Important Formulas in Microeconomics | Class 11

Chapter: Introduction

1. Marginal Rate of Transformation

2. Marginal Opportunity Cost (MOC)

Chapter: Consumer’s Equilibrium

1. Total Utility (TU)

TU_n = U₁ + U₂ + U₃ + ……………..+ U_n

Where,

TU_n = Total Utility from n units of a given commodity

U₁, U₂, U₃, …………….., U_n = Utility from the 1^st, 2^nd, 3^rd, …………., n^th unit

n = Number of units consumed

TU= ∑MU

2. Marginal Utility (MU)

MU_n = TU_n – TU_n-1

Where,

MU_n = Marginal Utility from n^th unit

TU_n = Total Utility from n units

TU_n-1 = Total Utility from n-1 units

n = Number of units consumed

3. Marginal Utility in terms of Money (Consumer’s Equilibrium in Single Commodity Case)

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 MU_x = P_x
The consumer will not be in equilibrium if MU_x > P_x
The consumer will not be in equilibrium if MU_x < P_x

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

6. Marginal Rate of Substitution (MRS)

7. Algebraic Expression of Budget Line

M = (P_A x Q_A) + (P_B x Q_B)

Where,

M = Money Income

Q_A Quantity of Apples (A)

Q_B = Quantity of Bananas (B)

P_A = Price of each Apple

P_B = Price of each Banana

8. Algebraic Expression of Budget Set

M ≥ (P_A x Q_A) + (P_B x Q_B)

Where,

M = Money Income

Q_A Quantity of Apples (A)

Q_B = Quantity of Bananas (B)

P_A = Price of each Apple

P_B = Price of each Banana

9. Slope of Budget Line

10. Price Ratio

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

D_x = f(P_x, P_r, Y, T, F)

Where,

D_x = Demand for Commodity x

f = Functional Relationship

P_x = Prices of the given Commodity x

P_r = 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

D_x = f(P_x, P_r, Y, T, F, P_o, S, D)

Where,

D_x = Demand for Commodity x

f = Functional Relationship

P_x = Prices of the given Commodity x

P_r = Price of Related Goods

Y = Income of the Consumer

T = Tastes and Preferences

F = Expectation of Change in Price in future

P_o = Size and Composition of population

S = Season and Weather

D = Distribution of Income

3. Market Demand Schedule

D_m = D_A + D_B + ……….

Where,

D_m = Market Demand

D_A + D_B + ………. = Individual Demands of Household A, Household B, and so on.

4. Slope of Demand Curve

5. Cross Demand

D_x = f(P_y)

Where,

D_x = Demand for the given Commodity

f = Functional Relationship

P_y = 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

3. Degrees of Elasticity of Demand

Perfectly Elastic Demand	E_d = ∞
Perfectly Inelastic Demand	E_d = 0
Highly Elastic Demand	E_d > 1
Less Elastic Demand	E_d < 1
Unitary Elastic Demand	E_d = 1

Chapter: Production Function: Returns to a Factor

1. Production Function

O_x = f(i₁, i₂, i₃ …………… i_n)

Where,

O_x = Output of Commodity x

f = Functional Relationship

i₁, i₂, i₃ …………… i_n = Inputs needed for O_x

2. Total Product (TP)

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

TP_n = MP₁ + MP₂ + MP₃ +…………….MP_n

TP = ∑MP

3. Average Product (AP)

4. Marginal Product (MP)

MP_n = TP_n – TP_n-1

Where,

MP_n = Marginal Product of n^th unit of variable factor

TP_n = Total products of n units of variable factor

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

n = Number of units of variable factor

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)

3. Average Fixed Cost (AFC)

4. Average Variable Cost (AVC)

5. Average Cost (AC)

AC = AFC + AVC

6. Marginal Cost (MC)

MC_n = TC_n – TC_n-1

Where,

n = Number of Units Produced

MC_n = Marginal Cost of the n^th unit

TC_n = Total Cost of n units

TC_n-1 = Total Cost of n-1 units

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

TR_n = MR₁ + MR₂ + MR₃ +…………….MR_n

TR = ∑MR

12. Average Revenue (AR)

13. Marginal Revenue (MR)

MR_n = TR_n – TR_n-1

Where,

MR_n = Marginal Revenue of n^th unit

TR_n = Total Revenue of n units

TR_n-1 = Total Revenue of n-1 units

n = Number of Units Sold

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

S_x = f(P_x, P_o, P_f, S_t, T, G)

Where,

S_x = Supply of the given Commodity x

f = Functional Relationship

P_x = Price of the given Commodity x

P_o = Price of other Goods

P_f = Price of Factors of Production

S_t = State of Technology

T = Taxation Policy

G = Goals of the firm

2. Market Supply Function

S_x = f(P_x, P_o, P_f, S_t, T, G, N, F, M)

Where,

S_x = Supply of the given Commodity x

f = Functional Relationship

P_x = Price of the given Commodity x

P_o = Price of other Goods

P_f = Price of Factors of Production

S_t = State of Technology

T = Taxation Policy

G = Goals of the firm

N = Number of firms

F = Future expectations regarding P_x

M = Means of transportation and communication

3. Market Supply Schedule

S_m = S_A + S_B + ……………..

Where,

S_m = Market Supply

S_A + S_B + …………….. = Individual Supply of Supplier A, Supplier B and so on

4. Slope of Supply Curve

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

Perfectly Elastic Supply	E_s = ∞
Perfectly Inelastic Supply	E_s = 0
Highly Elastic Supply	E_s > 1
Less Elastic Supply	E_s < 1
Unitary Elastic Supply	E_s = 1

Article Tags :

Class 11

Commerce

Microeconomics