question
Demand Function
answer
Qd=a-bP
question
Supply Function
answer
Qs=c+dP
question
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
question
Definition of PED
answer
Measures the responsiveness of quantity demanded to a change in price.
question
Equation of XED
answer
XED = %Change in Qd for good X / %change in price for good Y
question
Definition of XED
answer
Measures the responsiveness of quantity demanded for one good to a change in price for another good.
question
Equation for PES
answer
PES = %Change in Qs / %Change in price
question
Definition of PES
answer
Measures the responsiveness of quantity supplied to a change in price.
question
Equation for YED
answer
YED = %Change in Qd / %Change in Income
question
Definition of YED
answer
Measures the responsiveness of Qd to a change in income.
question
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.
question
Total Product Equation
answer
TP = AVxV
question
Average Product Equation
answer
AP = TP/V
question
Marginal Product Equation
answer
Change in TP / Change in V
question
What is V?
answer
V stands for the number of variable factors AKA Output
question
Total Cost Equation
answer
TC = TFC + TVC
question
Total fixed cost Equation
answer
TFC = No. fixed factors of production x Cost of fixed factors
question
Total Variable Cost Equation
answer
TVC = No. Variable factors x cost of variable factors
question
Average Fixed Cost Equation
answer
AFC = TFC/Output
question
Average Variable Cost Equation
answer
AVC = TVC/Output
question
Average Total Cost Equation
answer
ATC = TC/Output
OR
AFC+AVC
OR
AFC+AVC
question
Marginal Cost Equation
answer
MC = Change in TC/Change in output
question
Total Revenue Equation
answer
TR = P x Q
question
Average Revenue Equation
answer
AR = TR/Quantity x Price
question
Marginal Revenue Equation
answer
MR = Change in TR/Change in Quantity
question
Profit Per Unit Equation
answer
Profit per unit = Price per unit (P) - Cost per unit (ATC)
question
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.
question
Revenue Maximizing output
answer
MR = 0
question
Opportunity Cost Equation
answer
Opportunity cost of one unit of good A =
Output of B / Output of A
Output of B / Output of A
question
Terms of Trade
answer
Index of average export prices / Index of average import prices (x 100)
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
