Elasticity Coefficient = % change in quantity/ % change in price (opposite of algebra

axises where slope is “rise over run”)

To find the percentage change: Xnew - Xold / Xold

The test may want me to use the “midpoint method” to find the coefficient. The
midpoint formula makes only one change to the calculation of percentages;
rather than dividing by the old value of X, it divides by the average value (X
stands for price or quantity):

Inelastic: Elasticity coefficient < 1 (Each unit of price change causes less than one
unit of quantity change)
Elastic: Elasticity coefficient > 1 (Each unit of price change causes more than one
unit of quantity change)

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Total Revenue = P x Q

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Cross price elasticity of demand =

% change in quantity of product b / % change in price of product a

(notice how in both regular and cross price elasticity of demand, the quantity change is
the numerator and the price is the denominator. This is run over rise - opposite of
slope of a line which is rise over run)

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Consumer satisfaction

Marginal Utility is the amount of consumer satisfaction from consuming one additional
unit. It will be given or can be calculated by looking at the difference between the total
utility and the utility at one less quantity.

If you know the marginal utility and the price per unit you can calculate:

Marginal Utility per dollar = MU / P = Marginal Utility / Price

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Profit maximizing rule: (this is where firms should always produce)

MR = MC

Shutdown Rule:

If Price < AVC , then stop producing. Alternatively can be written: if TR < VC

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For resources, such as workers, continue to buy/hire until:

MRC = MRP
(marginal resource cost = marginal revenue product)

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Government production of public goods. Produce where:

MSB = MSC

(Marginal social benefit = marginal social cost)

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Lorenz Curve (Banana shaped) shows the distribution of income as it relates to perfect
income distribution (the straight line)

The Gini ratio = Area of the banana / total area under the straight line

( Area A / Area A + Area B )