Mathematics for Economics

Homework 3

Do the following problems in the Textbook.

Section 7.2 #2 and #4 in p. 213: For d2 Y /dI 2 in #4 (b), you need to use chain rule (since
Y is a function of I) based on the answer (a).
Section 12.2 #7 and #9 in p. 411
Section 12.3 #4 in p. 416

1. Consider a function Q = Lα K 1−α where 0 < α < 1. Suppose that the inputs, L and K,
change with x and y such that L = K = xβ y 1−β where 0 < β < 1. Find ∂Q/∂x when
x = y.

2. The demand and the supply for a good depend upon the price p and the tax rate t:
D = D(p, t) and S = S(p, t). For any given value of t, an equilibrium price is a solution
of the equation D(p, t) = S(p, t). Assume that this equation defines p as a differentiable
function of t. Find ∂p/∂t in terms of the partial derivatives of D and S.

3. Consider the equation:

exyz − 3xyz = 1.
Find ∂z/∂x when x = 1 and z = 1.

4. The demand and the supply functions for a good are differentiable and given by

S = S(pS ) and D = D(pD , I)

where pD is the price consumers pay and pS is the price suppliers receive, and where I is
income. The gap of the two prices is the tax:pD − pS = t.
a. Find the differentials dpD and dpS with respect to dt and dI in the equilibrium
(S = D).
b. Using the implicit function derivative, find
∂pS ∂pS ∂pD ∂pD
, , and .
∂t ∂I ∂t ∂I
5. A function f is a differentiable utility function of 2 variables and is homogeneous of degree
k.

1
a. Show that partial derivatives, both f10 = ∂f/∂x and f20 = ∂f /∂y, are homogeneous of
degree k − 1 (Hint: Letting f (tx, ty) = tk f (x, y), differentiate both sides with respect
to x and y).
b. Show that MRS (Marginal Rate of Substitution) between x and y at the point (ta, tb)
is equal to MRS at the point (a, b) for some constant t > 0. Illustrate this finding by
using a figure when t = 2.