Economics Formula

List of Economics Formulas

The term economics signifies how consumption, production, and distribution of goods and services happen in the nation. It further indicates how well the individuals and businesses determine the allocation of resources to derive maximum value addition. The formulas on economics can be elaborated basis the macroeconomic levels and microeconomic levels.

As per the macroeconomics, the following economics formulas help in understanding the position of the economy as follows: –

Macro-Economics Formulas

The following are the top 8 macroeconomics formulas –

#1 – Gross Domestic Product

The gross domestic product can be expressed as per the expenditure approach and the net income approach. As per the expenditure approach, the gross domestic product is expressed as the sum of consumption, private investments followed by government expenditures and the net exports happening in the nation. The as per the income approach, it is determined as the sum of labor, interest, rent and the remaining profits.

Mathematically, two formulas can be expressed as follows: –

Here,

• The consumption is represented by C.
• The government expenditures are represented by G.
• Investment is represented by I.
• The net exports are represented by NX.

Here,

• The labor is represented by W.
• The interest is represented by I.
• The rent is represented by R.
• The remaining profits are represented by P.

#2 – Unemployment Rate

The economics can also be assessed as per the unemployment rate in the country. It is normally determined as the ratio of the count of the unemployed labor force to the count in the employed labor force.

Mathematically it can be represented as follows: –

#3 – Money Multiplier Rate

The next metric to understand the situation of the economy is by utilizing the money multiplier metric. It is normally defined as the inverse of the reserve ratio maintained by the bank. Mathematically, it can be represented as follows: –

This metric helps in the assessment of how the money deposits can be utilized to enhance the supply of money in the system.

#4 – Real GDP

The real GDP is determined as the ratio of nominal GDP and the GDP deflator. The real GDP is instrumental in the computation and assessment of economic output along with the adjustment for deflation or inflation. The nominal GDP assesses economic output without the effect of the inflation and hence Real GDP is considered to be a better measurement tool as compared with the Nominal GDP.

The Real GDP is expressed as follows: –

#5 – Consumer Price Index

The consumer price index is determined as the ratio of cost of products and services for a given year to the cost of products and services for a determined base year. This metric helps in comparison of prices for products and services along with the changes in the levels of inflation. The basket for products and services is to be updated on a daily basis followed by the determination of cost of the basket and determination of index.

Mathematically, it can be represented or described as follows: –

#6 – Inflation Rate

The rate is computed as the ratio of the difference between the current year CPI level and last year’s CPI level with last year’s CPI level. This is further expressed in percentage terms. The inflation rate gives the signal of how the prices of services and products have shaped up from year to year.

The inflation rate can be expressed as follows: –

Here,

• Changes in CPI Levels = Levels of CPI for current-year – levels of CPI index last year.

#7 – Real Interest Rate

The real rate of interest is determined as the difference in the nominal interest rate and inflation rates. Alternatively, it can be determined using Fischer’s Equation. As per Fischer’s Equation, it is determined as the ratio of nominal interest rates and inflation rates.

Mathematically, it can be expressed as follows: –

As per Fischer’s equation, it can be expressed as follows: –

#8 – Quantity Theory of Money

This relationship can be described as a direct relationship with the money levels with the output levels. This relationship was postulated by John Maynard Keynes.

Mathematically, this relationship would be described or illustrated as follows:

Here,

• The supply of money is represented by M.
• The circulation or speed of the money is expressed as V.
• The mean level of prices is expressed as P.
• The transaction volume of services and goods.

Therefore, in Macroeconomics, the following can be summarized as follows: –

Microeconomics Formulas

The following are the top 9 microeconomics formula –

As per the microeconomics, the following formulas that help in understanding the position of the economy as follows: –

#1 – Total Revenue

It is defined as the situation wherein demand is assessed in terms of price elasticity. It is expressed as the product of the overall price and the quantity in demand. If the prices are high, it would result in inelastic demand on prices wherein higher prices result in more revenues. Demand is elastic when the prices are high and results in low volumes.

Mathematically, it can be illustrated as follows: –

#2 – Marginal Revenue: –

The marginal revenue is expressed as the ratio of total revenue changes with respect to the modifications in the quantity retailed. Marginal revenue is the additional revenue earned for the additional quantity sold. Mathematically, it can be illustrated as follows: –

#3 – Average Revenue

Revenues can be described as the receipts a firm received once they sold finished goods to its consumers. The average revenue is expressed as the ratio of total revenue with respect to the overall quantity sold.  Mathematically, it can be illustrated as follows: –

#4 – Total Cost

Under the concept of economic, the total cost is determined as the sum of the fixed costs and the variable costs. The variable costs are termed as the costs that have a tendency to vary with the level of goods sold by the organization. The fixed costs are defined as the type of costs that endure being the same throughout the levels of quantity sold by the business.

Mathematically, it can be illustrated as follows: –

#5 – Marginal Cost

This is defined as the appreciation or deterioration in the overall costs that the business incurs while it prepares finished goods ready for the sale.  Graphically, marginal costs are plotted as a U-shaped curve wherein the costs appreciate initially and as the production rises, the costs deteriorate.

Mathematically, it can be illustrated as follows: –

#6 – Average Total Cost

The average total cost is defined as the total costs incurred by the business involved in manufacturing and production to the level of quantity of items produced by the business. In such a relationship, determine the total costs and total quantity to arrive at the average total costs. Mathematically, it can be illustrated as follows: –

#7 –  Average Fixed Costs

The average fixed cost is defined as the total fixed costs incurred by the business involved in manufacturing and production to the level of quantity of items produced by the business. In such a relationship, determine the total fixed costs and total quantity to arrive at the average total fixed costs.

Mathematically, it can be illustrated as follows –

#8 – Average Variable Costs

The average variable cost is defined as the total variable costs incurred by the business involved in manufacturing and production to the level of quantity of items produced by the business. In such a relationship, determine the total variable costs and total quantity to arrive at the average total variable costs. Mathematically, it can be illustrated as follows: –

#9 – Profit Made by the Firm

In microeconomics, profit could be computed using several relationships. Firstly, it can be computed as the difference between total revenues and total costs. It can be computed as the difference of marginal revenue and marginal costs. Whenever the profits are lesser than average variable costs, the business can no longer sustain itself and it has to be shut down. Mathematically, it can be illustrated as follows: –

It can additionally be illustrated as follows: –

Whenever marginal revenue exceeds the marginal costs then the organization or firm should produce more items to enhance its profitability. Similarly, whenever marginal revenue deteriorates below the marginal costs then the organization or firm should produce fewer items to lower down costs.

Therefore, in Microeconomics, the following can be summarized as follows: –

Relevance and Use of Economics Formula

The nation’s overall financial progress is monitored by the world bank by the means of economic indicators determined by them on periodic intervals. Such reports are made available to the general public by the means of government publications. The nation can be said to be doing well economically if it presents fairly stable economic indicators. These economic indicators are broadly recognized as the measure of economic formula.

The popular economic formulas are based on the fact of how the economy is being analyzed. If the analysis is done on the micro-economic level then the economic formula is determined as the difference of total revenues generated by business and the cost incurred to generate the revenue. However, when an analysis is performed at the macroeconomic level, then the economic formula is derived by the means of gross domestic product.

An economy always displays how the well human being has utilized the available resources to derive the maximum value addition. The economics is more related to social science and broadly focuses on the spending patterns, consumption patterns, investment patterns and overall trade achieved in a given financial period.

Recommended Articles

This has been a guide to Economics Formula. Here we discuss the top list of microeconomics and macro-economics formulas with a detail explanation. You can learn more from the following articles –

• Inflation Formula
• Gross Lease
• Calculate Economic Profit
• Business Economics