Microeconomics formulas and curves for CUET Economics

This is the short version of the ten Microeconomics lessons. If a line here is not clear, the chapter it comes from is named in its heading.

Choice and the PPC

Idea	Formula or fact
Opportunity cost	Value of the next best alternative given up
MRT (slope of the PPC)	$\Delta Y \div \Delta X$, rising along a concave PPC
Point inside the PPC	Idle or wasted resources
PPC shifts out	More resources or better technology

The consumer

Idea	Formula or fact
Marginal utility	$\text{MU}_n = \text{TU}_n - \text{TU}_{n-1}$
Saturation	MU = 0, TU at its maximum
One good	$\text{MU}_x \div P_x = \text{MU}_m$
Two goods	$\text{MU}_x \div P_x = \text{MU}_y \div P_y$
Budget line	$P_1x_1 + P_2x_2 = M$, slope $-P_1 \div P_2$
Optimum	$\text{MRS} = P_1 \div P_2$, on a convex indifference curve

Demand and elasticity

Idea	Formula or fact
Own price changes	Movement along the curve (extension, contraction)
Anything else changes	Shift (increase, decrease)
Elasticity	$e_p = \%\Delta Q \div \%\Delta P = (\Delta Q \div \Delta P)(P \div Q)$
Spending test	Price and spending opposite: elastic; same: inelastic; unchanged: unitary
Straight-line demand	$e_p = 1$ at the midpoint, more above, less below

Production and cost

Idea	Formula or fact
MP and AP	$\text{MP} = \Delta \text{TP}$; $\text{AP} = \text{TP} \div L$
Key points	MP = 0: TP maximum. MP = AP: AP maximum
Returns to scale	Sum of exponents above, equal to or below 1
Costs	$\text{TC} = \text{TFC} + \text{TVC}$; $\text{AC} = \text{AFC} + \text{AVC}$
Marginal cost	$\text{MC} = \Delta \text{TC} = \Delta \text{TVC}$
Minimum points in order	MC, then AVC, then AC; MC cuts both from below

Revenue, supply and markets

Idea	Formula or fact
Revenue	$\text{TR} = P \times q$; AR = P; MR = $\Delta \text{TR}$
Producer's equilibrium	MC = MR, MC rising; price taker: P = MC
Shut-down and break-even	Minimum AVC; minimum AC
Elasticity of supply	Straight line through origin 1; price axis above 1; quantity axis below 1
Equilibrium	Qd = Qs; demand shift moves P and Q together, supply shift apart
Price controls	Ceiling below equilibrium: shortage. Floor above: surplus

What are the traps worth remembering?

• Opportunity cost is the best alternative, not the sum of them.
• Equal utility per rupee, not equal utility, at the two-good equilibrium.
• A fall in own price extends demand; it does not increase it.
• A constant slope is not a constant elasticity.
• In the short run a firm shuts down below AVC, not AC.