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Micro-/Macroeconomics Skills: Equations

Point Elasticity:

Measures the degree of sensitivity of quantity demanded, or quantity supplied to

changes in any determinant

Measures the percentage change in the dependent variable caused by the

percentage change in the independent variable (determinant), holding the values of

other variables constant:

YX

XY

XXYY

=

//

Arc Elasticity:

Calculates the Average E between points on the Curve:

21

21

YY

XX

X

Y

+

+

(summary measure of all points)

Cross Elasticity (of Demand):

r

xc

P

QD

=

%

%

Income Elasticity (of Demand):

c

xy

Y

QD

=

%

%

Price Elasticity (of Demand):

x

xD

P

QDp

=

%

%

DP Equation:

!"#$ C % & % ! % '

!"# $ Consumption % &nvestment % !overnment #urchases % 'et Eports

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*o say it short:

a) +emember that at equilibrum: $C%&%! (closed economy)

b) e -now that .aving is the revenue that is not consumer either by the consumers

(C) or the government (!) so: .$/C/!

c) .o at equilibrium we have: .$& and if we ta-e into account government spending !

and revenue * we have &% ! $ .%* or (!/*) $ (./&)

d) Economic crisis $0 .0& $0 demand is insufficient $0 the state must

counterbalance the difference between . and & by a budget deficit (!0*)

A change in any of the components of autonomous spending (Ca, &, !, 'et

eports$') has a mutliplier effect, i1e1 it generates an increase in the overall

revenue (thin- of the different waves of ependitures they induce)1 *his increase

depends on the marginal propensity is equal to: 23(2/M#C)$23M#. where M#.

stands for marginal propensity to save1

&n case of an open economy, the multiplier is less than in a closed economy as some

of the additional demand will be satisfied by import which does create waves of

spending in the domestic economy1 *he multiplier will be 23(2/M#C % M#M) where

M#M stands for marginal propensity to import1

d$delta

M$d3d& or d3d! etc

Multi!lier "it# In$estment:

4or a new 5evel of &nvestment &6, we have

4or a new level of &nvestment &2, we have

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.ubstituting for the levels of 7utput, we have

8ecause (&29 &6) is the Change in &nvestment, we can write:

o$ernment S!endin%:

Summary:

!overnment Ependiture: 2 3 M#.

*a Multiplier: /M#C 3 M#.

8alanced 8udget: 2

ith *rade: 2 3 (2 9 M#C % M#M)

ith *a and *rade: 2 3 (2 9 M#C (2 9 t) % M#M)

M#C $ Marginal #ropensity to Consume

M#. $ Marginal #ropensity to .ave

M#M $ Marginal #ropensity to &mport

t $ *a +ate

&uantity '#eory of Money:

VMPY = (Eponential)

V

dV

M

dM

P

dP

Y

dY+=+ (!rowth)

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Y

dY($ +eal !rowth, constant (short/term)) %

P

dP($ &nflation) $

M

dM($ ariation of Money .upply) %

V

dV($ ariation of elocitiy, constant (short/

term))

Co Dou%las Production unction:

KALY =

$ total output

5 $ labor input

; $ capital input

A $ total factor productivity

Alpha $ output elasticity of A5

8eta $ output elasticity of ;

e1g1, Alpha $ 1

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'otal Costs:*C $ *4C % *C

A$era%e i.ed Costs:A4C $ *4C 3 ?

A$era%e ariale Costs:AC $ *C 3 ?

A$era%e 'otal Costs:A*C $ *C 3 ? $ A4C % AC