elasticity of demand εD = % change in quantity demanded / % change in price
ELASTIC: if εD > 1 the % change in quantity demanded is greater than the % change in price
INELASTIC: if εD < 1 the % change in quantity demanded is lower than the % change in
price
UNIT ELASTIC: if εD = 1 the % change in price would leave revenues unchanged, because
the % change in quantity demanded moves in the same amount
PERFECTLY INELASTIC: the quantity demanded is completely unaffected by price
Cross-price Elasticity = % change in quantity demanded of good x / % change in price of
good y
NEGATIVE: the two goods are complements; the price fall of one leads to a right shift in the
demand curve for the other
POSITIVE: the two goods are substitutes; the rise in the price of one leads to a right shift in
the demand curve for the other
Income Elasticity = % change in quantity demanded / % change in income
normal goods = if the quantity demanded is directly related to income; when income rises,
consumers buy more of a normal good
inferior goods = if the quantity demanded is inversely related to income; when income rises,
consumers buy less of an inferior good
luxury goods = goods with an income elasticity >1
Total cost of production = Variable cost + Fixed cost
Average total cost = Average variable cost + Average fixed cost
(Total cost / Q) = (Variable cost / Q) + (Fixed cost / Q)
Marginal Cost = Change in total cost / Change in output
variable cost = change with the amount of production or amount of output
fixed cost = firms must pay FC even if production is equal to 0
Total revenue = Price x Quantity sold
Profits = Total revenues - Total costs
Marginal Revenue = Marginal Cost
Total profits = Price x Q – ATC x Q
= (Price – ATC) x Q
accounting profits = equal to total revenue – explicit costs
economic profits = total revenue – explicit costs – implicit costs
cost-benefit analysis: benefits – costs = net benefits
model + empirical evidence = hypothesis
Opportunity cost product A = Loss product B / Gain product A
marginal benefit per dollar spent: MBA / PA
optimizing buyer will choose: MBa / Pa = MBb / Pb
Consumer Surplus = ½ x (Base of triangle x Height of triangle)
Price elasticity of demand εD = % change in quantity demanded / % change in price
ELASTIC: if εD > 1 the % change in quantity demanded is greater than the % change in price
INELASTIC: if εD < 1 the % change in quantity demanded is lower than the % change in
price
UNIT ELASTIC: if εD = 1 the % change in price would leave revenues unchanged, because
the % change in quantity demanded moves in the same amount
PERFECTLY INELASTIC: the quantity demanded is completely unaffected by price
Cross-price Elasticity = % change in quantity demanded of good x / % change in price of
good y
NEGATIVE: the two goods are complements; the price fall of one leads to a right shift in the
demand curve for the other
POSITIVE: the two goods are substitutes; the rise in the price of one leads to a right shift in
the demand curve for the other
Income Elasticity = % change in quantity demanded / % change in income
normal goods = if the quantity demanded is directly related to income; when income rises,
consumers buy more of a normal good
inferior goods = if the quantity demanded is inversely related to income; when income rises,
consumers buy less of an inferior good
luxury goods = goods with an income elasticity >1
Total cost of production = Variable cost + Fixed cost
Average total cost = Average variable cost + Average fixed cost
(Total cost / Q) = (Variable cost / Q) + (Fixed cost / Q)
Marginal Cost = Change in total cost / Change in output
variable cost = change with the amount of production or amount of output
fixed cost = firms must pay FC even if production is equal to 0
Total revenue = Price x Quantity sold
Profits = Total revenues - Total costs
Marginal Revenue = Marginal Cost
Total profits = Price x Q – ATC x Q
= (Price – ATC) x Q
accounting profits = equal to total revenue – explicit costs
economic profits = total revenue – explicit costs – implicit costs
