📘 Lec 1: Principles of Economics
1. Opportunity Cost
No explicit formula, but the idea is:
Opportunity Cost=Value of the next best alternative foregone\text{Opportunity Cost} = \text{Value of
the next best alternative foregone}Opportunity Cost=Value of the next best alternative foregone
Use: Helps in decision-making by comparing benefits of alternatives.
2. Optimization Approaches
In Levels: Compare total net benefits across options.
In Differences: Compare marginal (extra) benefits and costs.
Use: To find the best possible decision under constraints.
📘 Lec 2+3: Demand, Supply & Equilibrium
3. Demand Function
Qd=a−bPorQd=a+bYQ_d = a - bP \quad \text{or} \quad Q_d = a + bYQd=a−bPorQd=a+bY
Use: Models how quantity demanded depends on price (P), income (Y), etc.
4. Inverse Demand Function
P=a−bQP = a - bQP=a−bQ
Use: Expresses price as a function of quantity demanded.
5. Supply Function
Qs=a+bPQ_s = a + bPQs=a+bP
Use: Models how quantity supplied changes with price.
6. Equilibrium Condition
Qd=QsQ_d = Q_sQd=Qs
Use: Used to solve for equilibrium price and quantity in a market.
7. Numerical Demand Function (Applied)
Example:
Q=10,000−200P+0.03Pop+0.6I+0.2AQ = 10,000 - 200P + 0.03\text{Pop} + 0.6I +
0.2AQ=10,000−200P+0.03Pop+0.6I+0.2A
Use: Real-world demand estimation considering population, income, advertising.
8. Price Ceiling & Floor Conditions
Binding Price Ceiling: Price ceiling<Equilibrium price\text{Price ceiling} < \text{Equilibrium
price}Price ceiling<Equilibrium price → Shortage
Non-Binding Price Ceiling: Price ceiling>Equilibrium price\text{Price ceiling} > \
text{Equilibrium price}Price ceiling>Equilibrium price → No effect
Binding Price Floor: Price floor>Equilibrium price\text{Price floor} > \text{Equilibrium
price}Price floor>Equilibrium price → Surplus
Non-Binding Price Floor: Price floor<Equilibrium price\text{Price floor} < \text{Equilibrium
price}Price floor<Equilibrium price → No effect
📘 Lec 4+5: Elasticity of Demand & Consumer Surplus
9. Price Elasticity of Demand (Point Formula)
Ed=dQdP⋅PQorEd=−b⋅PQE_d = \frac{dQ}{dP} \cdot \frac{P}{Q} \quad \text{or} \quad E_d = -b \cdot \
frac{P}{Q}Ed=dPdQ⋅QPorEd=−b⋅QP
Use: Measures how sensitive quantity demanded is to price changes.
10. Price Elasticity of Demand (Arc Formula)
Ed=Q2−Q1(Q2+Q1)/2÷P2−P1(P2+P1)/2E_d = \frac{Q_2 - Q_1}{(Q_2 + Q_1)/2} \div \frac{P_2 - P_1}
{(P_2 + P_1)/2}Ed=(Q2+Q1)/2Q2−Q1÷(P2+P1)/2P2−P1
Use: Better for larger price changes; avoids different results from rise vs. fall.
11. Income Elasticity of Demand
Ey=%ΔQd%ΔYE_y = \frac{\%\Delta Q_d}{\%\Delta Y}Ey=%ΔY%ΔQd
Use: Measures responsiveness of demand to changes in income.
12. Cross Price Elasticity of Demand
Exy=%ΔQx%ΔPyE_{xy} = \frac{\%\Delta Q_x}{\%\Delta P_y}Exy=%ΔPy%ΔQx
Use: Measures effect of price change of one good on demand for another.
13. Consumer Surplus (Graphical Formula)
Consumer Surplus=12⋅Base⋅Height\text{Consumer Surplus} = \frac{1}{2} \cdot \text{Base} \cdot \
text{Height}Consumer Surplus=21⋅Base⋅Height
Example:
CS=12⋅Q⋅(WTP−P)CS = \frac{1}{2} \cdot Q \cdot (WTP - P)CS=21⋅Q⋅(WTP−P)
Use: Measures extra benefit consumers get over what they pay.
14. Marginal Rate of Substitution (MRS)
MRSxy=−MUxMUyorMRSFC=−ΔCΔFMRS_{xy} = -\frac{MU_x}{MU_y} \quad \text{or} \quad MRS_{FC}
= -\frac{\Delta C}{\Delta F}MRSxy=−MUyMUxorMRSFC=−ΔFΔC
Use: Tells how much of one good a consumer is willing to give up to get one more unit of another,
while keeping satisfaction constant.
15. Linear Demand Function (Estimation from Two Points)
Given two price-quantity pairs:
Slope (b)=Q2−Q1P2−P1\text{Slope (b)} = \frac{Q_2 - Q_1}{P_2 - P_1}Slope (b)=P2−P1Q2−Q1
Then:
Qd=a−bPQ_d = a - bPQd=a−bP
Use: Helps build real-world demand curves using two data points.
16. Total Revenue (TR)
TR=P×QTR = P \times QTR=P×Q
Use: Analyzes how revenue changes with price, especially in relation to elasticity.
