Important Formulas in Microeconomics | Class 11

• Last Updated : 07 Feb, 2023

Chapter: Consumer’s Equilibrium

1. Total Utility (TU)

TUn = U1 + U2 + U3 + ……………..+ Un

Where,

TUn = Total Utility from n units of a given commodity

U1, U2, U3, …………….., Un = Utility from the 1st, 2nd, 3rd, …………., nth unit

n = Number of units consumed

OR

TU= ∑MU

2. Marginal Utility (MU)

MUn = TUn – TUn-1

Where,

MUn = Marginal Utility from nth unit

TUn = Total Utility from n units

TUn-1 = Total Utility from n-1 units

n = Number of units consumed

OR

4. Equilibrium Condition in case of Single Commodity

Let’s say, the consumer is in consumption of a single commodity ‘x’.

• The consumer will be in equilibrium if MUx = Px
• The consumer will not be in equilibrium if MUx > Px
• The consumer will not be in equilibrium if MUx < Px

5. Equilibrium Condition in case of Two Commodities

Let’s say, the consumer is in consumption of two commodities ‘x’ and ‘y’.

• The consumer will be in equilibrium if

and MU falls as consumption increases

• The consumer will not be in equilibrium if
• The consumer will not be in equilibrium if

OR

7. Algebraic Expression of Budget Line

M = (PA x QA) + (PB x QB)

Where,

M = Money Income

QA  Quantity of Apples (A)

QB = Quantity of Bananas (B)

PA = Price of each Apple

PB = Price of each Banana

8. Algebraic Expression of Budget Set

M ≥ (PA x QA) + (PB x QB)

Where,

M = Money Income

QA  Quantity of Apples (A)

QB = Quantity of Bananas (B)

PA = Price of each Apple

PB = Price of each Banana

11. Condition of Consumer’s Equilibrium by Indifference Curve Analysis

•  OR Slope of Indifference Curve = Slope of Budget Line
• MRS continuously falls

Chapter: Demand

1. Individual Demand Function

Dx = f(Px, Pr, Y, T, F)

Where,

Dx = Demand for Commodity x

f = Functional Relationship

Px = Prices of the given Commodity x

Pr = Price of Related Goods

Y = Income of the Consumer

T = Tastes and Preferences

F = Expectation of Change in Price in future

2. Market Demand Function

Dx = f(Px, Pr, Y, T, F, Po, S, D)

Where,

Dx = Demand for Commodity x

f = Functional Relationship

Px = Prices of the given Commodity x

Pr = Price of Related Goods

Y = Income of the Consumer

T = Tastes and Preferences

F = Expectation of Change in Price in future

Po = Size and Composition of population

S = Season and Weather

D = Distribution of Income

3. Market Demand Schedule

Dm = DA + DB + ……….

Where,

Dm = Market Demand

DA + DB + ………. = Individual Demands of Household A, Household B, and so on.

5. Cross Demand

Dx = f(Py)

Where,

Dx = Demand for the given Commodity

f = Functional Relationship

Py = Price of Related Commodity (Substitute or Complementary)

Chapter: Elasticity of Demand

1. Elasticity of Demand

i) Percentage Method:

ii) Geometric Method:

2. Price Elasticity of Demand

i) Percentage Method:

Where,

ii) Proportionate Method:

Where,

Q = Initial Quantity Demanded

Q1 = New Quantity Demanded

= Change in Quantity Demanded

P = Initial Price

P1 = New Price

= Change in Price

Chapter: Production Function: Returns to a Factor

1. Production Function

Ox = f(i1, i2, i3 …………… in)

Where,

Ox = Output of Commodity x

f = Functional Relationship

i1, i2, i3 …………… in = Inputs needed for Ox

2. Total Product (TP)

Total Product (TP) = AP x Units of Variable Factor

OR

TPn = MP1 + MP2 + MP3 +…………….MPn

OR

TP = ∑MP

4. Marginal Product (MP)

MPn = TPn – TPn-1

Where,

MPn = Marginal Product of nth unit of variable factor

TPn = Total products of n units of variable factor

TPn-1 = Total product of n-1 units of variable factor

n = Number of units of variable factor

OR

5. Relationship between TP and MP

• MP increases when TP increases at an increasing rate
• MP starts declining when TP increases at a diminishing rate
• MP is zero when TP is maximum
• MP is negative when TP decreases

6. Relationship between AP and MP

• AP increases when MP>AP
• AP is constant and at its maximum point when MP = AP
• AP falls when MP<AP
• MP becomes negative, and AP remains positive

Chapter: Concepts of Cost and Revenue

1. Cost Function

C = f(q)

Where,

C = Cost of Production

f = Functional Relationship

q = Quantity of Output

2. Total Cost (TC)

Total Cost (TC) = Total Fixed Cost (TFC) + Total Variable Cost (TVC)

OR

AC = AFC + AVC

6. Marginal Cost (MC)

MCn = TCn – TCn-1

Where,

n = Number of Units Produced

MCn = Marginal Cost of the nth unit

TCn = Total Cost of n units

TCn-1 = Total Cost of n-1 units

OR

7. Relationship between AC and MC

• AC falls when MC < AC
• AC is constant and at its minimum point when MC = AC
• AC rises when MC>AC
• MC increases at a faster rate as compared to AC

8. Relationship between AVC and MC

• AVC falls when MC<AVC
• AVC is constant and at its minimum point when MC = AVC
• AVC rises when MC>AVC
• MC increases at a faster rate as compared to AVC

9. Relationship between TC and MC

• MC decreases when TC rises at a diminishing rate
• MC is at its minimum point when the rate of increase in TC stops diminishing
• MC increases when TC rises at an increasing rate

10. Relationship between TVC and MC

• Area under the Curve MC= TVC

11. Total Revenue (TR)

Total Revenue = Quantity x Price

OR

TRn = MR1 + MR2 + MR3 +…………….MRn

OR

TR = ∑MR

13. Marginal Revenue (MR)

MRn = TRn – TRn-1

Where,

MRn = Marginal Revenue of nth unit

TRn = Total Revenue of n units

TRn-1 = Total Revenue of n-1 units

n = Number of Units Sold

OR

14. Relationship between AR and MR

• When Price remains Constant: AR = MR and both curves coincide with each other in a horizontal line parallel to the X-axis

15. Relationship between TR and MR

• When Price remains Constant: TR increases at a constant rate, and the slope of the TR curve is a positive straight line because of constant MR

16. Relationship between TR and Price Line

• Area under the curve MR = Area under the Price Line = TR

17. Relationship between AR and MR

• When Price falls with rise in Output: Slope of AR and MR curve is downward from left to right, but MR falls at a rate twice the fall rate in AR

18. Relationship between TR and MR (When Price falls with rise in Output)

• TR increases as long as MR is positive
• TR is at its maximum point when MR = 0
• TR starts falling when MR becomes negative

19. Break-even Point

• Break-even Point is determined when TR = TC or AR = AC

20. Shut-down Point

• Shut-down Point is determined when TR = TVC or AR = AVC

Chapter: Producer’s Equilibrium

1. Conditions for Producer’s Equilibrium (MR-MC Approach)

• MC = MR
• MC > MR after MC = MR Output Level

2. Conditions for Producer’s Equilibrium (TR-TC Approach)

• Difference between TR and TC is positively maximised
• Total profits fall after that output level

Chapter: Theory of Supply

1. Individual Supply Function

Sx = f(Px, Po, Pf, St, T, G)

Where,

Sx = Supply of the given Commodity x

f = Functional Relationship

Px = Price of the given Commodity x

Po = Price of other Goods

Pf = Price of Factors of Production

St = State of Technology

T = Taxation Policy

G = Goals of the firm

2. Market Supply Function

Sx = f(Px, Po, Pf, St, T, G, N, F, M)

Where,

Sx = Supply of the given Commodity x

f = Functional Relationship

Px = Price of the given Commodity x

Po = Price of other Goods

Pf = Price of Factors of Production

St = State of Technology

T = Taxation Policy

G = Goals of the firm

N = Number of firms

F = Future expectations regarding Px

M = Means of transportation and communication

3. Market Supply Schedule

Sm = SA + SB + ……………..

Where,

Sm = Market Supply

SA + SB + …………….. = Individual Supply of Supplier A, Supplier B and so on

5. Price Elasticity of Supply

i) Percentage Method:

Where,

ii) Proportionate Method:

Where,

Q = Initial Quantity Supplied

Q1 = New Quantity Supplied

= Change in Quantity Supplied

P = Initial Price

P1 = New Price

= Change in Price

6. Kinds of Elasticities of Supply

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