Math recap

Made by Ágnes Havel & Katrín Emma Hjaltadóttir

 Table of contents
1. Introduction ................................................................................................................ 1
2. Expressions ................................................................................................................ 2
3. Section 1.1 – Introduction to algebra ............................................................................. 2
4. Section 1.2 – Fractions ................................................................................................. 3
5. Section 1.3 – Graph of linear equation ........................................................................... 4
6. Section 1.4 - Intersection of two graphs ......................................................................... 7
7. Section 1.5 – Supply and demand analysis ..................................................................... 9
8. Section 2.1 – Quadratic functions ................................................................................ 11
9. Section 2.2 – Revenue, Cost and profit ........................................................................ 14
10. Section 2.3 – Indices and logarithms ........................................................................ 15
11. Section 2.4 – The exponential and the natural logarithm functions .............................. 17
12. Section 3.1 – Percentage ......................................................................................... 19
13. Section 3.2 – Compound interest ............................................................................. 23
14. Section 4.1 – The derivative of a function ................................................................. 24
15. Section 4.2 – Rules of differentiation ....................................................................... 25
16. Section 4.3 – Marginal functions ............................................................................. 25
17. Section 4.4 – Further rules of differentiation (Katrín) ................................................. 27
18. Section 4.6 – Optimization of economic functions ..................................................... 30
19. Section 4.8 – The derivative of the exponential and natural logarithm.......................... 33
20. Section 6.1 – Indefinite integration .......................................................................... 34
Math recap
Made by Ágnes Havel
and Katrín Emma Hjaltadóttir

1. Introduction
This pdf is just the essence of the Mathematics for economics and businesses (Ian Jacques, 8th
edition, Pearson, 2015). Be aware this does not contain everything from the original book, this is
just a guideline for you to see how to scratch a graph, or understand what a stationary point is…etc.
In many sections, I have used a few exercises in order to guide you over an exercise so you could
be able to understand the rules correctly.

We hope this will help you to find information easily. 😊

Your classmates,
Ágnes & Katrín

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2. Expressions
Sign Expression
+ Addition or Add or Plus
- Subtraction or minus
* or x Multiplication or Multiply
: or / Division or divide
= Equal
𝒙 Nominator (x)
𝒚 Denominator (y) Say as ‘x over y’

();[] Bracket
√ Root or Square root
∛ Third root
X2 X to the power of 2 or x squared
Log2 8 = 3 Base (2)
Value (8) Say as ‘Logarithm of
Log2 8 = 3 → 2 = 8
3
Exponent (3) 8 to base 2 is 3’

3. Section 1.1 – Introduction to algebra

Negative * Negative = Positive
Negative * Positive = Negative

Good to know! - Numbers addition and multiplication rules!

They are ‘Commutative’
a+b=b+a
a*b=b*a
‘Associative’
(a + b) + c = a + (b + c)
(a * b) * c = a * (b * c)
‘Distributive’
c * (a + b) = a * c + b * c

Other:
a * b = ab
a * a = a2

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(? = 5 + 1 * 10 = 15)

Operations order:
1. Brackets → ( )
2. Indices & Roots → x2; √
3. Division & Multiplication → *; /
4. Addition & Subtraction → + ; -

IF you have an inequality (<; >; ≤; ≥ ) like:

-2x < 4 In this case you are curious that only 1 x is less or more then what, so you are going
to divide this inequation with -2. → If you divide or multiply with a negative number
the sense of inequality is going to change!
x>-2 The answer is ‘x > - 2’, because -2x/-2 = x and 4/ - 2 = -2.

4. Section 1.2 – Fractions

Rules:
Multiply fractions 𝒂 𝒄 𝒂 𝒙 𝒄 𝒂𝒄 To multiply fractions, you multiply
× = =
𝒃 𝒅 𝒃 𝒙 𝒅 𝒃𝒅 their corresponding numerators and
denominators.
Divide fractions 𝑎 𝑐 𝑎 𝑑 𝑎𝑑 To divide by fraction, you turn it
: = 𝑥 = upside down and multiply.
𝑏 𝑑 𝑏 𝑐 𝑏𝑐

Add fractions 𝑎 𝑐 𝑎 𝑥 𝑑 𝑏 𝑥 𝑐 𝑎𝑑 + 𝑏𝑐 To add fractions, you write them as

+ = + = equivalent fractions with a common
𝑏 𝑑 𝑏𝑥𝑑 𝑏𝑥𝑑 𝑏𝑑
denominator and add their
numerators.
Subtract fractions 𝑎 𝑐 𝑎𝑥𝑑 𝑏 𝑥 𝑐 𝑎𝑑 − 𝑏𝑐 To subtract fractions, you write them
− = − = as equivalent fractions with a
𝑏 𝑑 𝑏𝑥𝑑 𝑏𝑥𝑑 𝑏𝑑
common denominator and subtract
their numerators.

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5. Section 1.3 – Graph of linear equation

How to solve an equation:
𝑥+1
3 = 𝑥−2

1. Remove fractions
3 ∗ ( 𝑥 − 2) = 𝑥 + 1
2. Multiply out the brackets
3𝑥 − 6 = 𝑥 + 1
3. Collect all of the x’s on one side
2𝑥 − 6 = 1
2𝑥 = 7
4. Divide by the coefficient of x.
7
𝑥=
2
Some expressions:
Horizontal axis or x-axis (→)
Vertical axis or y-axis (↑)
Coordinates (x, y)

Linear equation:

y=a*x+b ‘y’ is the value of a given x point

‘a’ is the slope (if a positive the function is increasing if it is
negative the function is decreasing!)
‘x’ is a part of the x-axis
‘b’ is the intersection with the y-axis

If you would like to sketch a line for y = 3x + 9 then, you will need at least 2 point to create a line.
The easiest way to draw this line if you will find the intersects with the axises! From this equation
(y = 3x + 9) you can tell easily what is the intersection with the y-axis, because b = 9. But if you
are not sure then the following calculations will show you how to calculate it.
1. If you are looking for the intersection with the y-axis, that indicates that at that point,
wherever it is, the x value is 0. (Because the point coordinates are (x; y) and you are looking
for y, when you know that x is 0, so your coordinates are (0; ?)). Now, you are looking for
a number along the y-axis where my line is cross my y-axis, so you should put 0 into x.

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Equation: y = 3x + 9
x=0
y=3*0+9=0+9=9
Now you can see that the intersection with the y-axis is really at the ‘b’ point, so it is 9.
A B
X 0 ?
Y 9 ?

2. The next move is to find the intersection with the x-axis, that indicates that at that point,
wherever it is, the y value is 0. (Because the point coordinates are (x; y) and you are looking
for x, when you know that y is 0, so your coordinates are (?; 0)). Now you are looking for
a number along the x-axis where my line is cross my y-axis, so you should put 0 into y.
Equation: y = 3x + 9
y=0
0=3x+9 Minus 9
-9 = 3x Subtract 3
-3 = x
Now you can see that the intersection with the x-axis is -3.
A B
X 0 -3
Y 9 0

Now you know 2 point on your curve one point is A(0;9) and the second one is B(-3;0), so you
can easily draw you line!

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A (0;9)

B (-3; 0)

y = 3x + 9

What if you are getting an equation which looks like this: 8x - 4 y = 12?
This is not a regular linear equation, because (y = ax + b) ≠ (8x - 4 y = 12), so these equations are
not the same, so you do not know what is ‘a’, and ‘b’.
Frist you have to rearrange this equation! (You have to isolate y, because that is the easiest way to
find the ‘b’, which is intersection with the y-axis.) (If you are advanced in math you don’t need to
rearrange the equation, just put 0 instead of x, and do the equation to find y at that point and the opposite,
when y = 0.)

8x - 4 y = 12 Add 4y
8x = 12 + 4y Minus 12
8x – 12 = 4y Divide 4
2x – 3 = y Change the sequence!
y = 2x – 3
Now you know that a = 2 and b = - 3.
From now on, the steps to draw a line is the same as we did one exercise before! (Find out the
intersection with the axises.)

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6. Section 1.4 - Intersection of two graphs

You can have two linear graphs, where you have to find out where is the point where these two
graphs are going to meet. In this section We will see two methods, how can you find the
intersection.
Elimination method:
1. 3x + 4y = 8
2. -2x + y = 2
I. Arrange the coefficient1 of x to be the same! (Sometimes you have to rearrange one or
even both equation) → I can see the coefficient should be ± 6.
1. 3x + 4y = 8 Multiply with 2
6x + 8y = 16
2. -2x + y = 2 Multiply with 3
-6x + 3y = 6
II. Add/Subtract a multiple of one equation to/from a multiple of the other to eliminate x.
1. 6x + 8y = 16
+ 2. -6x + 3y = 6
0x + 11 y = 22

III. Solve the resulting equation for y.

11 y = 22 Divide with 11
y=2
IV. Substitute the value of y of the original equation to deduce x.
1. 3x + 4y = 8
y=2
3x + 4*2 = 8
3x + 8 = 8 Subtract 8
3x = 0 Divide with 3
x=0
V. Check the results.
?
1. 3x + 4y = 8 y=2
x=0 3*0 + 4*2 = 8

1
Coefficient is the number in front of x and/or y.
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8=8 y=2
?
-2 * 0 + 2 = 2
2. -2x + y = 2 2=2
x=0

Solution is x = 0 and y = 2, so the coordinates of the intersection of the lines is in (0; 2).
Other method:
1. 3x + 4y = 8
2. -2x + y = 2
I. Express y from one equation. (It could be also x)
1. 3x + 4y = 8
2. -2x + y = 2 → y = 2 + 2x

II. Use the expressed equation and put instead of y within the other equation to find out
what is x.
2. y = 2 + 2x
1. 3x + 4y = 8

3x + 4* (2+2x) = 8 Unseal brackets

3x + 8 + 8x = 8 Bring together the same expressions
11x + 8 = 8 Subtract 8
11x = 0 Divide with 11
x=0
III. Substitute the value of x of the original equation to deduce y.
2. -2x + y = 2
x=0
-2 * 0 + y = 2
0+y=2
y=2

IV. Check the results.

1. 3x + 4y = 8 2. -2x + y = 2
x=0 x=0
y=2 y=2
? ?2
3*0 + 4*2 = 8 -2 * 0 + 2 =
8=8 2=2

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7. Section 1.5 – Supply and demand analysis

The supply and demand function could be described as lines. According to section 1.3 (Graph of
linear equations) the equation of a line is y = ax + b. In case of the supply and the demand y= Price
(P) and x= Quantity (Q), so we will get a new equation P = aQ + b.
The demand curve is decreasing, therefore the slope is negative, which means that the function of
the demand curve is P = -aQ +b.
The supply curve is increasing, therefore the slope is positive, which means that the function of
the supply curve is P = aQ +b.
So, if you have an equation just to look at the a, you can define whether it is a supply or a demand
curve!
These curves have an intersection, which could be defined as an equilibrium point. Following the
intersection calculation in ‘Section 1.4 - Intersection of two graphs’, you can find out the
coordinates (x; y), but due to x = Q and y = P the new coordinates will be (Q; P). This will show
at which quantity (q) we can talk about equilibrium and on what price (p).

P = +aQ + b

P = - aQ + b

Each curve can shift depending on what kind of impact do they have.
The supply curve could shift to the right, when:

- Fall in cost of production

- Reduced profitability of alternative products that could be supplied
- Increased profitability of goods in joint supply

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- Expectation of a fall in price

The demand curve could shift to the right, when:

- Tastes shift towards this product

- Rise in price of substitute goods
- Fall in price of complementary goods
- Rise in income
- Expectations of a rise in price

If one of the curves is shifting there is going to be a new equilibrium point!

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8. Section 2.1 – Quadratic functions

Polynomial or second degree
f(x) = ax2 + bx + c
‘a’, ‘b’ and ‘c’ are coefficient
‘- a’ (if ‘a’ is negative) the shape of the graph is ∩
‘+ a’ (if ‘a’ is positive) the shape of the graph is ∪
‘c’ is the intersection with the y-axis

Calculation of the roots:

−𝑏 ± √𝑏 2 − 4𝑎𝑐
𝑥=
2𝑎
The result(s) will show where is the intersection with the x-axis.
Discriminant: (the part under the square root in the equation before)
𝑏 2 − 4𝑎𝑐
Checking this part of the equation you can tell how many intersections does the equation has with
the x-axis, so if you make the calculation how many results should you get!

• If 𝑏 2 − 4𝑎𝑐 > 0 there are 2 solutions

−𝑏+ √𝑏2 −4𝑎𝑐 −𝑏−√𝑏2 −4𝑎𝑐
𝑥= and 𝑥= , so the stems of the graph cross the x-axis.
2𝑎 2𝑎

• If 𝑏 2 − 4𝑎𝑐 = 0 there is 1solution

−𝑏±√0 −𝑏
𝑥= = 2𝑎 , so the graph peak point just touches the x-axis.
2𝑎

• If 𝑏 2 − 4𝑎𝑐 < 0 there is no solution because √−(𝑏 2 − 4𝑎𝑐) (minus under square root)
does NOT exist, so there is NO intersection with the x-axis, which means the graph is above
or beneath of it.
Results are visible in the following picture!

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Peak point:
If you have two solution for the discriminant (or roots), those are the similar distance from the
peak point, which means you can easily calculate the peak-point. The two roots mean, you have
two intersection with the x-axis, so the average of them is going to show the first (x) coordinate of
the peak point.
𝑥1 +𝑥2
You can get the first (x) coordinate of the peak point by using this calculation: ( ),
2
where x1 is the first result of the roots and x2 is the second result of the roots.
You can get the second (y) coordinate of the peak point by using the original function, when
y = ax2 + bx + c and the x is equal with the x coordinate, what you have gotten right before.

Supply and demand curve:

You can easily get a supply or demand curve which looks similar like this y = ax2 + bx + c , but
instead of x, and y, you will see Q and P. (x = Q and y = P)
Supply curve:
P = aQ2 + bQ + c ‘+ a’ (if ‘a’ is positive) the shape of the graph is ∪
‘c’ is the intersection with the y-axis (Price axis)
Demand curve:
P = - aQ2 + bQ + c ‘- a’ (if ‘a’ is negative) the shape of the graph is ∩

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‘c’ is the intersection with the y-axis (Price axis)

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9. Section 2.2 – Revenue, Cost and profit

Basic knowledge:
Abbreviation Expression Calculation
P Price
Q Quantity; Output; Unit; Volume
TR Total revenue; Sales, Turnover P*Q
(T)FC (Total) Fixed cost; (Total) Fixed expenses AFC *Q
(T)VC (Total) Variable cost; (Total) Variable expenses AVC *Q
TC Total cost; Total expenses (T)FC + (T)VC
AC; ATC Average (Total) Cost (“Total cost per unit”) TC / Q
AVC Average Variable Cost; (“Variable cost per unit”) (T)VC / Q
AFC Average Fixed Cost (“Fixed cost per unit”) (T) FC / Q
Profit; (𝝅) Profit TR - TC

Total revenue = Price * Quantity → TR = P*Q

In general, given the linear function → P = a*Q + b
Total revenue function is → TR = PQ = (aQ + b)*Q = aQ2 +bQ
Total cost = (Total) Fixed cost + (Total) Variable cost → TC = FC + VC
Total Variable Cost = Variable cost per unit * Output → (T)VC = Variable cost per unit * Q
Total cost = (T) Fixed cost + (T) Variable cost → TC = FC + (Variable cost per unit *Q)
𝑇𝐶 𝐹𝐶+(𝑉𝐶 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡)×𝑄 𝐹𝐶
Average cost = Total cost / Quantity → AC = = = + (𝑉𝐶 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡)
𝑄 𝑄 𝑄

Profit = Total revenue – Total Cost → 𝜋 = TR – TC

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10. Section 2.3 – Indices and logarithms

Index notation:
x*x = x2 (“x to the power of 2” or “x squared”)
x*x*x*x*x = x5 (“x to the power of 5”)
xn = x*x*x*…*x → Total of n x’s multiplied together (n is index, power or exponent)
x0 = 1 → anything in the power of 0 is equal with 1
1
x -n = → any number on the power of negative number is equal with 1divided
𝑥𝑛
by the same number but in a positive index
1
83 = 2 (Because 23 = 8)
1
6254 = 5 (Because 54 = 625)
𝑝 1 1 𝑝
𝑏 𝑞 = (𝑏 𝑝 )𝑞 = (𝑏 𝑞 ) This is the equation what you have to use if a number is on the
power of a fraction!

Good to know!
Any negative number in the power of positive integer2 even number3 will give a positive result!
(-2)2 = (-2) * (-2) = + 4
(-2)6 = (-2) * (-2) * (-2) * (-2) * (-2) * (-2) = + 64
(-5) 4 = (-5) * (-5) * (-5) * (-5) = + 625
Any negative number in the power of positive integer uneven number will give a positive result!
(-2)3 = (-2) * (-2) * (-2) = - 8
(-2)7 = (-2) * (-2) * (-2) * (-2) * (-2) * (-2) * (-2) = - 128
(-5)5 = (-5) * (-5) * (-5) * (-5) * (-5) = - 3125
Any negative number in the power of positive integer number will give a positive result!
22 = 2 * 2 = + 4
23 = 2 * 2 * 2 = +8

2
Integer, means a ‘whole’ number, (for instance 1; 5; 958; 15429…etc.)
3
Even number, is any integer that can be divided exactly by 2. (for instance, 2; 4; 6; 28; 366…etc.)

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Rules of indices
Rules Example
𝒃𝒎 ∗ 𝒃𝒏 = 𝒃𝒎+𝒏 28 ∗ 23 = 28+3 = 211
𝒃𝒎 /𝒃𝒏 = 𝒃𝒎−𝒏 28 /23 = 28−3 = 25
(𝒃𝒎 )𝒏 = 𝒃𝒎∗𝒏 (28 )3 = 28∗3 = 224
(𝒂𝒃)𝒏 = 𝒂𝒏 𝒃𝒏 (2 ∗ 5)3 = 23 ∗ 53
𝒂 𝒏 𝒂𝒏 2 5 25
( ) = 𝒏 ( ) = 𝟓
𝒃 𝒃 3 3

Logarithms
M = bn → logbM = n 32 = 25 → log232 = 5
logbM = n → M = bn log232 = 5 → 32 = 25
Base (b) Base (2)
Value (M) Value (32)
Exponent (n) Exponent (5)
Say as ‘Logarithm of M to base b is n’ Say as ‘Logarithm of 32 to base 2 is 5’

Rules Example
𝒍𝒐𝒈𝒃(𝒙 ∗ 𝒚) = 𝒍𝒐𝒈𝒃 𝒙 + 𝒍𝒐𝒈𝒃 𝒚 𝑙𝑜𝑔3 (3 ∗ 9) = 𝑙𝑜𝑔3 3 + 𝑙𝑜𝑔3 9
𝒍𝒐𝒈𝒃 (𝒙/𝒚) = 𝒍𝒐𝒈𝒃 𝒙 − 𝒍𝒐𝒈𝒃 𝒚 𝑙𝑜𝑔3 (27/8) = 𝑙𝑜𝑔3 27 − 𝑙𝑜𝑔3 8
𝒍𝒐𝒈𝒃 𝒙𝒎 = 𝒎 ∗ 𝒍𝒐𝒈𝒃 𝒙 𝑙𝑜𝑔3 273 = 3 ∗ 𝑙𝑜𝑔3 27

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11. Section 2.4 – The exponential and the natural logarithm

functions
f(x) = bx , when b takes the value 2,718281828459… → this number is written as e and the
function f(x) = ex, this is what we call the exponential function.
Example:
The percentage, y, of households possessing refrigerators, t years after they have been introduced
in a developed country, is modelled by:
y = 100 – 95e-0,15t
a.) Your task to find the percentage of households that have refrigerators after 10 years.
Now you know that t = 10, and you want to know how much y is.

y = 100 – 95e-0,15*10
y = 100 – 95e-1,5

You should have a function in your calculator, which says ex → press that button, then just
write the number which is in the indices → the result should be 0,22313016

y = 100 – 95*0,223
y = 100 – 21,197
y = 78,802 → 79 %
b.) After how many years will the country reach 95%?
In this case you know y = 95%, but you do NOT know t.

95 = 100 – 95e-0,15t

Now you have to rearrange the equation, so the one, what you don’t know should be
on one side, and the rest on the other.

95 = 100 – 95e-0,15t Minus 100

-5 = - 95e-0,15t Divide by (-95)
-5/-95 = e-0,15t
0,052 = e-0,15t

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At this point, we can see something like this:

M = ex

So now, in order to find out what x is, we need to use logarithm,

x = loge M

but due to e, we cannot use a simple log, now we have to use the natural logarithm (ln):
x = ln M

Back to question b, we have got that:

0,052 = e-0,15t

We need to use logarithm. (Natural, because of the e!)

-0,15t = ln 0,052

-0,15t = -2,956 Divide by -0,15

t =19,71 → It is needed 20 years for a country to have 95% of households,

which has refrigerator.

Rules of natural logarithm: (Basically the same, what we have seen in section 2.3)
Rules
ln(𝑥 x 𝑦) = ln 𝑥 + ln 𝑦
ln(𝑥 ÷ 𝑦) = ln 𝑥 − ln 𝑦
ln 𝑥 𝑚 = 𝑚 ln 𝑥

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12. Section 3.1 – Percentage

𝒓
r % = 𝟏𝟎𝟎

25 1
25% = 100 = = 0,25
4
30 3
30% = 100 = = 0,3
10
50 1
50% = 100 = = 0,5
2

If the percentage (rise/fall) is r %, then the final value consists of the original (100%) together with
the (increase/ decrease) (r %), giving the total of
100 𝑟 𝑟
± = 1±
100 100 100

Rise:
Let say the original price was $ 60 and it has increased by 20 %.
Therefore, the new price is 100% + 20% =120 %.
Now you want to know how much the new price is? So, you have to multiply the original price
with the scale factor. When you are calculating the new price you cannot use percentage, therefore
you have to use the scale factor4!
𝑁𝑒𝑤 𝑛𝑢𝑚𝑏𝑒𝑟 120
= 100 = 1,2 → Scale factor
𝑂𝑙𝑑 𝑛𝑢𝑚𝑏𝑒𝑟

Overall, the new price is ($) 60 * 1,2 = 72 $.

Fall:
Let say the original price was $ 60 and it has decreased by 20 %.
Therefore, the new price is 100% - 20% =80 %.

4
Scale factor: The multiplier that gives the final value in percentage problems.
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Now you want to know how much the new price is? So, you have to multiply the original price
with the scale factor. When you are calculating the new price you cannot use percentage, therefore
you have to use the scale factor!
𝑁𝑒𝑤 𝑛𝑢𝑚𝑏𝑒𝑟 80
= 100 = 0,8 → Scale factor
𝑂𝑙𝑑 𝑛𝑢𝑚𝑏𝑒𝑟

Thus, the new price is ($) 60 * 0,8 = 48 $.

There are two applications of percentage in macroeconomics:

- Index number5
- Inflation6.

Index numbers:
Economic data often take the form of a time series (annual, quarterly, monthly), and we are
interested in analyzing the rise and fall of these numbers over time.
Index numbers help us to identify trends and relationship in the data.
For instance:
Year
2010 2011 2012
Household
686,9 697,2 723,7
spending
Index number ? ? ?

First, we have to take a base! Let’s say the base is 2011, thus the index number of 2011 is 100. (It
does not matter which year you are choosing as a basis.)
Second, to find the index number of the year 2012, we work out the scale factor associated with
the change in the household spending from the base year, and multiply the answer by 100.
Index number = scale factor from base year * 100
Basically, we would like to know if we compare 2011 and 2012 does the spending increased or
decreased?
𝑆𝑝𝑒𝑛𝑑𝑖𝑛𝑔 𝑤ℎ𝑎𝑡 𝑦𝑜𝑢 𝑤𝑎𝑛𝑡 𝑡𝑜 𝑐𝑜𝑚𝑝𝑎𝑟𝑒 𝑆𝑝𝑒𝑛𝑑𝑖𝑛𝑔 𝑖𝑛 2012 723,7
∗ 100 = ∗ 100 = ∗ 100 = 103,8
𝐵𝑎𝑠𝑖𝑐 𝑠𝑝𝑒𝑛𝑑𝑖𝑛𝑔 𝑆𝑝𝑒𝑛𝑑𝑖𝑛𝑔 𝑖𝑛 2011 697,2

5
Index number: The scale factor of a variable measured from the base year multiplied by 100.
6
Inflation: The percentage increase in the level of prices over a 12-month period.
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Third, find the index number of the year 2010, we work out the scale factor associated with the
change in the household spending from the base year, and multiply the answer by 100. (How much
does the spending has increased or decreased?)
𝑆𝑝𝑒𝑛𝑑𝑖𝑛𝑔 𝑤ℎ𝑎𝑡 𝑦𝑜𝑢 𝑤𝑎𝑛𝑡 𝑡𝑜 𝑐𝑜𝑚𝑝𝑎𝑟𝑒 𝑆𝑝𝑒𝑛𝑑𝑖𝑛𝑔 𝑖𝑛 2010 686,9
∗ 100 = ∗ 100 = ∗ 100 = 98,52
𝐵𝑎𝑠𝑖𝑐 𝑠𝑝𝑒𝑛𝑑𝑖𝑛𝑔 𝑆𝑝𝑒𝑛𝑑𝑖𝑛𝑔 𝑖𝑛 2011 697,2

Year
2010 2011 2012
Household
686,9 697,2 723,7
spending
Index number 98,52 100 103,8

Inflation:
The annual rate of inflation is the average percentage change in a given selection of these goods
and services, over the previous year. Economist distinguish nominal and real data. Nominal data
are the original, raw data. Real data are the values that have been adjusted to take inflation into
account.
Year
1991 1992 1993 1994
Average house price (thousands) 89 93 100 106
Annual rate of inflation 10,7% 7,1% 3,5% 2,3%
Nominal house price 1991 house
? ? ? ?
price

Choose 1991 as the base year and calculate the value of the house at ‘1991 prices’. Therefore, the
value at the end of 1991 is the same $89 000, since no adjustment need to be made.
At the end of 1992, the house is worth $ 93 000. However, the inflation was 7,1%. To adjust this
price to ‘1991 prices’ we simply divide by the scale factor.
107,1
100% + 7,1% = 107,1% → = 1,071 (𝑆𝑐𝑎𝑙𝑒 𝑓𝑎𝑐𝑡𝑜𝑟).
100

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𝐴𝑣𝑒𝑟𝑎𝑔𝑒 ℎ𝑜𝑢𝑠𝑒 𝑝𝑟𝑖𝑐𝑒 93 000

= = 86 835
𝑆𝑐𝑎𝑙𝑒 𝑓𝑎𝑐𝑡𝑜𝑟 1,071

At the end of 1993, the house is worth $ 100 000. However, the inflation was from 1991 7,1% +
3,5%. To adjust this price to ‘1991 prices’ we simply divide by the scale factors (The scale factor
in 1992 → 1,071 and the new scale factor).
103,5
100% + 3,5% = 103,5% → = 1,035 (𝑆𝑐𝑎𝑙𝑒 𝑓𝑎𝑐𝑡𝑜𝑟).
100

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 ℎ𝑜𝑢𝑠𝑒 𝑝𝑟𝑖𝑐𝑒 100 000 100 000

= = = 90 213
𝑆𝑐𝑎𝑙𝑒 𝑓𝑎𝑐𝑡𝑜𝑟𝑠 1,071 ∗ 1,035 1,1085

At the end of 1994, the house is worth $ 106 000. However, the inflation was from 1991 7,1% +
3,5% + 2,3%. To adjust this price to ‘1991 prices’ we simply divide by the scale factors (The old
scale factors in 1992 → 1,071, in 1993 → 1,035 and the new scale factor).
102,3
100% + 2,3% = 102,3% → = 1,023 (𝑆𝑐𝑎𝑙𝑒 𝑓𝑎𝑐𝑡𝑜𝑟).
100

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 ℎ𝑜𝑢𝑠𝑒 𝑝𝑟𝑖𝑐𝑒 106 000 106 000

= = = 93 476
𝑆𝑐𝑎𝑙𝑒 𝑓𝑎𝑐𝑡𝑜𝑟𝑠 1,071 ∗ 1,035 ∗ 1,023 1,133

Year
1991 1992 1993 1994
Average house price (thousands) 89 93 100 106
Annual rate of inflation 10,7% 7,1% 3,5% 2,3%
Nominal house price 1991 house
89 87 90 93
price

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13. Section 3.2 – Compound interest

Abbreviation Name
P Principal
r Rate
S value
n Number of periods
Explanation
The original amount of money (what you have lent)
Rate is the interest rate per period.
The final sum of money (usually at the end of the period)
The payment periods in the investment (year, month, semi-
annual…etc)

We can differentiate two type of interest the simple and the compound.
What is the difference between simple and compound interest?
Simple interest: The interest which is paid directly to the investor instead of being added to
the original amount.
𝑟
S= 𝑃(1 + 100)

Compound interest: The interest, which is added on to the initial investment, so that this
will itself gain interest in subsequent time periods. So compound interest is ‘interest on the
interest’.
𝑟 𝑛
S= 𝑃 (1 + 100)

Almost every financial investment use compound rather than simple interest!

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14. Section 4.1 – The derivative of a function

∆𝒚
Slope = ∆𝒙 :
∆𝑦
>0 Positive slope → Uphill
∆𝑥
∆𝑦
<0 Negative slope → Downhill
∆𝑥
∆𝑦
=0 Zero slope → Horizontal
∆𝑥

The straight line which passes through a point on a curve and which just touches the curve at this
point is called a tangent. The slope of a curve at x = a is then defined to be that of the tangent x =
a. However, the slope of a curve varies as we move along it. In mathematic we use the symbol
f’(a) read’ ‘f dashed of a’
to represent the slope of the function f at x=a.
The slope of the graph of a function is called the derivative of the function. The f’(x) slope function
is usually referred to as the derived function. An alternative notation for the derived function is
∆𝑦 𝑑𝑦
= 𝑑𝑥 read ‘dee y by dee x’ (d=∆=Delta Greek word)
∆𝑥

An easy way to find f’(x) when f is a power function!

f(x) = xn then f’(x) = nxn-1
or you can write it differently (but it means the same)
𝑑𝑦
y = xn then = 𝑛𝑥 𝑛−1
𝑑𝑥

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15. Section 4.2 – Rules of differentiation

Good to know!
𝑑𝑦
First-order derivative f’(x) or → this will give the slope of a function
𝑑𝑥

𝑑2 𝑦
Second-order derivative f”(x) or → this will give the ‘slope of the slope’
𝑑𝑥 2

First-order derivative Second-order derivative

0< f’(x) → Uphill slope f”(x) → Bends upwards (the parabola is convex)
0= f’(x) → Horizontal slope f”(x) → Straight line
0> f’(x) → Downhill slope f”(x) → Bends downwards (the parabola is concave)

Further information in section 4.4.

16. Section 4.3 – Marginal functions

Revenue
The total revenue function is defined to be PQ, where P is the price and Q is the quantity demanded.
TR = PQ and
P = 100-2Q then,
TR = P*Q = (100-2Q)*Q = 100Q – 2Q2.
We are also interested, what is going to be the affect in TR when you are changing the Q, and the
marginal revenue (MR)7 will help with that.
𝛥𝑇𝑅 𝑇𝑅2 − 𝑇𝑅1
𝑀𝑅 = =
𝛥𝑄 𝑄2 − 𝑄1

You can rearrange the MR equation depending on what do you have as unknown:
𝛥𝑇𝑅
𝛥𝑇𝑅 = 𝑀𝑅 ∗ 𝛥𝑄 or 𝛥𝑄 = 𝑀𝑅

Marginal revenue is the derivative of total revenue with respect to demand.

𝑻𝑹′ = 𝑴𝑹

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Marginal revenue: This will show how much is your revenue going to be if you will produce one more
unit.
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For instance
if TR = PQ , where
P = 100-2Q ,then
TR = (100-2Q)*Q = 100Q – 2Q2.
So MR = TR’.
TR’ = 100*1*Q1-1 – 2*2*Q2-1
TR’ = 100Q0 – 4Q1 → Q0 =1
TR’ = 100*1 – 4Q
TR’ =MR = 100 – 4Q
Average revenue:
𝑇𝑅
𝐴𝑅 = 𝑄

but, since the TR = PQ, therefore you can write that,

𝑃𝑄
𝐴𝑅 = =𝑃
𝑄
You can use exactly the same principle for other economic functions. For instance, we define the
Marginal Cost (MC) by
𝛥𝑇𝐶 𝑇𝐶2−𝑇𝐶1
𝑀𝐶 = =
𝛥𝑄 𝑄2−𝑄1

You can rearrange the MR equation depending on what do you have as unknown:
𝛥𝑇𝐶
ΔTC=MC * ΔQ or 𝛥𝑄 = 𝑀𝐶

Marginal cost is the derivative of total costs with respect to demand.

TC' = MC

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17. Section 4.4 – Further rules of differentiation (Katrín)

There are 5 rules.
1) The sum/difference rule - If you have to functions and there is a sum or a difference
between this to functions then you have to differentiate separately. Fx:

𝑓(𝑥) = 𝑔(𝑥) ± ℎ(𝑥)

To differentiate this function, we do that separately…

𝑓 ′ (𝑥) = 𝑔′ (𝑥) ± ℎ′ (𝑥)

Example 1) drag down in front and multiply

𝑓(𝑥) = 𝑥 2 + 𝑥 3 (=) 𝑓 ′ (𝑥) = 2𝑥 + 3𝑥^2

Then remember to minus the (power to) with 1

2) The constant rule - If we have a function with a constant (k) and it is multiplying then it
stays the same.

Fx) 𝑓(𝑥) = 𝑘 ∗ 𝑔(𝑥) 𝑓 ′ (𝑥) = 𝑘 ∗ 𝑔′ (𝑥)

Example 2) 𝑓(𝑥) = 5 ∗ 𝑥 3 (=) 𝑓 ′ (𝑥) = 5 ∗ 3𝑥 2 = 15𝑥 2

3) The product rule - This rule helps you when you have two functions multiplying each
other. When you have two functions multiplying each other it is called a product and
therefore you apply the “product rule” which states that if one wants to differentiate to
functions that are multiplying each other, you start by differentiating the first one then
multiply it with the second one un-differentiated plus and do the opposite.

𝑓(𝑥) = 𝑔(𝑥) ∗ ℎ(𝑥) (=) 𝑓 ′ (𝑥) = 𝑔′ (𝑥) ∗ ℎ(𝑥) + 𝑔(𝑥) ∗ ℎ′(𝑥)

Example 3) 𝑓(𝑥) = 𝑥 ∗ 𝑒 𝑥 (=) 𝑓 ′ (𝑥) = 1 ∗ 𝑒 𝑥 + 𝑥 ∗ 𝑒 𝑥 = 𝑒 𝑥 (1 + 𝑥)

A rule in a rule….. e^x differentiated is e^x, it does not change.

4) The quotient rule - Rules for fractions.

𝑔(𝑥)
𝑓(𝑥) = ℎ(𝑥) where h(x) ≠ 0 coz you can’t divide with 0

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𝑔′ (𝑥) ∗ ℎ(𝑥) − 𝑔(𝑥) ∗ ℎ′(𝑥)

𝑓 ′ (𝑥) = 2
(ℎ(𝑥))

This is the answer…. Yeah ok… you start by differentiating the numerator g(x) and
multiplying with the denominator un-differentiated h(x) subtract that from the opposite,
this means like in rule 3, that now the numerator g(x) does NOT get differentiated but
multiplied with the denominator h’(x) that IS differentiated. All of this then gets divided
with the denominator un-differentiated but uplifted to the power of 2.

𝑥 1∗𝑒 𝑥 −𝑥∗𝑒 𝑥
Example 4) 𝑓(𝑥) = 𝑒 𝑥 (=) 𝑓 ′ (𝑥) =
(𝑒 𝑥 )2

And again, a rule in a rule where e^x does not change.

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5) Compound functions:
This is going to sound so confusing but try to hang in there….

′
(𝑓(𝑔(𝑥))) = 𝑓 ′ (𝑔(𝑥)) ∗ 𝑔′(𝑥)

Ok…. You have a compound function where f affects g that affects x that is the definition of a
compound function. You start by differentiating f in view of g

And after one must multiply g separately in view of x

Example 5) 𝑓(𝑥) = (2𝑥 + 3)8 This is two functions in one. 2x+3 is a linear
function and this lineary function has been uplifted to the power of 8, which is a function by itself
in that you have something uplifted to the power of 8. Now we will differentiate this using the
rule above:

𝑓 ′ (𝑥) = 8(2𝑥 + 3)7 we still ned the last part and that is the lineary function 2x+3 and when we
differentiated it, it only gives 2 because you are trying to find the slope and in the rule y=ax+b the
ax is the slope. So to finish you multiply the function with 2 so….

𝑓 ′ (𝑥) = 8(2𝑥 + 3)7 ∗ 2 = 16(2𝑥 + 3)7

Hope this helps you guys in the exam 😊

Your classmate Katrín Emma Hjaltadóttir

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18. Section 4.6 – Optimization of economic functions

In this section we would like to find out more about the quadratic functions.
f(x) = ax2 + bx + c
We can describe this function as a parabola. A parabola can have either a maximum point (left
graph) or a minimum point (middle graph). These points occur, when the parabola bends.
A parabola has stationary points, which also known as critical point, turning point or extrema.
These are the point on a graph at which the tangent (first derivatives) is zero, so basically stationary
point is when the graph has its turning point. Stationary points are the minimum, the maximum
and the (stationary point of) inflection. (See the graphs below)
Stationary points

When the stationary point occurs the first derivatives of the function is 0.
f’(x) = 0
It can be shown that if a function has a stationary point at x=a, then
Second-order derivative

0< f”(x) → Bends upwards → the parabola is convex → U shape → minimum point at x = a

0= f”(x) → the point cannot be classified using the available information

0> f”(x) → Bends downwards → the parabola is concave → ∩ shape → maximum point at x = a

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For instance:
f(x) = x2 – 4x + 5
Step 1:
Differentiate it once
f’(x) = 2*x2-1 – 4*1*x1-1 + 0
f’(x) = 2*x1 – 4*x0 → x0 = 1
f’(x) = 2x – 4*1
f’(x) = 2x – 4
Now the question is: does this graph has a stationary point? In order to find out we know that the
stationary point occurs when f’(x) = 0, so we will solve this equation!
f’(x) = 2x – 4 → f’(x) = 0
0 = 2x - 4 Add 4
4 = 2x Divide by 2
2=x
So now we know that that the graph has a stationary point, when the x coordinates equal with 2.
(x = 2)
Step 2:
Differentiate the function twice:
f(x) = x2 – 4x + 5
f’(x) = 2x – 4
f” (x) = 2*1*x1-1 – 0
f” (x) = 2*x0 → x0 = 1
f” (x) = 2*1
f” (x) = 2
We know it before that x=2, so
f” (2) = 2
This number is positive, so the function has a minimum at x = 2 (← this number coming from the
first-derivative). The next step to find out what is the second coordinate of the stationary point.
f(x) = x2 – 4x + 5

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Usually you can find the y coordinate if you replace f(x) with y, thus
f(x) = y = x2 – 4x + 5
and you also know that x = 2, so
y = 22 – 4*2 + 5
y=4–8+5
y = 9-8
y=1
So, the minimum point of the graphs is at the point of (2;1).

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19. Section 4.8 – The derivative of the exponential and natural

logarithm

Exponential function: → Differentiate (exponential)

y = emx 𝑑𝑦
= 𝑚𝑒 𝑚𝑥
𝑑𝑥

In particular, we see by setting m = 1 that ex differentiates to ex.

Natural logarithm: → Differentiate (logarithm)

y = ln mx 𝑑𝑦 1 𝟏
= 𝑚𝑥 x 𝑚 = 𝒙
d𝑥
𝟏
In particular, we see by setting m = 1 that lnx differentiates to 𝒙.

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20. Section 6.1 – Indefinite integration

As you many operations have a pair, which could cancel each other, like
+ vs. -
* vs. /
√ vs. ()2

Differentiation ( ‘) also has a pair, what we call integration (∫ ).

f’(x) vs. ∫ 𝑓(𝑥)
Integral / Anti-derivative / Primitive: A function whose derivative is a given function.
About integration:
Constant of integration:

F(x) + c → ∫ 𝑓(𝑥) 𝑑𝑥 = 𝐹(𝑥) + 𝒄

(Basically, it does not matter what kind of number is stated in f(x), the main thing, that you
will NOT forget to write ‘+ c’, after each integration!)
General rule:
𝟏
f(x) = xn → ∫ 𝑥 𝑛 𝑑𝑥 = 𝒙𝒏+𝟏 + 𝒄
𝒏+𝟏
1 𝟏
f(x) = x6 → ∫ 𝑥 6 𝑑𝑥 = 6+1 𝑥 6+1 + 𝑐 = 𝟕 𝒙𝟕 + 𝒄

Natural logarithm:
1 1
f(x) = 𝑥 → ∫ 𝑥 𝑑𝑥 = 𝐥𝐧 𝒙 + 𝒄

Exponential:
𝟏
f(x) = emx → ∫ 𝑒 𝑚𝑥 𝑑𝑥 = 𝒎 𝒆𝒎𝒙 + 𝒄

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There are tree rules in the differentiation, which are combined into a single rule in the
integration:
∫[𝒂𝒇(𝒙) + 𝒃𝒈 (𝒙)]𝒅𝒙 = 𝒂 ∫ 𝒇(𝒙)𝒅𝒙 + 𝒃 ∫ 𝒈(𝒙)𝒅𝒙

Example: ∫(2𝑥 2 − 4𝑥 6 )𝑑𝑥 , so according to the rule, we have to solve the following:

∫(2𝑥 2 − 4𝑥 6 )𝑑𝑥 = 2 ∫ 𝑥 2 𝑑𝑥 − 4 ∫ 𝑥 6 𝑑𝑥

It will be easier, if we will do the two integrations (green, red) separately: (using the general rule)
1
∫ 𝑥 𝑛 𝑑𝑥 = 𝑛+1 𝑥 𝑛+1 + 𝑐
1 𝟏
∫ 𝑥 2 𝑑𝑥 → I can see that n = 2, therefore ∫ 𝑥 2 𝑑𝑥 = 2+1 𝑥 2+1 + 𝑐 = 𝟑 𝒙𝟑 + 𝒄
1 𝟏
∫ 𝑥 6 𝑑𝑥 → I can see that n = 6, therefore ∫ 𝑥 6 𝑑𝑥 = 6+1 𝑥 6+1 + 𝑐 = 𝟕 𝒙𝟕 + 𝒄

Since, you have integrated both, now you cannot forget the multiplication before them.
(You are going to take the results, what you got and just multiply it with the given number)
1 2
2 ∫ 𝑥 2 𝑑𝑥 = 2 ∗ 3 𝑥 3 + 𝑐 = 3 𝑥 3 + 𝑐

1 4
4 ∫ 𝑥 6 𝑑𝑥 = 4 ∗ 𝑥 7 + 𝑐 = 𝑥 7 + 𝑐
7 7
Finally, we merge them! (Hint: ‘+c’, needed to mention only once)
𝟐 𝟒
∫(2𝑥 2 − 4𝑥 6 )𝑑𝑥 = 𝒙𝟑 − 𝒙𝟕 + 𝒄
𝟑 𝟕
Good to know!
Order:
Integration separately
Check the coefficient
Merge them (‘+C’ is enough once)

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