Average Revenue Formula

Average revenue is referred to as the revenue that is earned per unit of output. In other words, it is the revenue that is
obtained by the seller on selling each unit of the commodity.

AR = TR/Q

Where,

AR = Average revenue

TR = Total revenue

Q = Output

National Income Formula

National income is referred to as the total monetary value of all services and goods that are produced by a nation
during a period of time. In other words, it is the sum of all the factor income that is generated during a production year

Formula for National Income

National income = C + G + I + X + F – D

Where,

C denote the consumption

G denote the government expenditure

I denote the investments

X denote the net exports (Exports subtracted by imports)

F denote the national resident’s foreign production

D denote the non-national resident’s domestic production

GDP Deflator Formula

GDP deflator, also known as the implicit price deflator, is used to measure inflation. It is used to determine the levels
of prices of the new domestically produced final goods and services in a country in a year.
Nominal GDP is the monetary value of all the goods and services produced in an economy and is valued
at current prices, while the real GDP shows the monetary value of all the finished goods and services in
an economy calculated at constant prices.

For calculating GDP deflator, the following steps are necessary.

1. Determine the nominal GDP.

2. Determine the real GDP.
3. Find the GDP Deflator.

GDP deflator formula can be represented as:

GDP deflator = Nominal GDP/Real GDP * 100

Elastic Demand Formula

Elastic demand is said to be the condition in which the price elasticity of demand is always greater than one.

Elastic demand = (Percentage change in quantity/Percentage change in price) > 1

Examples of Elastic Demand

Let us take an example of elastic demand to understand it better.

If the price of a quantity increases, then the number of products sold will decrease, and vice versa.

Inflation Rate formula

Inflation rate is defined as the percentage increase in the price levels of the basket of selected goods and services
over a time period.

The rise in inflation rate indicates that there is a decline in the purchasing power of the currency, and as a result,
there is an increase in the consumer price index (CPI).

Inflation rate = (Current period CPI − Prior period CPI)/Prior period CPI

Unemployment Rate Formula

Unemployment rate is defined as that share of people who are without any job. This rate is expressed in percentage.

Unemployment rate falls and rises as per the prevailing economic conditions. If the economy is down
which makes the availability of jobs scarce, then the employment rate will increase.

Similarly, the unemployment rate will be expected to decline when a country’s economy is doing well and
registering good growth, along with plenty of job opportunities available for the public.
The unemployment rate formula can be expressed as

Unemployment Rate = Unemployed / Civilian Labor Force

Or

Unemployment Rate = No. of Unemployed Persons / (No. of Employed Persons + No. of Unemployed
Persons)

Consumer Price Index Formula

The Consumer Price Index or CPI is known as the index that is used to measure the level of retail inflation in an
economy by taking into account the changes in price of the most commonly used goods and services by consumers.

Consumer price index (CPI) = [Cost of the basket in the current year/Cost of the basket in the base
year] x 100

Or it can be represented as

CPI = [Cost of the basket (t) ÷ Cost of the basket (0)] x 100

Marginal Cost Formula

Marginal cost is referred to as the cost that is incurred by any business when there is a need for
producing additional units of any goods or services.

It is calculated by taking the total cost of producing the additional goods into account and dividing that by
the change in the total quantity of the goods produced.

Marginal cost = (Change in cost) / (Change in quantity)

Price Elasticity of Demand Formula

The price elasticity of demand is the percentage change in the quantity demanded of a good or service by
the percentage change in the price. In other words, the price elasticity of demand is the rate at which the
demand increases or decreases with the corresponding change in price.

The demand for a product can either be elastic or inelastic. When the change in demand is seen to be
proportionately larger in comparison to the change in price, then it is said to be elastic. When the change
in demand is smaller than the change in price, then it is said to be inelastic

Price elasticity of demand (PED) = %∆ in Qd/%∆ in P

Where,

%∆ in Qd = Percentage change in the quantity demanded

%∆ in P = Percentage change in price

Marginal Revenue formula

Marginal revenue is referred to as the revenue that is earned from the sale of an additional product or unit. It is the
revenue that the company generates when there is a sale of an additional unit.

Marginal revenue = Change in total revenue/Change in quantity

Or, MR = ∆TR/∆q

∆TR = Change in total revenue

∆q = Change in quantity

Total Revenue formula

Total revenue is an important concept in Economics that refers to the total amount of money that a company earns
through the selling of its goods and services, over a time period (a day, week, month or year).

Total Revenue = Price x Quantity

Or TR = p x q

Where,

p = price of the product

q = quantity that was sold

Nominal GDP Formula

Nominal gross domestic product (GDP) is the value of all the final goods and services at current market prices. In
other words, it is the GDP calculated at the current market prices.

GDP = C + I + G + (X – M)

Where,
C = Consumption

I = Investment

G = Government spending

X = Exports

M = Imports

Real GDP formula

Real GDP is said to be the value of all goods and services determined in an economy after taking into account the
rate of inflation.

Real GDP = Nominal GDP / Deflator

or R = N / D

N or Nominal GDP = C + I + G + (X − M)

D or Deflator = Nominal GDP / Real GDP

Where ,

C = Consumption

I = Investment

G = Government spending

X = Exports

M = Imports

GDP Formula

GDP, also known as gross domestic product, is the total market value or monetary value of all the finished goods and
services produced within the borders of a country during a specific time period.

Expenditure approach
The expenditure approach calculates the GDP by calculating the sum of all the services and goods
produced in an economy.

The GDP formula is mathematically represented as:

Y = C + I + G + (X − M)

Y = Gross domestic product

C = Consumption

I = Investment

G = Government spending

X = Exports

M = Imports

Income approach

The income approach of GDP calculation is based on the total output of a nation with the total factor of
income received by the residents or citizens of a nation.

The formula for calculating GDP by the income approach is:

GDP = Compensation of employees + Rental and royalty income + Business cash flow + Net
interest

Output approach

The output approach emphasises the total output of a nation by finding the value of the total value of
goods and services produced in a country.

The formula for calculating GDP by the output approach is:

GDP = GDPmp of primary sector + GDPmp of secondary sector + GDPmp of tertiary sector

GDPmp (for all the sectors is calculated as) = Sales + Change in stock – Intermediate
consumption
Total Cost formula

Total cost refers to the overall cost of production, which includes both fixed and variable components of
the cost. In economics, the total cost is described as the cost that is required to produce a product.

Fixed cost: It is the cost that is constant. In other words, these are the costs that remain the same,
irrespective of the number of units that are being produced. For example, the lease for a building or the
rent for an apartment.

Variable cost: Variable cost is the cost that changes (increases or decreases) based on the number of
goods produced by a company or the service requirements of customers

Total Cost = Total Fixed Cost + Total Variable Cost

It can also be represented in a more advanced way as,

Total Cost = (Average fixed cost + Average variable cost) x Number of units

Money Multiplier Formula

Money multiplier is a term in monetary economics that is a phenomenon of creating money in the economy in the
form of credit creation, which is based on the fractional reserve banking system.

Money multiplier = 1/r

Where r = Required reserve ratio or cash reserve ratio

Consumer Surplus Formula

Consumer surplus is an important concept in economics, and it is defined as the difference between the willingness
of a consumer to pay for a product and the actual amount that the consumer ends up paying in order to acquire the
product.

Consumer Surplus = ½ * Demand quantity at equilibrium * (Maximum price buyer is willing to pay – Market
price)

Balance of Payments Formula

Balance of payments or BoP, is also known as balance of international payments. It is a statement that
records all the monetary transactions that take place between a country’s residents and the rest of the
world during a given period.
There are three components of the balance of payments (BoP).

1. Capital account
2. Current account
3. Financial account

Capital account includes the non-financial sale and purchase of assets and the flow of taxes. The main
components of the capital account are forex reserves, investments, and loans.

Current accounts deal with the sale or purchase of goods that can either be raw materials or
manufactured goods. This account is meant for daily transactions to keep the flow of money smooth, and
get and make payments on time.

Financial account deals with the monetary inflows and outflows pertaining to the investments made in
various sectors such as foreign direct investment, real estate, or other business ventures.

Balance of payments = Balance of current account + Balance of capital account + Balance of financial
account + Balancing item

Income Elasticity of Demand Formula

Income elasticity of demand or YED is referred to as the corresponding change in the demand of a
product in response to the change in a consumer’s income. It can also be defined as the ratio of change
in the quantity demanded by the change in the customer’s income.

A higher YED indicates that when the consumer’s income rises, there is a tendency to purchase more
goods and services.

Similarly, when there is a drop in income, the consumer shows a tendency towards frugal purchasing,
which involves cutting down on buying more quantity of goods and services.

When the YED is low, the change in consumer income has little effect on the demand for the product.

Income elasticity of demand (YED) = Percentage change in the quantity demanded/Percentage

change in income

Or

YED = % ∆ in Qd/% in ∆Y.