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Books and resources
The main recommended texts are
Ian Jacques, Mathematics for Economics and
Business, 9th edition, Pearson Education
Limited, 2018. click here
Syllabus, slides and more click here
Other resources:
Raymond A. Barnett,Michael R. Ziegler, Karl E. Byleen, Calculus
for Business, Economics, Life Sciences and Social Sciences,
Pearson 2018
Howard Anton, Chris Rorres, Elementary linear algebra,
applications version, Wiley 2019.
Hillier and Lieberman, Introduction to operations research, Mc
Graw Hill 2021.
Haeussler et al., Introductory Mathematical Analysis for Business,
Economics, and the Life and Social Sciences, Pearson 2021.
Introduction to MEB 2 / 47
What will be included in our MEB course?
Introduction to MEB 3 / 47
What will be included in our MEB course?
Introduction to MEB 3 / 47
Evaluation
Introduction to MEB 4 / 47
Create your team: can be done later this week!
Introduction to MEB 5 / 47
Questions?
Introduction to MEB 6 / 47
Chapter 1. Linear economic models: outlines
Introduction to MEB 7 / 47
Linear equations
WARMING UP!
Go to this link: https://www.menti.com/4gy43wruaz
Example
Solve the following equations and comment on the number of solutions
1 0.5x = 10 2 0x = 3 3 0x = 0
Example
Solve the following equations and comment on the number of solutions
1 0.5x = 10 2 0x = 3 3 0x = 0
Example
Solve the following systems and comment on the number of solutions:
( ( (
1
x + 2y = 4 2
3x + 2y = 4 3
x + 2y = 3
2y = 2 9x + 6y = 5 2x + 4y = 6
Solution:
1 Eliminate x from (2) and (3) by operations (2) − (1), (3) − (1).
x + 2y + 3z = 7 (1)
y + z = 2 (20 )
y + 3z = 4 (30 )
Example
Solve the following systems of equations:
x
+ 2y + 3z = 10
x + 2y + 3z = 10
1 2y + 3z = 7 3 2x + 4y + 6z = 12
3z = 3 y + 3z = 5
x + 2y + 3z
= 10
2 x + 4y + 7z = 26
y + 2z = 8
P P = cQs + d
b
c
P = aQd + b
Q
Example
Some linear economic models we are going to study are
Supply and demand analysis.
National income determination.
Example
A distribution centre sends three different types of parcels. One
consignment has 6 small, 8 medium and 9 large parcels which cost
$173.20 to post. Another consignment has 7 small, 13 medium and 17
large parcels with total postage $291.05. A large parcel costs twice as
much to post as a small one. Work out the total cost of posting 3 small
parcels, 9 medium parcels and 2 large parcels.
1 Linear equations
Some example of linear equations
Elimination method
Key terms.
Q = f (P )
Figure 1: Alfred
Marshall (1842-1924)
Q = f (P )
Figure 1: Alfred
Marshall (1842-1924)
Modelling
The process of identifying the key features of the real world and making
appropriate simplifications and assumptions.
P = aQ + b,
A potter makes and sells ceramic bowls. It is observed that when the
price is $32, only 9 bowls are sold in a week; but when the price
decreases to $10, weekly sales rise to 20. Assuming that demand can be
modelled by a linear function,
a. obtain a formula for P in terms of Q;
b. sketch a graph of P against Q;
c. comment on the likely reliability of the model.
A potter makes and sells ceramic bowls. It is observed that when the
price is $32, only 9 bowls are sold in a week; but when the price
decreases to $10, weekly sales rise to 20. Assuming that demand can be
modelled by a linear function,
a. obtain a formula for P in terms of Q;
b. sketch a graph of P against Q;
c. comment on the likely reliability of the model.
Solutions: p71.
Q = f (P )
P = g(Qs )
Example
The demand and supply functions of a good are given by
P = −2Qd + 50
P = 1/2Qs + 25
P = −2Q + 50
P = 1/2Q + 25 + 5
Example
The demand and supply functions of a good are given by
P = −4Qd + 120
P = 1/3Qs + 29
Definition
A substitutable good is one that could be consumed instead of the
good under consideration.
A complementary good is one that is used in conjunction with
other goods.
Example
Grab car and traditional taxis could obviously be substituted for
each other in urban areas. So they are substitutable goods.
Laptops and printers are consumed together. So they are
complementary goods.
Qd1 = a1 + b1 P1 + c1 P2
Qd2 = a2 + b2 P1 + c2 P2
Example
The demand and supply functions for two interdependent commodities
are given by
Qd1 = 10 − 2P1 + P2
Qd2 = 5 + 2P1 − 2P2
Qs1 = −3 + 2P1
Qs2 = −2 + 3P2
where Qdi , Qsi and Pi denote the quantity demanded, quantity
supplied and price of good i, respectively. Determine the equilibrium
price and quantity for this two-commodity model. Are these goods
substitutable or complementary?
Link to write: https://padlet.com/anltt/sp2218oseosyyo5y
1 Linear equations
Some example of linear equations
Elimination method
C = f (Y ), S = Y − C.
C = f (Y ), S = Y − C.
C C = 0.6Y + 10
(40, 34)
10
Y
Graphs of the functions
C C = 0.6Y + 10
(40, 34)
10 S = 0.4Y − 10
Y
25
−10
If C = aY + b then
S = Y − C = (1 − a)Y − b.
Y = C +I
C = aY + b
Example
Find the equilibrium level of income and consumption if the
consumption function is
C = 0.6Y + 10
Example
Given the unit as trillion dollars and
G= 40
I= 55
C= 0.8Yd + 25
T = 0.1Y + 10.
Example
Suppose that the unit is ”trillion dollars” and
C = 0.8Y + 100
I = −20r + 1000.
In order to determine the national income and the interest rate, we will
need some additional information from the equilibrium of the money
market.
The equilibrium of the money market
The money market is said to be in equilibrium when the supply of
money, Ms , matches the demand for money, Md : that is, when
Ms = Md .
Ms = Ms∗
Md = L1 + L2 = k1 Y + k2 r + k3 .
Ms∗ = k1 Y + k2 r + k3 .
LM Schedule
The above equation, relating national income, Y , and interest rate, r,
is called the LM schedule.
If we assume that equilibrium exists in both the commodity and money
markets, then the IS and LM schedules provide a system of two
equations in two unknowns, Y and r. We can solve them to determine
Y and r.
Example
Determine the equilibrium income Y and interest rate r, given the
following information about the commodity market (all unit is ”trillion
dollars”:)
C = 0.7Y + 85
I = −50r + 1200
and the money market
Ms = 300
L1 = 0.2Y
L2 = −40r + 30.
Sketch the IS and LM curves on the same diagram. What effect would
an increase in the value of autonomous investment have on the
equilibrium values of Y and r?
Thank you!