Linear Equations: - Section 1.5. Supply and Demand Analysis - Section 1.7. National Income Determination

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Slide 1.1
Lecture 1
(25/2/2020)
Chapter 1
Linear Equations
Jacques, Mathematics for Economics and Business, 7th edition © Pearson Education Limited 2012
Slide 1.2
Contents
• Section 1.1. Numbers, expressions and brackets
• Section 1.2. Fractions, equations and inequalities,
• Section 1.3. Graphs and linear equations
• Section 1.4. Algebraic solution of simultaneous linear
equations
• Section 1.5. Supply and demand analysis
• Section 1.6. Transposition of formulas
• Section 1.7. National income determination
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Slide 1.3
Sections 1.1 & 1.2

Revisions of basic rules used in arithmetic and algebra
• Positive and negative numbers: practice problem, page 8

• Expressions: practice problem, page 11
• Brackets: practice problems, pages 16 - 17
• Key terms in section 1.1: page17
• Exercise 1.1*: pages 20 - 21, problems 4b, 8d&f
• Fractions: practice problem, page 29
• Equations: practice problem, page 32
• Inequalities: practice problems, pages 34 - 35
• Key terms: page 36
• Exercise 1.2*: pages 38 - 39, problems 4o, 5 and 6.
Slide 1.4
Section 1.3
Graph of linear equations
Revisions of coordinates, straight lines, intercepts and

slope, point of intersection, simultaneous linear equations
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Slide 1.5
Figure 1.1
Coordinate system: page 40
Slide 1.6
Figure 1.2
Coordinate system: page 41; practice problem, page 41
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Slide 1.7
Figure 1.3
Straight line: page 43; practice problem, page 43
Slide 1.8
Figure 1.4
Straight line: intercepts, page 44; practice problem, page 45
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Slide 1.9
Figure 1.5
Simultaneous linear equations: point of intersection, page 46;

practice problem, page 46
Slide 1.10
Figure 1.6
Straight line: slope, page 47; practice problem, page 48
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Slide 1.11
Figure 1.7
Slide 1.12
Figure 1.8
Straight line: negative slope, page 49
Exercise 1.3*: page 53, problem 5
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Slide 1.13
Section 1.4
Algebraic solution of simultaneous
linear equations
Revisions of solving a system of two linear equations

using elimination, detecting when a system has no
solution / many solutions, solving a system of three
linear equations using elimination
Example of elimination: page 57; practice problem,

page 58
Slide 1.14
Figure 1.11
No solution: page 59; practice problem, page 60
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Slide 1.15
Solving a system of three linear

equations using the elimination
method
Example, page 63; practice problem, page 64

Key term, page 65
Slide 1.16
Section 1.5
Supply and demand analysis
Function notation, inverse function, increasing and

decreasing linear functions, endogenous and
exogenous variables, demand and supply functions,
equilibrium price and quantity for single-commodity
and multi-commodity markets
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Slide 1.17
Figure 1.14
Demand function: page 69, a decreasing function
Slide 1.18
Figure 1.15
Demand function: page 70, practice problem, page 71
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Slide 1.19
Figure 1.17
Endogenous and exogenous variables: page 72, some

general notation Q = f(P, Y, Ps, Pc, A, T) => Q= f(P) => P= g(Q)
Slide 1.20
Figure 1.18
Demand function: page 73, a rise of income causes demand curve to

move to the right if there is no better substitutable goods, but if there
is a better substitutable good the curve moves to the left
- a discussion on inferior and normal / superior goods
- (coal & electricity)
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Slide 1.21
Figure 1.19
Supply function: page 74, an increasing function
Slide 1.22
Figure 1.20
Supply function: page 74, equilibrium price and quantity
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Slide 1.23
Figure 1.21
Supply function: example, page 75, equilibrium price and quantity;

practice problems, pages 77 and 79
Key terms: page 80; Exercise 1.5*: page 83, problems 5 and 6
Slide 1.24
Section 1.6
Transposition of formulae
Manipulate formulae, draw a flowchart representing a
formula, use a reverse flowchart to transpose a
formula, change the subject of a formula involving
several letters
Example, page 86: P = Q/3 + 5 => Q = 3P - 15

Key terms: page 91;

Exercise 1.6*: page 92, problems 3, 4 and 5
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Slide 1.25
Section 1.7
National income determination
Sketching linear consumption and savings functions,

setting up simple macroeconomic models, calculating
equilibrium national income and analyzing IS and LM
schedules
Slide 1.26
Figure 1.22
Consumption curve: page 94;

A discussion on factors of production and national income, page 93
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Slide 1.27
Figure 1.23
Consumption curve: example, page 94;
practice problem. page 95
Slide 1.28
Figure 1.24
Savings curve: example, page 94 => Since Y= C + S

C= 0.6Y+10 => S= 0.4Y-10
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Slide 1.29
Figure 1.25
The relation between consumption and savings, page 96:

C = aY + b => S = (1-a)Y – b
where a is MPC; (1-a) is MPS; MPC + MPS = 1.
MPC: Marginal propensity to consume; MPS: Marginal propensity to save
Slide 1.30
Figure 1.26
The simplest model of national economy, page 96
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Slide 1.31
Figure 1.27
Finding equilibrium level of national income and consumption, page 97;

practice problem, page 98
Explanation: The C + I line is the graph of equation
(the aggregate expenditure) C + I = 0.6Y +22; the 45o line is the graph
of equation C + I = Y => 0.6Y + 22 = Y => Y = 55, and C = 0.6Y + 10 = 43.
Slide 1.32
A more complicated model of

national economy
The model, pages 98 - 99:
• Y = C + I* + G*
• C = aYd + b
• Yd = Y – T
• T = tY + T*
• Where: I* planned investment, G* planned government
expenditure, Yd disposable income, T taxation, T*
autonomous taxation.
Calculate the equilibrium level of national income

• Example, pages 99 - 100; practice problem, page 100
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Slide 1.33
IS schedule
Commodity market, IS schedule, page 100:
• Y=C+I
• C = aY + b
• I = cr + d (c < 0 and d > 0), where: r interest rate
• It implies Y = aY + b + cr + d => (1-a)Y – cr = b+d
• This equation relating national income Y and interest
rate r w.r.t. the commodity market is called the IS
schedule (I stands for interest / investment)
Find IS schedule:
• Example, pages 101 - 102: 0.2Y + 20r = 1100
Slide 1.34
LM schedule
Money market, LM schedule, page 101:
• Ms* = Md
• L1 = k1Y (k1 >0)
• L2 = k2r + k3 (k2 < 0, k3 >0)
• Where: Ms money supply supposed to be planned i.e. Ms =
Ms* ; Md money demand; L1 transaction - precautionary
demand; L2 speculative demand; L stands for liquidity.
• Md = L1 + L2 = k1Y + k2r + k3
• Hence Ms* = k1Y + k2r + k3, => k1Y + k2r = Ms* - k3
• This equation relating national income Y and interest rate r
w.r.t. the money market is called the LM schedule.
• Determining the equilibrium income and interest rate:
Example, pages 102 - 103
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Slide 1.35
Figure 1.28
Finding equilibrium level of national income and interest rate,
example, pages 102 - 104; practice problem, page 104
Key terms: page 105; Exercise 1.7*: pages 106 - 107,

problems 1, 3, 5
Slide 1.36
Formal mathematics
• Interval notations, page 109
• Absolute value, page 109
• Symbols, page 110
• Key terms, page 111
18

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7/31/2020

Sections 1.1 & 1.2

• Positive and negative numbers: practice problem, page 8

Revisions of coordinates, straight lines, intercepts and

Coordinate system: page 40

Coordinate system: page 41; practice problem, page 41

Straight line: page 43; practice problem, page 43

Straight line: intercepts, page 44; practice problem, page 45

Simultaneous linear equations: point of intersection, page 46;

Straight line: slope, page 47; practice problem, page 48

Exercise 1.3*: page 53, problem 5

Revisions of solving a system of two linear equations

Example of elimination: page 57; practice problem,

No solution: page 59; practice problem, page 60

Solving a system of three linear

Example, page 63; practice problem, page 64

Function notation, inverse function, increasing and

Demand function: page 69, a decreasing function

Demand function: page 70, practice problem, page 71

Endogenous and exogenous variables: page 72, some

Demand function: page 73, a rise of income causes demand curve to

Supply function: page 74, equilibrium price and quantity

Supply function: example, page 75, equilibrium price and quantity;

Example, page 86: P = Q/3 + 5 => Q = 3P - 15

Key terms: page 91;

Sketching linear consumption and savings functions,

Consumption curve: page 94;

Savings curve: example, page 94 => Since Y= C + S

The relation between consumption and savings, page 96:

The simplest model of national economy, page 96

Finding equilibrium level of national income and consumption, page 97;

A more complicated model of

Calculate the equilibrium level of national income

Key terms: page 105; Exercise 1.7*: pages 106 - 107,

• Key terms, page 111

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