Formulas

Question 1

Own price elasticity

Answer 1

Question 2

income elasticity

Answer 2

Question 3

cross price elasticity

Answer 3

Question 4

accounting profit

Answer 4

total revenue - total accounting (explicit) costs

Question 5

economic profit

Answer 5

accounting profit - implicit opportunity costs

OR

total revenue - total economic costs

OR

total revenue - explicit costs - implicit costs

Question 6

normal profit

Answer 6

accounting profit - economic profit

Question 7

total revenue (TR)

Answer 7

P * Q

Question 8

average revenue (AR)

Answer 8

TR / Q

Question 9

marginal revenue (MR)

Answer 9

Question 10

total cost

Answer 10

total cost = total fixed cost + total variable cost

Question 11

marginal cost (MC)

Answer 11

Question 12

average total cost (ATC)

Answer 12

Question 13

average variable costs (AVC)

Answer 13

Question 14

break even points for perfect competition and imperfect competition

Answer 14

Question 15

short run shut down points for perfect competition and imperfect competition

Answer 15

Question 16

cost minimizing combination of inputs

Answer 16

MP_N = marginal product of input N

P_N = cost of input N

N = number of inputs

Question 17

profit maximizing combination of inputs

Answer 17

MRP_N = marginal revenue product of input N

P_N = cost of input N

N = number of inputs

Question 18

nominal GDP for year t

Answer 18

(price of good i in year t)(quantity of good i produced in year t)

Question 19

real GDP for year t

Answer 19

(price of good i in base year)(quantity of good i produced in year t)

Question 20

GDP deflator for year t

Answer 20

(nominal GDP in year t)/ (value of year t output at base year prices) * 100

Question 21

GDP expenditure approach

Answer 21

C = consumption spending

I = business investment (capital equipment, inventories)

G = government purchases

X = exports

M = imports

Question 22

GDP income approach

Answer 22

Question 23

National income

Answer 23

= compensation of employees (wages and benefits)

+ corporate and gov’t enterprise profits before taxes

+ interest income

+ unincorp business net income (bus owner income)

+ rent

+ indirect business taxes - subsidies

Question 24

personal income

Answer 24

= national income

+ transfer payments to households

• indirect business taxes
• corporate income taxes
• undistributed corporate profits

Question 25

personal disposable income

Answer 25

personal disposable income = personal income - personal taxes

Question 26

growth in per-capita potential GDP

Answer 26

growth in per-capital potential GDP = growth in technology + Wc(growth in the capital to labour ratio) ## Footnote where W_c = capital's percentage share of national income

Question 27

growth in potential GDP

Answer 27

growth in potential GDP = growth in technology + W_L(growth in labour) + W_C(growth in capital) where: W_L = labour's percentage share of national income W_C = capital's percentage share of national income

Question 28

consumer price index

Answer 28

Question 29

money multiplier

Answer 29

Question 30

equation of exchange (quantity theory of money)

Answer 30

money supply \* velocity = price \* real output (MV = PY)

Question 31

Fisher effect

Answer 31

Fisher effect: nominal interest rate = real interest rate + expected inflation rate

Question 32

nominal interest rate

Answer 32

neutral interest rate = real interest rate + expected inflation rate

Question 33

fiscal multiplier

Answer 33

where: t= tax rate MPC = marginal propensity to consume

Question 34

real exchange rate (d/f)

Answer 34

Question 35

interest rate parity

Answer 35

Question 36

Marshall - Lerner condition

Answer 36

W_m = proportion of trade that is imports W_x = proportion of trade that is exports E_M = elasticity of demand for exports and imports