question

Demand Function

answer

Qd=a-bP

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Supply Function

answer

Qs=c+dP

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How do you calculate the equilibrium price and quantity?

answer

Make Qd = Qs

Then solve for P

Substitute P value into original equations

Solve equations using P

Qs and Qd should have the same value for the equilibrium

Then solve for P

Substitute P value into original equations

Solve equations using P

Qs and Qd should have the same value for the equilibrium

question

Equation for PED

answer

PED = %Change in Qd / %Change in Price

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Definition of PED

answer

Measures the responsiveness of quantity demanded to a change in price.

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Equation of XED

answer

XED = %Change in Qd for good X / %change in price for good Y

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Definition of XED

answer

Measures the responsiveness of quantity demanded for one good to a change in price for another good.

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Equation for PES

answer

PES = %Change in Qs / %Change in price

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Definition of PES

answer

Measures the responsiveness of quantity supplied to a change in price.

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Equation for YED

answer

YED = %Change in Qd / %Change in Income

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Definition of YED

answer

Measures the responsiveness of Qd to a change in income.

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How to calculate the effect of specific tax

answer

Begin with your equations.

e.g. Qd = 2000+200P

Qs = -400+400P

Substitute the specific tax - e.g. $0.75 - into the supply equation at P

Qs = -400+400(P+0.75)

Expand this.

Qs = -400+400-(400x0.75)

(400x0.75=300)

Thus,

Qs = -400+400P - 300

Qs = -700 +400P

e.g. Qd = 2000+200P

Qs = -400+400P

Substitute the specific tax - e.g. $0.75 - into the supply equation at P

Qs = -400+400(P+0.75)

Expand this.

Qs = -400+400-(400x0.75)

(400x0.75=300)

Thus,

Qs = -400+400P - 300

Qs = -700 +400P

question

Define Specific Tax

answer

A fixed amount of tax per unit of a good or service sold.

question

How to calculate the effects of subsidy

answer

Begin with your equations.

e.g. Subsidy of $0.75

Qs = -400+400P

Substitute 0.75 into the equation for P.

Qs = -400+400(P+0.75)

Qs = -400+(400xP) + (400x0.75)

Qs=-400+400P + 300

Qs = 100+400P

e.g. Subsidy of $0.75

Qs = -400+400P

Substitute 0.75 into the equation for P.

Qs = -400+400(P+0.75)

Qs = -400+(400xP) + (400x0.75)

Qs=-400+400P + 300

Qs = 100+400P

question

Define subsidy

answer

A subsidy is a sum of money paid by the government to a firm or individual to decrease the cost of production.

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Total Product Equation

answer

TP = AVxV

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Average Product Equation

answer

AP = TP/V

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Marginal Product Equation

answer

Change in TP / Change in V

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What is V?

answer

V stands for the number of variable factors AKA Output

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Total Cost Equation

answer

TC = TFC + TVC

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Total fixed cost Equation

answer

TFC = No. fixed factors of production x Cost of fixed factors

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Total Variable Cost Equation

answer

TVC = No. Variable factors x cost of variable factors

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Average Fixed Cost Equation

answer

AFC = TFC/Output

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Average Variable Cost Equation

answer

AVC = TVC/Output

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Average Total Cost Equation

answer

ATC = TC/Output

OR

AFC+AVC

OR

AFC+AVC

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Marginal Cost Equation

answer

MC = Change in TC/Change in output

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Total Revenue Equation

answer

TR = P x Q

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Average Revenue Equation

answer

AR = TR/Quantity x Price

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Marginal Revenue Equation

answer

MR = Change in TR/Change in Quantity

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Profit Per Unit Equation

answer

Profit per unit = Price per unit (P) - Cost per unit (ATC)

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Total Profit Equation

answer

Total profit = profit per unit x No. of units sold

OR

Total Profit = TR x TC

OR

Total Profit = TR x TC

question

Shut down price Equation

answer

SDP = Price (AR) = AVC

If their AVC is higher than the price then they shutdown as they cannot cover their costs

If their AVC is higher than the price then they shutdown as they cannot cover their costs

question

Break Even Price Equation

answer

BEP = Price (AR) = ATC

If their ATC is higher than price then they shut down in the long run as they cannot sell at a price above the ATC.

If their ATC is higher than price then they shut down in the long run as they cannot sell at a price above the ATC.

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Revenue Maximizing output

answer

MR = 0

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Opportunity Cost Equation

answer

Opportunity cost of one unit of good A =

Output of B / Output of A

Output of B / Output of A

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Terms of Trade

answer

Index of average export prices / Index of average import prices (x 100)