PHASE

DIAGRAM II
Mathematical Methods in Economics II
Economics Core Course IV : ECOA-CC-2-
4-Th-Tu
Semester II
Anupa Ghosh
E-mail queries to:
anupa.ghosh@thebges.edu.in

1
STUDY MATERIAL FOR CLASS ON
22.05.2020
Source: Chiang, A.C. (1984): Fundamental Methods of Mathematical
Economics; Mc-Graw Hill Book Company; Singapore
Source: Hoy et. al. (2011): Mathematics for Economics; PHI Learning Pvt
Ltd.; New Delhi

2
LINEAR PHASE DIAGRAMS
• Consider the following equations:
𝑦ሶ 1 = −2𝑦1 + 2
𝑦ሶ 2 = −3𝑦2 + 6
The solution to the above system is:
𝑦1 𝑡 = 𝐶1 𝑒 −2𝑡 + 1
𝑦2 𝑡 = 𝐶2 𝑒 −3𝑡 + 2
Here, both the time paths are converging. So 𝑦1 (𝑡) converges to
the steady state equilibrium 𝑦ത1 = 1 and 𝑦2 (𝑡) converges to the
steady state equilibrium 𝑦ത2 = 2 as 𝑡 → ∞

3
LINEAR PHASE DIAGRAMS
Assume that, 𝑦1 0 = 3 and 𝑦2 0 = 0.5, are the initial conditions
Therefore, the trajectories of 𝑦1 𝑡 and 𝑦2 𝑡 are:

The above explicit solutions is not always available. Hence we

take recourse to phase diagrams.
4
LINEAR PHASE DIAGRAMS for BOTH ROOTS
NEGATIVE – STABLE NODE (contd.)
• A phase diagram for any system of two differential equations
is drawn on a two dimensional (𝑦1 , 𝑦2 ) phase plane. For the
above example, the phase
𝑦ሶ = 0
plane is as follows:
𝑦2 1

2 𝑦ሶ 2 = 0

0 1 𝑦1

5
LINEAR PHASE DIAGRAMS for BOTH ROOTS
NEGATIVE – STABLE NODE (contd.)
𝑑𝑦𝑖
• In the phase plane, = 𝑦ሶ 𝑖 = 0, ∀ 𝑖 = 1,2, shows the steady
𝑑𝑡
state equilibrium. Equilibrium is a state which continues into
perpetuity until forced out of it.
𝑑𝑦1
• If we concentrate on 𝑦1 , then , = 𝑦ሶ 1 = 0; is the line 𝑦1 = 1
𝑑𝑡
• This line is called the isocline
• An isocline divides the phase plane into two sectors, the
isosectors.

6
LINEAR PHASE DIAGRAMS for BOTH ROOTS
NEGATIVE – STABLE NODE (contd.)
• To the left of the isocline 𝑦ሶ 1 = 0, 𝑦1 < 1
i.e., 𝑦ሶ 1 = −2𝑦1 + 2 > 0
i.e., with time 𝑦1 is rising
• To the right of the isocline 𝑦ሶ 1 = 0, 𝑦1 > 1
i.e., 𝑦ሶ 1 = −2𝑦1 + 2 < 0
i.e., with time 𝑦1 is falling
• Hence, the motion of 𝑦1 can be determined and is indicated
by the horizontal arrowheads

7
LINEAR PHASE DIAGRAMS for BOTH ROOTS
NEGATIVE – STABLE NODE (contd.)
• The isocline 𝑦ሶ 2 = 0, can be similarly interpreted
• Below the isocline 𝑦ሶ 2 = 0, 𝑦2 < 2
i.e.,𝑦ሶ 2 = −3𝑦2 + 6 > 0
i.e., with time 𝑦2 is rising
• Above the isocline 𝑦ሶ 2 = 0, 𝑦2 > 2
i.e.,𝑦ሶ 2 = −3𝑦2 + 6 < 0
i.e., with time 𝑦2 is falling
• Hence, the motion of 𝑦2 can be determined and is indicated by the
horizontal arrowheads

8
LINEAR PHASE DIAGRAMS for BOTH ROOTS
NEGATIVE – STABLE NODE (contd.)
• The arrows of motion shows what the trajectories in a phase
plane looks like
• The arrowhead also indicates whether they move towards the
steady state (i.e. stable equilibrium) or away from it (i.e.
unstable equilibrium)
• A trajectory in the (𝑦1 , 𝑦2 ) phase plane is the path followed by
the pair {𝑦1 𝑡 , 𝑦2 𝑡 }. Though time is not an explicit variable
shown in the phase plane, the passage of time is inherent in
the trajectory.

9
LINEAR PHASE DIAGRAMS for BOTH ROOTS
NEGATIVE – STABLE NODE (contd.)
• So, as indicated by the arrows of motion, the trajectories for
our example are,
𝑦2 𝑦ሶ 1 = 0

2 𝑦ሶ 2 = 0

0 1 𝑦1

10
LINEAR PHASE DIAGRAMS for BOTH ROOTS
NEGATIVE – STABLE NODE (contd.)
• For a simultaneous dynamic system, in which both roots are
negative (e.g., -2 and -3 in the given example), then
irrespective of the initial values, the paths will converge to
steady state.
• Therefore, in the above diagram, all trajectories converge
asymptotically to the steady state.
• This type of equilibrium is called a stable node.

11
STUDY MATERIAL FOR CLASS ON
23.05.2020
Source: Chiang, A.C. (1984): Fundamental Methods of Mathematical
Economics; Mc-Graw Hill Book Company; Singapore
Source: Hoy et. al. (2011): Mathematics for Economics; PHI Learning Pvt
Ltd.; New Delhi

12
LINEAR PHASE DIAGRAMS for BOTH ROOTS
POSITIVE – UNSTABLE NODE
• Consider the following equations:
𝑦ሶ 1 = 2𝑦1 − 2
𝑦ሶ 2 = 3𝑦2 − 6
• The solution to the above system is:
𝑦1 𝑡 = 𝐶1 𝑒 2𝑡 + 1
𝑦2 𝑡 = 𝐶2 𝑒 3𝑡 + 2
Here, both the time paths are not converging. Both 𝑦1 (𝑡) and
𝑦2 (𝑡) will move away from their respective steady state
equilibrium 𝑦ത1 = 1 and 𝑦ത2 = 2 as 𝑡 → ∞

13
LINEAR PHASE DIAGRAMS for BOTH ROOTS
POSITIVE – UNSTABLE NODE (contd.)
• A phase diagram for this system will again be constructed as
before on a two dimensional (𝑦1 , 𝑦2 ) phase plane. For the
above example, the phase plane is as follows:
𝑦2 𝑦ሶ 1 = 0

2 𝑦ሶ 2 = 0

0 1 𝑦1

14
LINEAR PHASE DIAGRAMS for BOTH ROOTS
POSITIVE – UNSTABLE NODE
In this phase diagram,
• To the left of the isocline 𝑦ሶ1 = 0, 𝑦1 < 1
i.e., 𝑦ሶ1 = 2𝑦1 − 2 < 0
i.e., with time 𝑦1 is falling
• To the right of the isocline 𝑦ሶ1 = 0, 𝑦1 > 1
i.e., 𝑦ሶ1 = 2𝑦1 − 2 > 0
i.e., with time 𝑦1 is rising
• Hence, the motion of 𝑦1 can again be determined and is indicated
by the horizontal arrowheads

15
LINEAR PHASE DIAGRAMS for BOTH ROOTS
POSITIVE – UNSTABLE NODE (contd.)
• The isocline 𝑦ሶ 2 = 0, can be similarly interpreted
• Below the isocline 𝑦ሶ 2 = 0, 𝑦2 < 2
i.e.,𝑦ሶ 2 = 3𝑦2 − 6 < 0
i.e., with time 𝑦2 is falling
• Above the isocline 𝑦ሶ 2 = 0, 𝑦2 > 2
i.e.,𝑦ሶ 2 = 3𝑦2 − 6 > 0
i.e., with time 𝑦2 is rising
• Hence, again the motion of 𝑦2 can be determined and is indicated
by the horizontal arrowheads

16
LINEAR PHASE DIAGRAMS for BOTH ROOTS
POSITIVE – UNSTABLE NODE (contd.)
• So, as indicated by the arrows of motion, the trajectories for
our example are,

𝑦2 𝑦ሶ 1 = 0

2 𝑦ሶ 2 = 0

0 1 𝑦1

17
LINEAR PHASE DIAGRAMS for BOTH ROOTS
POSITIVE – UNSTABLE NODE (contd.)
• For a simultaneous dynamic system, in which both roots are
positive (e.g., 2 and 3 in the given example), then irrespective
of the initial values, the paths will diverge away from the
steady state.
• Therefore, in the above diagram, all trajectories diverge
asymptotically away from the steady state.
• This type of equilibrium is called an unstable node.

18
STUDY MATERIAL FOR CLASS ON
29.05.2020
Source: Chiang, A.C. (1984): Fundamental Methods of Mathematical
Economics; Mc-Graw Hill Book Company; Singapore
Source: Hoy et. al. (2011): Mathematics for Economics; PHI Learning Pvt
Ltd.; New Delhi

19
LINEAR PHASE DIAGRAMS for ROOTS OF
OPPOSITE SIGN – SADDLE POINT
• Consider the following equations:
𝑦ሶ1 = 𝑦2 − 2 … … … … … . (1)
𝑦1 1
𝑦ሶ 2 = − … … … … … . (2)
4 2
• The solve the above system, from (1) we have,
𝑦ሶ1 = 𝑦2 − 2
Differentiating w.r.t. we get,
𝑦1 1
𝑦ሷ1 = 𝑦ሶ 2 = − ; from 2 … … … (3)
4 2
Let the trial solution be, 𝑦1 = 𝐴𝑒 𝑟𝑡
Hence, 𝑦ሶ1 = 𝑟𝐴𝑒 𝑟𝑡 𝑎𝑛𝑑, 𝑦ሷ1 = 𝑟 2 𝐴𝑒 𝑟𝑡
20
LINEAR PHASE DIAGRAMS for ROOTS OF
OPPOSITE SIGN – SADDLE POINT (contd.)
Substituting in the reduced form of the equation (3) we get,
𝑟𝑡 2
1
𝐴𝑒 𝑟 − =0
4
1 1
So the characteristic roots are, (𝑟 =+ ,− ) which are of
2 2
opposite sign
Note that from equation (1) we can say that, 𝑦1 is in equilibrium,
i.e., 𝑦ሶ 1 = 0, when 𝑦2 = 2
Similarly, from equation (2) we can say that 𝑦2 is in equilibrium,
𝑦1 1
i.e., 𝑦ሶ 2 = 0, when = i.e., when 𝑦1 = 2
4 2
21
LINEAR PHASE DIAGRAMS for ROOTS OF
OPPOSITE SIGN – SADDLE POINT (contd.)
• A phase diagram for this system will again be constructed as
before on a two dimensional (𝑦1 , 𝑦2 ) phase plane. For the
above example, the phase plane is as follows:
𝑦2 𝑦ሶ 2 = 0

2 𝑦ሶ 1 = 0

0 2 𝑦1

22
LINEAR PHASE DIAGRAMS for ROOTS OF
OPPOSITE SIGN – SADDLE POINT (contd.)
In this phase diagram,
• Below the isocline 𝑦ሶ1 = 0, 𝑦2 < 2
i.e., 𝑦ሶ1 = 𝑦2 − 2 < 0
i.e., with time 𝑦1 is falling
• Above the isocline 𝑦ሶ1 = 0, 𝑦2 > 2
i.e., 𝑦ሶ1 = 𝑦2 − 2 > 0
i.e., with time 𝑦1 is rising
• Hence, the motion of 𝑦1 can be determined and is indicated by the
horizontal arrowheads

23
LINEAR PHASE DIAGRAMS for ROOTS OF
OPPOSITE SIGN – SADDLE POINT (contd.)
Similarly, we find that,
• To the left of the isocline 𝑦ሶ 2 = 0, 𝑦1 < 2
𝑦1 1
i.e.,𝑦ሶ 2 = − < 0
4 2
i.e., with time 𝑦2 is falling
• To the right of the isocline 𝑦ሶ 2 = 0, 𝑦1 > 2
𝑦1 1
i.e.,𝑦ሶ 2 = − > 0
4 2
i.e., with time 𝑦2 is rising
• Hence, the motion of 𝑦2 can again be determined and is indicated
by the horizontal arrowheads

24
LINEAR PHASE DIAGRAMS for ROOTS OF
OPPOSITE SIGN – SADDLE POINT (contd.)
• A phase diagram for this system will again be constructed as
before on a two dimensional (𝑦1 , 𝑦2 ) phase plane. For the
above example, the phase plane is as follows:
𝑦2 𝑦ሶ 2 = 0
c

2 e 𝑦ሶ 1 = 0

0 2 𝑦1

25
LINEAR PHASE DIAGRAMS for ROOTS OF
OPPOSITE SIGN – SADDLE POINT (contd.)
• Consider an arbitrary starting point a.
• At a the arrowheads indicate that 𝑦1 is falling and 𝑦2 is rising.
• Therefore, the resultant motion/trajectory is north-westerly.
• The resultant trajectory nears 𝑦1 isocline where 𝑦ሶ 1 = 0, the motion of 𝑦1 slows down but
𝑦2 continues to increase. As a result the trajectory bends upward.
• As it crosses the 𝑦1 isocline, 𝑦1 is stationary momentarily, though 𝑦2 continues to
increase. As a result the trajectory is vertical at the crossing.
• From this point the trajectory proceeds to a new isosector where both 𝑦1 and 𝑦2 are
both increasing
• So the trajectory now bends backwards and proceeds in a north-easterly direction.
• With time it continues to stay in this sector while continuously moving away from the
steady state at e.

26
LINEAR PHASE DIAGRAMS for ROOTS OF
OPPOSITE SIGN – SADDLE POINT (contd.)
• Consider an arbitrary starting point b.
• At b again the arrowheads indicate that 𝑦1 is falling and 𝑦2 is rising.
• Therefore, the resultant motion/trajectory is again north-westerly.
• However, the resultant trajectory moves closer to the 𝑦2 isocline where 𝑦ሶ 2 = 0, the
motion of 𝑦2 slows down but 𝑦1 continues to fall. As a result the trajectory bends
backward.
• As it crosses the 𝑦2 isocline, 𝑦2 is stationary momentarily, though 𝑦1 continues to
decrease. As a result the trajectory is horizontal at the crossing.
• From this point the trajectory proceeds to a new isosector where both 𝑦1 and 𝑦2 are
both decreasing
• So the trajectory now bends backwards and proceeds in a south-westerly direction.
• With time it continues to stay in this sector while continuously moving away from the
steady state at e.

27
LINEAR PHASE DIAGRAMS for ROOTS OF
OPPOSITE SIGN – SADDLE POINT (contd.)
• Similarly, the trajectories from the starting points c and d can
be developed.
• The four arbitrarily chosen trajectories, verify that most
trajectories end up diverging from a steady state.
• This type of equilibrium is called a saddle-point equilibrium.

28
STUDY MATERIAL FOR CLASS ON
30.05.2020
Source: Chiang, A.C. (1984): Fundamental Methods of Mathematical
Economics; Mc-Graw Hill Book Company; Singapore
Source: Hoy et. al. (2011): Mathematics for Economics; PHI Learning Pvt
Ltd.; New Delhi

29
PHASE DIAGRAM for COMPLEX ROOTS with
NEGATIVE REAL PARTS – STABLE FOCUS
• Consider the following equations,
𝑦ሶ1 = −𝑦2 + 2 … … … … … … … (1)
𝑦ሶ 2 = 𝑦1 − 𝑦2 + 1 … … … … … . (2)
• To solve for the characteristic roots, we consider the following reduced
form equation,
𝑦ሶ1 0 −1 𝑦1
=
𝑦ሶ 2 1 −1 𝑦2
Solving, the characteristic roots are obtained as,
1 3
𝑟1 , 𝑟2 = − ± 𝑖
2 2
• The steady state solutions are, 𝑦ത1 = 1 𝑎𝑛𝑑 𝑦ത2 = 2

30
 PHASE DIAGRAM for COMPLEX ROOTS with
NEGATIVE REAL PARTS – STABLE FOCUS (contd.)
• Therefore, the complete solutions are,
− 𝑡Τ 3 3
✓𝑦1 𝑡 = 𝑒 2 𝐴1 cos 𝑡 + 𝐴2 sin 𝑡 +1
2 2

− 𝑡Τ 𝐴1 3 3 𝐴2 3 3
✓𝑦2 𝑡 = −𝑒 2 [ − + 𝐴2 cos 𝑡 + − − 𝐴1 sin 𝑡 +2
2 2 2 2 3 2

31
PHASE DIAGRAM for COMPLEX ROOTS with
NEGATIVE REAL PARTS – STABLE FOCUS (contd.)
• A phase diagram for this system will again be constructed as
before on a two dimensional (𝑦1 , 𝑦2 ) phase plane. For the
above example, the phase plane is as follows:
𝑦2 𝑦ሶ 2 = 0

2 𝑦ሶ 1 = 0

0 1 𝑦1

32
PHASE DIAGRAM for COMPLEX ROOTS with
NEGATIVE REAL PARTS – STABLE FOCUS (contd.)
In this phase diagram,
• Below the isocline 𝑦ሶ1 = 0, 𝑦2 < 2
i.e., 𝑦ሶ1 = −𝑦2 + 2 > 0
i.e., with time 𝑦1 is rising
• Above the isocline 𝑦ሶ1 = 0, 𝑦2 > 2
i.e., 𝑦ሶ1 = −𝑦2 + 2 < 0
i.e., with time 𝑦1 is falling
• Hence, the motion of 𝑦1 can be determined and is indicated by the
horizontal arrowheads

33
PHASE DIAGRAM for COMPLEX ROOTS with
NEGATIVE REAL PARTS – STABLE FOCUS (contd.)
• To determine the motion for 𝑦2 , consider the following
✓Now, 𝑦ሶ 2 = 𝑦1 − 𝑦2 + 1
✓The 𝑦2 isocline is along the line, 𝑦2 = 𝑦1 + 1; which has an
intercept 1 and slope 1.
✓Note that here 𝑦ሶ 2 is now dependent both on the values of 𝑦1 and
𝑦2
✓Begin with an arbitrary point on the isocline. Holding 𝑦2 constant
as one moves horizontally right, 𝑦1 increases. Thus the differential
equation indicates that 𝑦ሶ 2 rises since 𝑦1 is rising while 𝑦2 is constant
✓Similarly, beginning with any arbitrary point on the isocline if one
moves horizontally to the left while holding 𝑦2 constant, 𝑦1
decreases. Thus the differential equation indicates that 𝑦ሶ 2 fallss
since 𝑦1 is falling while 𝑦2 is constant
34
PHASE DIAGRAM for COMPLEX ROOTS with
NEGATIVE REAL PARTS – STABLE FOCUS (contd.)
• To determine the motion for 𝑦2 , consider the following (contd.)
✓Here, 𝑦ሶ 2 = 𝑦1 − 𝑦2 + 1.
✓Therefore, the motion of 𝑦2 can be determined by taking the
partial derivative of 𝑦ሶ 2 w.r.t. 𝑦1 , i.e., by noting the change in
𝑦ሶ 2 when 𝑦1 changes while 𝑦2 remains constant.
𝜕𝑦ሶ 2
✓Hence, we get, =1>0
𝜕𝑦1
✓Therefore, as one moves horizontally to the right (left) on the phase
plane, 𝑦ሶ 2 increases (decreases).
✓Thus, 𝑦ሶ 2 > 0 to the right of the 𝑦2 isocline and 𝑦ሶ 2 < 0 to the left of
the 𝑦2 isocline.

35
PHASE DIAGRAM for COMPLEX ROOTS with
NEGATIVE REAL PARTS – STABLE FOCUS (contd.)
• The arrows of motion suggest that the trajectories might be
spirals as follows.

𝑦2 𝑦ሶ 2 = 0

2 𝑦ሶ 1 = 0

0 1 𝑦1

36
PHASE DIAGRAM for COMPLEX ROOTS with
NEGATIVE REAL PARTS – STABLE FOCUS (contd.)
• In the above phase diagram, there is nothing to indicate
whether the spirals are converging to or moving away from
the steady state.
• However, since, the real parts of the characteristic roots are
negative, the spirals are converging.
• Such a steady state equilibrium is called a stable focus.

37
PHASE DIAGRAM for COMPLEX ROOTS with
POSITIVE REAL PARTS – UNSTABLE FOCUS
• Consider the following:
𝑦ሶ1 = 2𝑦1 + 5𝑦2 + 2
1
𝑦ሶ 2 = − 𝑦1 − 𝑦2 − 5
2
• To solve for the characteristic roots, we consider the following
reduced form equation,
𝑦ሶ1 2 5 𝑦1
=
𝑦ሶ 2 −0.5 −1 𝑦2
Solving, the characteristic roots are obtained as,
1 1
𝑟1 , 𝑟2 = ± 𝑖
2 2
• The steady state solutions are, 𝑦ത1 = −46 𝑎𝑛𝑑 𝑦ത2 = 18

38
PHASE DIAGRAM for COMPLEX ROOTS with
POSITIVE REAL PARTS – UNSTABLE FOCUS (contd.)
• Therefore, the complete solutions are,
𝑡Τ 𝑡 𝑡
✓𝑦1 𝑡 = 𝑒 2 𝐴1 cos + 𝐴2 sin − 46
2 2

𝑡Τ −3𝐴1 Τ2+𝐴2 Τ2 𝑡 −3𝐴2 Τ2−𝐴1 Τ2 𝑡

✓𝑦2 𝑡 = 𝑒 2 [ cos + sin + 18
5 2 5 2

39
PHASE DIAGRAM for COMPLEX ROOTS with
POSITIVE REAL PARTS – UNSTABLE FOCUS (contd.)
• A phase diagram for this system will again be constructed as
before on a two dimensional (𝑦1 , 𝑦2 ) phase plane. For this
example, the phase plane is as follows: please solve for the arrowheads
𝑦2
𝑦ሶ 2 = 0

𝑦ሶ 1 = 0

18

𝑦1 0
-46
40
PHASE DIAGRAM for COMPLEX ROOTS with
POSITIVE REAL PARTS – UNSTABLE FOCUS (contd.)
• The arrows of motion suggest that the trajectories might be
spirals as follows. 𝑦2

𝑦ሶ 2 = 0

𝑦ሶ 1 = 0

18

𝑦1 0
-46
41
PHASE DIAGRAM for COMPLEX ROOTS with
POSITIVE REAL PARTS – UNSTABLE FOCUS (contd.)
• In the above phase diagram, there is nothing to indicate
whether the spirals are converging to or moving away from
the steady state.
• However, since, the real parts of the characteristic roots are
positive, then the spirals are diverging.
• Such a steady state equilibrium is called an unstable focus.

42
PHASE DIAGRAM for COMPLEX ROOTS with
ZERO REAL PARTS – VORTEX
• If on the other hand, the real parts of the characteristic roots
are zero, then the trajectories would neither converge or
diverge, but would endlessly orbit the steady state.
• Such a steady state equilibrium is called a vortex or centre.
• The phase diagram for a vortex is shown in the next slide.

43
PHASE DIAGRAM for COMPLEX ROOTS with ZERO
REAL PARTS – VORTEX (contd.)
• A phase diagram for vortex

𝑦ሶ 2 = 0
𝑦2

2 𝑦ሶ 1 = 0

0 2 𝑦1

44