Microeconomic formulas/MCQ points

Question 1

How is YED calculated?

Answer 1

% change in QD /
% change in income

Question 2

How is XED calculated?

Answer 2

% change in QD of A /
% change in Price of B

If XED negative, its complementary, if its positive, its a substitute

Question 3

How is PED calculated?

Answer 3

% change in QD
divided by
% change in P

HINTSB

Question 4

How is PES calculated?

Answer 4

% change in QS
divided by
% change in P

PSSST

Question 5

How are total costs calculated?

Answer 5

TC = TFC + TVC

Question 6

How are avg costs calculated?

As well as AFC and AVC?

Answer 6

AC = TC / Q
AFC = TFC / Q
AVC = TVC / Q

AC is also known as ATC.

Question 7

How do you calculate labour productivity?

Answer 7

Output / Total no. of workers

Question 8

How is MC calculated?

(marginal cost)

Answer 8

Change in TC / Change in Q

Question 9

How is TR calculated?

Answer 9

TR = P x Q

Question 10

How is average revenue calculated?

Answer 10

AR = TR / Q

Question 11

How is MR calculated?

(marginal revenue)

Answer 11

Change in TR / Change in Q

Question 12

How is profit calculated?

Answer 12

TR - TC

TR = TC is profit and TR > TC is supernormal profit.

Question 13

How are concentration ratios calculated, (calculating n-firm things)? + idea behind it

(Oligopolies)

Answer 13

• e.g. 3 firms control 90% of market, with 40 firms controlling another 10% of the market.
  For calculations…
  3-firm concentration ratio = 90%:
• if market worth £45m, and 3-firm concentration needs to be calculated…
• 3 biggest firms have revenues of £15m, £9m and £7m…
• 3 firm concentration ratio is 15+9+7 / 45 x 100 = 68.9%.

(check flashcard 15)

Question 14

The formula for calculating concentration ratio…

Answer 14

• revenue of each firm / total market value x 100

(check flashcard 14)

Question 15

How to calculate MRP…

Answer 15

MRP = MPP x MR
(marginal revenue product = marginal physical product x marginal revenue)

MR = price or avg revenue (AR)

Question 16

Why does MPP lower at some point?

(On a table)

Answer 16

• Due to the law of diminishing returns.

Question 17

A function of the market mechanism…

Answer 17

• Providing incentives for firms to provide goods to make a profit

Question 18

When calculating elasticities…

Answer 18

• % NOT required on calculator
• Remember to CORRECTLY POSITION VALUES in correct spaces ON FORMULA
• If below 1, inelastic and if above 1, elastic
• When looking at final value, plus or minus sign is IRRELEVANT

Question 19

YED answers/values…

Answer 19

For a normal good:
- If YED income elastic/ + value - Normal luxury good
- If YED income inelastic? ‘-‘ value -> Normal necessity good
For an inferior good:
- If YED +1, income elastic
- If YED -1, income inelastic
- If YED zero, perfectly income inelastic

Question 20

Working out govt. tax revenue from supply curves on diagram…

(MCQs)

(Be mindful of units e.g. price or qty may be in thousands etc)

Answer 20

To work out govt. tax revenue…
- highest price - lowest price on diagram (Price at y-axis) OR correct axis value
- Then, multiply this by qty at s2 (qty at x-axis)
—–> (Highest price - lowest price) x qty s2

(Revenue = price x qty)

Question 21

Working out tax per unit when the govt. imposes an indirect tax…

(MCQs)

Answer 21

• Difference between highest price and lowest price

Question 22

A left shift in AD leads to…

(UK financial crisis0

Answer 22

• Negative output gap and cyclical unemployment

(With additional LRAS curve and SRAS curve)

Question 23

According to Fisher’s equation of exchange, most likely effect of inflation would be…

Answer 23

• Rise in (V) and fall in (Q)

Question 24

At what level of employment can a firm max. its output…

Answer 24

• Perhaps when marginal returns are at its lowest

Question 25

A firm in a perfectly competitive market...

Answer 25

- Minimises its losses by staying in the market in the short-run

Question 26

In a monopsony labour market, where is employer's profit-maximising wage rate and level of employment is a... | (Single employer and competitive labour supply)

Answer 26

- Perhaps where lowest wage...

Question 27

If MCQ question involves labour markets…

Answer 27

- know that answer should link with labour market terms e.g. earning and MRP

Question 28

Most likely short-run trade-off between macroeconomic objectives being achieved

Answer 28

- Govt. budget deficit rises as unemployment rate reduced

Question 29

What to do when working out consumer surplus change on diagram - For MCQs

Answer 29

- Pick answer in overall consumer and producer surplus area or ‘triangle’

Question 30

For MCQs

Answer 30

- Link logical specific corresponding terms with answer and do not go to uncorresponding terms | (When its close, most of the time ;)

Question 31

Most likely result from increase in bank rate

Answer 31

- Rise in savings from risen I.R rates

Question 32

MCQ links for price and subsidy (when subs are in question)…

Answer 32

- Reduction in price

Question 33

If a good is inelastic, what could a firm do to boost its profits?

Answer 33

- Boost the good's price, and vice versa

Question 34

When MCQ diagram shows different prices 'if it had been' or 'would have' points...

Answer 34

- When looking at amount buyers, look at price and quantity, not just price! -> Then, adjust the movements

Question 35

If things unit elastic...

Answer 35

- Same rises and falls in changes

Question 36

When looking at MCQ tables...

Answer 36

- Know whether to look at last value or first value etc - Underline q words

Question 37

According to Fisher's equation of exchange, most likely effect of inflation would be...

Answer 37

- Rise in (V) and fall in (Q)

Question 38

At what level of employment can a firm max. its output...

Answer 38

- Perhaps when marginal returns are at its lowest

Question 39

A firm in a perfectly competitive market...

Answer 39

- Minimises its losses by staying in the market in the short-run

Question 40

In a monopsony labour market, where is employer's profit-maximising wage rate and level of employment is a... | (Single employer and competitive labour supply)

Answer 40

- Perhaps where lowest wage...

Question 41

If MCQ question involves labour markets…

Answer 41

- know that answer should link with labour market terms e.g. earning and MRP

Question 42

Working out govt. tax revenue from supply curves on diagram... | (MCQs) ## Footnote (Be mindful of units e.g. price or qty may be in thousands etc)

Answer 42

To work out govt. tax revenue... - highest price - lowest price on diagram (Price at y-axis) OR correct axis value - Then, multiply this by s2 qty -----> (Highest price - lowest price) x qty s2 | (Revenue = price x qty)

Question 43

Working out tax per unit when the govt. imposes an indirect tax... | (MCQs)

Answer 43

- Difference between highest price and lowest price

Question 44

Calculating subsidy value and consumer surplus on subsidy diagram... | (For MCQs)

Answer 44

For producer revenue: - The enitre 'rectangular' section down till the bottom of diagram - Calculate each corner (highest - lowest) - To calculate subsidy value, find the vertical difference between the two supply curves.

Question 45

Change in national income...

Answer 45

Initial injection x multiplier

Question 46

Calculate unemployment rate

Answer 46

No. of unemployed / labour force x 100

Question 47

Calculate taxable income

Answer 47

Income - Tax free allowance

Question 48

Calculate average rate of tax

Answer 48

Tax paid / income x 100

Question 49

Calculate marginal rate of tax...

Answer 49

Change in tax paid / change in income x 100

Question 50

How to calculate total product...

Answer 50

Total product / qty of labour

Question 51

Sales are maximised at

Answer 51

AR = AC

Question 52

Profits maximised at

Answer 52

MC = MR

Question 53

Revenue is maximised at

Answer 53

MR = 0

Question 54

Allocative efficiency occurs at

Answer 54

- P = MC - MPB = MSB - D = S1

Question 55

Productive efficiency occurs at

Answer 55

- MC = AC - On AC at Q

Question 56

Calculate gini coefficient

Answer 56

Area between lorenz curve and LOPE / Total area beneath LOPE