Economics Formula’s

1. LAW OF EQUI – MARGINAL UTILITY

MUx/Px = MUy/Py
2. Price Elasticity of Demand Problems: ( BASED ON PERCENTAGE METHOD
FORMULA
PED = % Change in Quantity Demanded
% Change in Price
• If PED is greater than 1 (elas c demand), an increase in price leads to a decrease in total revenue.

• If PED is less than 1 (inelastic demand), an increase in price leads to an increase in total
revenue.
3. Income Elasticity of Demand Problems:

YED = % Change in Quantity Demanded

% Change in Income

 Greater than 1 (normal good, income elastic) Positive and less than 1 (normal good, income
inelastic) Negative (inferior good)

4. Cross Elasticity of Demand and Supply Problems

: Cross Elasticity of Demand (XED) is calculated using the formula:

XED = % Change in Quantity Demanded of B
% Change in Price of A
 The Cross elasticity of Demand can be Positive or Negative. It is positive for a Substitute and
Negative for a Complement.

5. BUDGET LINE EQUATION

Px⋅X+Py⋅Y=I

Where:

Px is the price of good X. Py is the price of good Y.

X is the quantity of good X. Y is the quantity of good Y. I is the consumer's income.

6. Consumer surplus

(a) Single Price Point

Consumer Surplus (CS) = Maximum Willingness to Pay (WTP) - Actual Price

 7. PRODUCER SURPLUS CALCULATION
Total revenue - marginal cost = producer surplus

Producer Surplus=1/2×(P (Market Price)−MC (Minimum Acceptable Price))×Qs (Quan ty Supplied)

Where:

P (Market Price) is the price at which the goods are sold.

MC (Minimum Acceptable Price) is the minimum price at which producers are willing to
supply the goods, often representing the cost of production.
Qs (Quantity Supplied) is the quantity of the good that producers are willing to supply at the
market price.
This formula calculates the area between the supply curve and the market price up to the
quantity supplied, which represents the producer surplus.

8. Cost Calculation for a Manufacturing Firm

Calculate TC, AC, and MC

Formula: TC = FC + VC , AC = TC / Q , MC = ΔTC / ΔQ

9. Break-Even Point (BEP)

BEP (in units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

10. calculate Average Revenue (AR), Marginal Revenue (MR), and Total Revenue (TR)

• TR is calculated as
TR = P * Q for each quantity.
• AR is calculated as
AR = TR / Q.
• MR is calculated as the change in TR between consecutive quantities. For example, MR
between Q=1 and Q=2 is ΔTR = TR(Q=2) - TR(Q=1).