THINGS TO REMEMBER
Tuesday, January 21, 2025 8:00 PM
Here’s a quick and easy-to-remember guide for your exam:
Key Terms & Formulas
1. National Income (NI):
• Total value of all goods & services produced in a country in one year.
• Formula (Expenditure Method):
NI (Y) = C + I + G + (X − M)
• C: Consumption (Household spending)
• I: Investment (Business spending)
• G: Government Spending
• X − M: Exports − Imports
2. GDP (Gross Domestic Product):
• Total value of goods & services produced inside the country.
• Shows economic size & growth.
3. GNP (Gross National Product):
• GDP + Income earned by citizens abroad − Income earned by foreigners in the country.
4. NDP (Net Domestic Product):
• GDP − Depreciation (wear & tear of assets).
5. NNP (Net National Product):
• GNP − Depreciation.
6. Green GDP:
• Traditional GDP − Environmental Damage Costs.
Functions of National Income Measures
GDP: Measures total production in the country.
GNP: Includes contributions of citizens abroad.
NDP/NNP: Shows true production after accounting for depreciation.
Green GDP: Focuses on sustainable economic growth by including environmental costs.
Key Concepts
GVA (Gross Value Added):
• Value created at each stage of production.
• Final Product Value − Cost of Raw Materials.
Consumption (C): Spending by households on goods like food, clothes, entertainment.
Investment (I): Business spending on factories, machinery, etc.
Government Spending (G): Infrastructure, salaries, public services.
Net Exports (X − M): Exports = Income; Imports = Expense.
Things to Note
Why National Income Matters:
• Shows economic health (growth or slowdown).
• Helps compare countries' economies.
• Reflects living standards.
Limitations of National Income:
• Doesn’t show income inequality.
• Excludes black market and unpaid work.
• Doesn’t directly account for happiness or well-being.
Quick Summary Table
Measure Key Idea Formula
GDP Total value of goods/services —
inside the country.
GNP GDP + Net income from GDP + Income (Abroad
abroad. − Foreign).
NDP GDP minus depreciation. GDP − Depreciation.
NNP GNP minus depreciation. GNP − Depreciation.
Green GDP minus environmental GDP − Environmental
GDP damage costs. Costs.
Tips for Remembering
GDP = Goods inside.
GNP = Goods + Abroad income.
NDP = GDP − Wear & Tear.
NNP = Purest income (GNP − Wear & Tear).
Green GDP = GDP − Environmental Harm.
Price Elasticity of Demand (PED)
Key Formula
PED = % Change in Quantity Demanded ÷ % Change in Price
5 Types of PED
1. Perfectly Inelastic Demand (PED = 0)
• Meaning: Quantity doesn’t change, no matter the price.
• Example: Life-saving drugs (e.g., insulin).
• Graph: Vertical line.
2. Inelastic Demand (PED < 1)
• Meaning: Quantity changes slightly with price.
• Example: Necessities like salt, petrol.
• Graph: Steep curve.
3. Unitary Elastic Demand (PED = 1)
• Meaning: % change in price = % change in quantity.
• Example: Branded goods with balanced demand.
• Graph: Rectangular hyperbola.
4. Elastic Demand (PED > 1)
• Meaning: Quantity changes significantly with price.
• Example: Luxury goods like branded handbags.
• Graph: Flat curve.
5. Perfectly Elastic Demand (PED = ∞)
• Meaning: Tiny price change → infinite quantity change.
• Example: Competitive market goods like wholesale rice.
• Graph: Horizontal line.
Quick Examples to Remember
• PED = 0: Insulin (life-saving).
• PED < 1: Salt, petrol (necessities).
• PED = 1: Branded pens (balanced).
• PED > 1: Luxury bags, electronics.
• PED = ∞: Perfect competition (grain prices).
Tips to Memorize
• Perfectly Inelastic → Price doesn’t matter (vertical).
• Inelastic → Price matters a little (steep).
• Unitary Elastic → Balanced impact.
• Elastic → Price matters a lot (flat).
• Perfectly Elastic → Price is everything (horizontal).
MICRO AND MACRO ECONOMICS
Sure! Here's a quick and easy summary to remember the differences between Microeconomics and
Macroeconomics:
Key Differences Between Microeconomics and Macroeconomics
Aspect Microeconomics Macroeconomics
Definition Study of individuals, households, and firms. Study of the entire economy as a whole.
Focus Specific markets and decisions of individuals Broad indicators like GDP, inflation, and
or firms. unemployment.
Examples Pricing of a product, consumer choices, firm GDP growth, national income, inflation rates.
profits.
Deals With Demand, supply, pricing, and market Aggregate demand/supply, trade, fiscal and
structures. monetary policy.
Approach Bottom-up: Starts with individuals and builds Top-down: Starts with the whole economy and
upward. narrows down.
Primary Demand and supply for specific goods. Aggregate demand, fiscal policy, monetary policy.
Tools
Application Helps businesses with pricing and resource Guides governments in policy-making and
allocation. economic stability.
Easy Examples to Differentiate
1. Microeconomics:
• A bakery deciding the price of bread based on flour costs.
• A consumer choosing between buying a phone or saving money.
1. Macroeconomics:
• The government creating policies to reduce unemployment.
• Tracking the inflation rate of an entire country.
One-Liner Differences for Quick Revision
1. Microeconomics = Small picture (individuals and firms).
2. Macroeconomics = Big picture (entire economy).
3. Micro = Demand, supply, pricing.
4. Macro = GDP, inflation, unemployment.
Mnemonic to Remember
• Micro = My choices (focus on individual decisions).
• Macro = Massive economy (focus on national/global issues).
Good luck on your exam! 😊
