These are the are the Formulas for A Level Economics 9708. Go through them to be fully prepared.!
Key Formulas in MicroEconomics
 The demand function captures the effect of all these factors on demand for a good.
Demand function: QDx=f(Px,I,Py,…) … (Equation 1)
Equation 1 is read as “the quantity demanded of Good X (QDX) depends on the price of
Good X (PX), consumers’ incomes (I) and the price of Good Y (PY), etc.”Supply Function  The supply function can be expressed as: Supply function: QSx=f(Px,W,…)
 The ownprice elasticity of demand is calculated as: EDPx=%ΔQDx%ΔPx
If we express the percentage change in X as the change in X divided by the value of X,
the equation can be expanded to the following form: EDPx=%ΔQDx%ΔPx=ΔQDx⁄ΔQDxΔPx⁄Px=(ΔQDxΔPx)(PxQDx)Arc Elasticity  Ep=% change in quantity demanded% change in price=%ΔQd%ΔP =(Q0−Q1)(Q0+Q1)∕2×100P0−P1)(P0+P1)∕2×100
 Income elasticity of demand measures the responsiveness of demand for a particular good to a change in income, holding all other things constant. ED1=%ΔQDx%ΔI=ΔQDx⁄QDxΔII=(ΔQDxΔI)(IQDx) EI=% change in quantity demanded% change in income $
Own price elasticity of demand
Income Elasticity
Cross Elasticity of Demand
 Cross elasticity of demand measures the responsiveness of demand for a particular good to a change in price of another good, holding all other things constant. EDPy=%ΔQDx%ΔPy=ΔQDx⁄QDxΔPy⁄Py=(ΔQDxΔPy)(PYQDx)
EC=% change in quantity demanded%change in price of substitute or complementUtility Function  In general a utility function can be represented as: U=f(Qx1,Qx2,…,Qxn)
Accounting Profit
 Accounting profit (loss) = Total revenue – Total accounting
Economic Profit
 Economic profit (also known as abnormal profit or supernormal profit) is calculated as:
Economic profit = Total revenue – Total economic costs Economic profit = Total revenue – (Explicit costs + Implicit costs)
Economic profit = Accounting profit – Total implicit opportunity costs
 Average Total Cost (ATC) = Total Cost / Q (Output is quantity produced or ‘Q’)
 Average Variable Cost (AVC) = Total Variable Cost / QAverage Fixed Cost (AFC) = ATC – AVC
 Total Cost (TC) = (AVC + AFC) X Output (Which is Q)
 Total Variable Cost (TVC) = AVC X Output
 Total Fixed Cost (TFC) = TC – TVC
 Marginal Cost (MC) = Change in Total Costs / Change in Output
 Marginal Product (MP) = Change in Total Product / Change in Variable Factor
 Marginal Revenue (MR) = Change in Total Revenue / Change in Q
 Average Product (AP) = TP / Variable Factor
 Total Revenue (TR) = Price X Quantity
 Average Revenue (AR) = TR / Output
 Total Product (TP) = AP X Variable Factor
 Economic Profit = TR – TC > 0
 A Loss = TR – TC < 0
 Break Even Point = AR = ATC
 Profit Maximizing Condition = MR = MC
 Explicit Costs = Payments to nonowners of the firm for the resources they supply.
 Normal profit = Accounting profit – Economic profit Total, Average & Marginal Revenue

Total, Average, Marginal, Fixed & Variable Cost
Costs  Calculation 
36. Total fixed cost (TFC)  Sum of all fixed expenses; here defined to include all opportunity costs 
37. Total variable cost (TVC)  Sum of all variable expenses, or per unit variable cost 
times quantity; (per unit VC × Q)  
38. Total costs (TC)  Total fixed cost plus total variable cost; (TFC + TVC) 
39. Average fixed cost (AFC )  Total fixed cost divided by quantity; (TFC / Q) 
40. Average variable cost (AVC)  Total variable cost divided by quantity; (TVC / Q) 
41. Average total cost (ATC)  Total cost divided by quantity; (TC / Q) or (AFC + AVC) 
42. Marginal cost (MC)  Change in total cost divided by change in quantity; (ΔTC / ΔQ) 
Marginal Revenue Product
 MRP of labor = Change in total revenue / Change in quantity of labor. For a firm in perfect competition, MRP of labor equals the MP of the last unit of labor times the price of the output
MRP = Marginal product * Product price
A profitmaximizing firm will hire more labor until: MRPLabor=PriceLabor
Profits are maximized when: MRP1Price of input 1=…=MRPnPrice of input n
Unit Labour Cost is calculated as:
 ULC=W∕O
Where:= Output per hour per worker
W= Total labor compensation per hour per worker
Marginal Revenue
 The relationship between MR and price elasticity can be expressed as: MR = P[1–(1EP)]
In a monopoly, MC = MR so: P[1–(1∕EP)] = MC $
Key Formulas of Macro Economics
 GDP = C + I + G + Xn: The expenditure approach to measuring GDP
 GDP = W + I + R + P: The income approach to measuring GDP
 Calculating nominal: The quantity of various goods produced in a nation times their current prices, added
 GDP deflator: A price index used to adjust nominal GDP to arrive at real GDP. Called the ‘deflator’ because nominal GDP will usually overstate the value of a nation’s output if there has been inflation.
 Real GDP: Nominal GDP/GDP Deflator x100
 GDP Growth rate: Current year’s GDPLast year GDP/ Last year’s GDP x100
 The inflation rate via the CPI: This year’s CPI Last year’s CPI/ Last year’s CPI x100
 Real interest rate = nominal interest rate – inflation rate.
 Unemployment Rate = Number of unemployed/Number in the labour force x 100
 Money Multiplier = 1/RRR
 Quantity theory of money: MV = PY – a moneterist’s view which explains how changes in the money supply will affect the price level assuming the velocity of money and the level of output are fixed
 MPC + MPS = 1. Households may consume or save with any change in their income.
 Spending Multiplier = 1/1MPC or 1/MPC
 Tax multiplier = MPCMPS. It tells you how much total spending will result from an initial change in the level of taxation. It is negative because when taxes decrease, spending increases, and vis versa. The tax multiplier will always be smaller than the spending multiplier.
15. Gross Domestic Product 
GDP = [(quantity of A X price of A) + (quantity of B X price of B) + … + (quantity of N X price of N)] for every good and service produced within the country
GDP = (national income) = Y = (C + I + G + NX) 
16. GDP Deflator  GDP deflator = [(nominal GDP) / (real GDP)] – 1 
17. GDP Per Capita  GDP per capita = (GDP) / (population) 
Nominal GDP
GDP Deflator
 GDP deflator = Value of current year output at current year pricesValue of current year output at base year prices×100
GDP deflator = Nominal GDP Real GDP×100
The Components of GDP
 Based on the expenditure approach, GDP may be calculated as: GDP = C + I + G + (X × M)
C = Consumer spending on final goods and services
I = Gross private domestic investment, which includes business investment in capital goods (e.g. plant and equipment) and changes in inventory (inventory investment)
G = Government spending on final goods and services X = Exports
M = Imports
GDP
 National income + Capital consumption allowance + Statistical discrepancy
The capital consumption allowance (CCA)
 accounts for the wear and tear or depreciation that occurs in capital stock during the production process. It represents the amount that must be reinvested by the company in the business to maintain current productivity levels. You should think of profits + CCA as the amount earned by
Solow (neoclassical) growth model
 Y=AF(L,K) Where:
Y = Aggregate output L = Quantity of labor K = Quantity of capital
A = Technological knowledge or total factor productivity (TFP)
Growth accounting equation
 Growth in potential GDP = Growth in technology + WL(Growth in labor) + WK(Growth in capital)
Growth in per capita potential GDP
 Growth in technology +WK(Growth in capitallabor ratio)
Measures of Sustainable Growth
 Labor productivity = Real GDP/ Aggregate hours
 Potential GDP = Aggregate hours × Labor productivity
 This equation can be expressed in terms of growth rates as:
29. Potential GDP growth
rate = 
30. Longterm growth rate of labor force + Longterm labor productivity growth rate 
Required Reserve Ratio
 Required reserve ratio = Required reserves / Total deposits
 Money multiplier = 1/ (Reserve requirement)
 The Fischer effect states that the nominal interest rate (RN) reflects the real interest rate (RR) and the expected rate of inflation (∏e).
 RN=RR+∏e
The Fiscal Multiplier
 Ignoring taxes, the multiplier can also be calculated as: 1/(1MPC) = 1/(10.9) = 10
Assuming taxes, the multiplier can also be calculated as: 1[1−MPC(1−t)]
Balance of Payment Components
 A country’s balance of payments is composed of three main
 The current account balance largely reflects trade in goods and
 The capital account balance mainly consists of capital transfers and net sales of
nonproduced, nonfinancial assets.
 The financial account measures net capital flows based on sales and purchases of domestic and foreign financial assets.
 Real exchange rate=DC∕FCSDC∕FC×(PFC∕PDC) where:
SDC∕FC = Nominal spot exchange rate
PFC = Foreign price level quoted in terms of the foreign currency PDC = Domestic price level quoted in terms of the domestic currency
 FDC∕FC=1SFC∕DC×(1+rDC)(1+rFC) or FDC∕FC=SDC∕FC×(1+rDC)(1+rFC) Forward rates are sometimes interpreted as expected future spot
 Ft=St+1
 43.(St+1)S−1=Δ%S(DC∕FC)t+1=(rDC+rFC)(1+rFC) $
MarshallLerner condition
 ϖX εX + ϖM (εM – 1) > 0
 Where: ϖX = Share of exports in total trade ϖM = Share of imports in total trade
εX = Price elasticity of demand for exports εM = Price elasticity of demand for imports