MIDTERM REVISION

I. LINEAR EQUATION
1. Supply & Demand analysis
Problem: The inverse demand and supply functions of a certain good are respectively
given by
P= aQd + b (1)
P= cQs + d (2)
a) Roughly sketch the graphs of both the demand function and the supply function
on the same xy-plane on A4 paper. (What are the equilibrium price and quantity
without tax?)
b) Calculate the new equilibrium price and quantity after the imposition of a fixed tax
of $k per good. Who pays the tax?
c) Tax revenue? ( government get this)
Cách làm:
a)

• Sketch the graphs

Step 1: lập bảng giá trị (table of values), lấy ít nhất 2 giá trị cho mỗi phương trình,
trong đó nên lấy 1 giá trị tại equilibrium point để dễ nhìn hình và làm các câu kế
tiếp.
Step 2: Vẽ hình (chú ý: lần lượt kí hiệu Q, P cho x-axis & y-axis, kí hiệu S và D cho các
đường thẳng tương ứng đã vẽ, lấy giao điểm E tại equilibrium point)

• Calculate P & Q at equilibrium point.

At the equilibrium point, QD = QS = QE. Hence,
QD(P) = QS(P) or P(QD) = P(QS)
 Practice

Calculate the new equilibrium price and quantity with tax

(When gov imposes k tax per good, the price that firm receive less than $k )
Khi đó supply function đổi thành:

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 P - k = cQs + d (3)
Từ (1) và (3) tìm ra được new equilibrium price and quantity ( làm tương tự như đã
hướng dẫn ở câu a).

• Tax per good that buyer/firm pays:

+ Buyers pay: P (at new equi’ point) – P (at old equi’ point)
+ Firm pays: k – (tax per good that buyers pay)
c)
Tax revenue= (tax per unit) x (number of good sold with tax)

VD MINH HỌA
Given the demand and supply function:
−1
𝑄𝐷 = 𝑃 + 25
2
𝑄𝑠 = 2𝑃 - 50
a) Sketch the graph of demand and supply
b) Calculate the equibrium price and quantity
c) Calculate new equilibrium price and quantity if the government decides to impose
a fixed tax of $2.5 on each good. Who pays the tax?
d) Find the corresponding value of the government’s tax revenue.

2. Inferior and norminal good Vs. Complementary and Substitutable good

Nhìn hệ số của Qd và Y
. Inferior: A good whose demand increase as income decrease - Qd và Y trái dấu =>
Inferior
. Norminal good: A good whose demand increase as income increase - Qd và Y cùng dấu =>
Norminal hoặc Superior

. Complemantary good: Price of either goes up, both demand decrease

. Substitutable good: Price of one goes up, demand of other goods rises
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Example:
The demand function of a good is Q = 100 − P + 2 Y + P’ where Q is quantity demand,
P is price, Y denotes income, P’ denotes an alternative good price
a) Is this good inferior or norminal?
b) Is the alternative good substitutable or complementary?

II. NON-LINEAR EQUATION

f (x) = ax2 + bx + c
Discriminant ∆: 𝑏 2 − 4𝑎𝑐
−𝑏 ± √𝑏 2 − 4𝑎𝑐
𝑥=
2𝑎

Revenue, cost, and profit (Quan trọng)

• TR= P x Q
• Total cost= Fixed cost + Variable cost (TC= FC + (VC) x Q)
• TC = AC x Q
• Profit= Total Revenue - Total cost (π = TR – TC)
𝑭𝑪
. AC = TC/ Q = + 𝑽𝑪
𝑸

• Break-even where TR = TC

π Maximun profit
Q = - b/2a

Q
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Cách 2 để tính maximun profit: Qm = ½ x (Q_BE1 + Q_BE2)

Trong đó: Q_BE1: sản lượng tại điểm Break-even point 1

Q_BE2: Sản lượng tải điểm Break-even point 2
Có Qm thế vào => tính Maximun profit
Problem:
If fixed costs are 25, variable costs per unit are 2 and the demand function is
P = 20 - Q
obtain an expression for π in terms of Q and sketch its graph.
a) For what values of Q does the firm break even?
b) Find the levels of output which give a profit of 31.
c) Find the maximum profit and the value of Q at which it is achieved.
II. MATHEMATICS OF FINANCE
1. Index number (Số chỉ số):
* Data is given in the form of time series. Data of one year are forced to be the base
value (index number = 100).
𝒓𝒆𝒂𝒍 𝒗𝒂𝒍𝒖𝒆 𝑖𝑛 𝑜𝑏𝑠𝑒𝑟𝑣𝑎𝑡𝑖𝑜𝑛 𝑦𝑒𝑎𝑟
Index number = × 100
𝑣𝑎𝑙𝑢𝑒 𝑖𝑛 𝒃𝒂𝒔𝒆 𝒚𝒆𝒂𝒓

Ex: Household spendings data from 2012 to 2016, given the base year is 2014
Year 2012 2013 2014 2015 2016
Spending 675 684 713 742 697

Index number of 2012 = 675/ 713 x 100 = 94.67

Index number of 2014 = 100 (base year)
Index number of 2016 = 697/713 x 100 = 97.76

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 𝑰𝒏𝒅𝒆𝒙 𝒚𝒆𝒂𝒓 𝑨
Percentage change year A to year B =
𝑰𝒏𝒅𝒆𝒙 𝒚𝒆𝒂𝒓 𝑩
Ex: percentage change in housing spending of year 2016 to 2012 = 97.76/94.67 =
1.033 => 3.3% increase

2. Inflation (lạm phát)

- Nominal data: raw data without adjusted
- Real data: has been adjusted with inflation

 Problem: a year will be chosen as a base year (given) => adjust all data of other
years to the level of the base year by using the inflation rate given.
 Go forward in time (eg. 1990 adjusted to 1991)

nominal value (1990) x scale factor

 Go backward in time (eg. 1992 adjusted to 1991)

𝑛𝑜𝑚𝑖𝑛𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 (1992)

𝑠𝑐𝑎𝑙𝑒 𝑓𝑎𝑐𝑡𝑜𝑟
Practice:

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 Lưu ý: Đề có thể cho bài toán ngược (cho index number or real value và yêu cầu
tìm nominal value or inflation rate) (Vd b) và c) như trên)
Nếu:
+ cho index number => tìm real value.
+ có real value và nominal value => tìm được inflation rate.
3. Compound interest – saving - loan ( Important)
3.1. Compound interest: “interest over interest”

⧫ At the beginning of the period, deposit $P with the interest rate is r%. Money after
n year is:
S = P (𝟏 + 𝒓)𝒏

Note: This formula can also be used if the interest rate given is monthly/quarterly
interest. All you need to notice is “n” (the number of periods- measured in
month/quarter…..)
E.g : Monthly interest is 0.8%. The total amount of money saved $100 after 18 months

⧫ At the beginning of the period, deposit $P with the interest rate is r% (per year),
compounded k times. After nth year, the future value is:

𝒓 𝒏𝒌
𝑺 = 𝑷 (𝟏 + )
𝒌

Compounded continuously
𝑆 = 𝑃𝑒 𝑟𝑡

E.g A principal of $2000 is invested to a bank account. After how many days will the
investment first exceed $2100 if the 12% compouded semi-annually, monthly, and
continuously?
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 QUY ƯỚC:

r%: interest rate per year

k: the number of periods per year
( e.g: compounded semi-annual k=2; Quaterly k=4; Monthly k=12;
Weekly k=52; Daily k = 365)
n: number of years

3.2. Geometric series – saving/ loan applications 3.2.1)

Geometric series (cấp số nhân)

- Geometric ratio (công bội)

- Geomatric progression (dãy cấp số nhân)
Formular: the sum of the first n terms of a geometric progression in which the first
term is a , and the geometric ratio is r , is equal to

2 𝑛 0 1 2 𝑟𝑛 − 1 𝑛
𝑎 + 𝑎𝑟 + 𝑎𝑟 + ⋯ + 𝑎 𝑟 = 𝑎𝑟 + 𝑎𝑟 + 𝑎𝑟 + ⋯ + 𝑎𝑟 = 𝑎 ( 𝑟 ≠ 1)
𝑟−1

3.2.2. Saving - loans

a) Saving

i. Deposit $A at the beginning of each period with a return of r% compounded

annually/monthly…. After n year, the total amount saved will be:

𝑟% 𝑘𝑛
𝑟% ( 1 + 𝑘 ) − 1
𝐴 (1 + )
𝑘 𝑟%
𝑘

Type equation here.

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 ii. Deposit $A at the end of each period with a return of r% compounded
annually/monthly…. After n year, the total amount saved will be:

𝑟% 𝑘𝑛
(1+ ) −1
=𝐴 𝑘
𝑟%
𝑘

 Lưu ý: These above fomulas can only be used if the number of periods which
interest compounded same as the number of deposit times. (eg: saving $A at the
beginning/end of each month vs. compounded monthly…)

E.g: A put in the saving account $200 at the beginning of each month, the bank offers
the discount rate at 6% compounded monthly. Calculate the amount of money A will
receive after 3 years. And how many years does the amount received first exceed
$10,000?
E.g 2: A person invests $5000 at the beginning of a year in a savings account that
offers a return of 9% compounded semi-annually. At the beginning of every
subsequent six-month period, an additional $1000 is invested in the account. How
much will there be in the account at the end of ten years?

b) Loan: Annual repayment $A needed at the end of each period to repay a $L loan
which is paid back after n year (trả hết nợ sau n năm) when the interest is r%
compounded annually

(1 + 𝑟%)𝑛 − 1
𝐿(1 + 𝑟%)𝑛 − 𝐴 =0
𝑟%

• After m year, the amount of loan still owed (sau m năm vẫn còn nợ):

(1 + 𝑟%)𝑚 − 1
𝐿′ = 𝐿(1 + 𝑟%)𝑚 − 𝐴
𝑟%

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  Lưu ý:
- Trường hợp đề cho r% compounded monthly/quarterly/ semi-annually …. Vs.
monthly/ quarterly/semi-annual repayment, r% = r% /k và n = nk, m = mk.
- Nếu đề cho r% compounded annually nhưng hỏi semi/quarterly/monthly
repayment thì A = 2x/ 4x / 12x với x là semi/quarterly/monthly repayment.
E.g: Determine the monthly repayments needed to repay a $100 000 loan which is
paid back over 25 years when the interest rate is 8% compounded annually.
3.2.3 Invest appraisal
Present value:
𝑟% −𝑘𝑛
𝑃 = 𝑆 (1 + )
𝑘

Present value of an annuity

𝟏 𝟏
𝑷𝑽 = 𝑪 × ( 𝒓 + 𝒓 )
𝒓/𝒌(𝟏 + )𝒌𝒏
𝒌 𝒌

Trong đó: C là số tiền gửi vào mỗi năm/nửa năm/tháng

r là lãi suất annual
N: number of periods
Net present value: PV of revenue – PV of cost (initial investment)
Internal rate of return (rate của cái project)

𝐼𝑅𝑅% 𝑘𝑛
Tiền Invest x ( 1 + ) = Tiền project guaranteed
𝑘

Make decision when NPV > 0 or IRR > R

Chọn lựa giữa 2 projects => compare the NPV (not IRR)
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E.g Project A is guarenteed to produce a return of $15,000 after 3 years with an initial
investment of $12,000.
Calculate the IRR and NPV.
If the prevailing market rate is 5% compounded annually, would you go with this
project? How about 8%?
E.g

IV. DIFFERENTIATION
1. Slope/ gradient/ tangent line
The gradient/ slope of a curve at a point is that of the tangent at that point.
Tangent (Tiếp tuyến): A line that touches a curve at a point.

The slope (hệ số góc) of the graph of a function is called the derivative of the function
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 ∆𝑦
- Linear function: (constant)
𝑠𝑙𝑜𝑝𝑒 =
∆𝑥

E.g Find slope of the straight line passing through A (x1; y1) and B (x2; y2)
∆𝒚 𝒚𝟐−𝒚𝟏
=> 𝒔𝒍𝒐𝒑𝒆 = =
∆𝒙 𝒙𝟐−𝒙𝟏

𝑑𝑦
- With any graph:
𝑑𝑥

The slope of the graph f(x) at the point x=x0 is f’(x0)

2. Rules of defferentiation

⧫ Constrant rule: if ℎ(𝑥) = 𝑐. 𝑓(𝑥) => ℎ′ (𝑥) = 𝑐. 𝑓′(𝑥)

⧫ Differentiate rule: ℎ(𝑥) = 𝑓(𝑥) ± 𝑔(𝑥) => ℎ′ (𝑥) = 𝑓 ′ (𝑥) ± 𝑔′(𝑥)

3. Second-order derivative
Using to confirm the convexity of the general quadratic function (parabol)
𝑓(𝑥) = 𝑎𝑥 2 + 𝑏𝑥 + 𝑐
The second-order derivative is f’’(x) = 2a
If a > 0 => f’’(x) > 0 => CONVEX
If a < 0 => f’’(x) < 0 => CONCAVE
If a = 0 => straight line
4. Marginal function
- Marginal Revenue (MR) (đạo hàm của TR theo Q)
𝑑(𝑇𝑅)
𝑀𝑅 =
d𝑄

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 - Marginal Cost (MC) (đạo hàm của TC theo Q)

𝑑(𝑇𝐶)
𝑀𝐶 =
d𝑄
Change in total revenue: Δ(TR) ≅ MR × ΔQ

 To maximize profit:
𝑀𝑅 = 𝑀𝐶

 Practice: 5 page 325, 6 page 326

5. Production
- Marginal product of labour (đạo hàm output theo labour)

𝒅𝑸
𝑴𝑷𝑳 =
𝒅𝑳

MPL > 0 MPL < 0

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6. Consumption and Saving
Y=C+S
𝒅𝑪
Marginal propensity to consume, 𝑴𝑷𝑪 =
𝒅𝒀
𝒅𝑺
Marginal propensity to save, 𝑴𝑷𝑺 =
𝒅𝒀

𝑀𝑃𝐶 + 𝑀𝑃𝑆 = 1
⧫ Lưu ý: đề có thể chỉ cho dữ kiện để tính được MPC/MPS => tính cái còn lại lấy 1 trừ
đi MPC/MPS
7. Elasticity
- Price elasticity of demand/ supply

𝑃 ∆𝑄 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑑𝑒𝑚𝑎𝑛𝑑/𝑠𝑢𝑝𝑝𝑙𝑦

𝐸𝑃 = 𝑄 × ∆𝑃 = 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒

o Inelasticity: |E| <1

o Elasticity: |E| >1
o Unit elasticity: |E| =1

E.g: Given the demand function 𝑃 = −𝑄2 − 4𝑄 + 84

Calculate the price elasticity of demand when P = 52. If price rise by 3%, calculate
the corresponding percentage change in demand?

- Cross-price elasticity of demand

𝑃𝐴 ∆𝑄 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄
𝐸𝑃𝐴 = × =
𝑄 ∆𝑃𝐴 𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝐴

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 o Complementary: 𝐸𝑃𝐴 < 0
oSubstitutable: 𝐸𝑃𝐴 > 0
- Income elasticity of demand

𝑌 ∆𝑄 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄
𝐸𝑌 = × =
𝑄 ∆𝑌 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑌

o Inferior: 𝐸𝑌 < 0
o Normal: 𝐸𝑌 > 0
o Superior: 𝐸𝑌 > 1
8. Optimisation

Stationary point: where the graph rises on one side and falls on the other

Method for finding optimisation:

Step 1: Slove f’(x) = 0 to find stationary point x = a
Step 2:
If 𝑓′′(𝑎) > 0 => 𝑓(𝑥) ℎ𝑎𝑠 𝑎 𝑚𝑖𝑛𝑖𝑚𝑢𝑛 𝑎𝑡 𝑥 = 𝑎
If 𝑓 ′′ (𝑎) < 0 => 𝑓(𝑥) ℎ𝑎𝑠 𝑎 𝑚𝑎𝑥𝑖𝑚𝑢𝑛 𝑎𝑡 𝑥 = 𝑎
If 𝑓 ′′ (𝑎) = 0 => 𝑛𝑜 max 𝑜𝑟 𝑚𝑖𝑛

E.g: The demand equation of a good is given by P + 2Q = 20 and the total cost
function is 𝑄3 − 8𝑄2 + 20𝑄 + 2
a. Find level of output that maximise the TR
b. Find the maximum profit and the value of Q at which it is achieved. Verify that,
at this value of Q, MR = MC.

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