PAPER

MATHEMATICS FOR ECONOMICS

Rules of Differentiation and Their Use in Comparative Statics

Arranged By:
Abdul Rahim Darmawan (210101511014)
Asmaul Husna (210101510007)
Rahmatullah Al Sahid (210101512003)
Rizky Aditya (210101510003)
 PREFACE
Thank you, we pray to the presence of God Almighty because with His
mercy, grace, taufik and guiandce we were able to finish this paper on " Rules
of Differentiation and Their Use in Comparative Statics" well even though
there are many shortcomings in it.
We really hope that this paper can be useful in order to add insight and
knowledge. We are also fully aware that in this paper there are deficiencies
and far from perfect. Therefore, we hope for criticism, suggestions, and
responses for changes to the paper we have made in the future, bearing in
mind that nothing is perfect without constructive suggestions.
Hopefully, this paper can be understood by anyone who reads it. If the paper
that we have compiled can be useful for ourselves and those who read it.
Previously, we apologize if there are mistakes in words that are not relevant
and we asked for constructive criticism and suggestions for the sake of
changing our paper in the future.

Makassar, 1 October 2023

Writer

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 TABLE OF CONTENTS
PREFACE .................................................................................................. ii
TABLE OF CONTENTS ...........................................................................iii
CHAPTER 1 FOREWORD ........................................................................ 1
A. Background of The Paper ................................................................... 1
B. Problems of The Paper ........................................................................ 1
C. Purpose of The Paper .......................................................................... 2
CHAPTER II DISCUSSION....................................................................... 3
A. Rules of Differentiation for a Function of One Variable ...................... 3
B. Rules of Differentiation Involving Two or More Function .................. 4
C. Rules of Differentantion involving function of different variable ........ 7
D. Partial Differentation ........................................................................ 10
E. Application to comparative-static analysis ......................................... 11
F. Note on Jacobian Determinants ......................................................... 18
CHAPTER III CONCLUSION ................................................................. 22
A. Conclusion ....................................................................................... 22
BIBLIOGRAPHY ...................................................................................... iv

iii
 CHAPTER 1
FOREWORD
A. Background of The Paper
Differentiation is an important mathematical technique in
comparative statistical analysis. The rule for differentiating functions of one
variable allows us to calculate the average change in one variable relative to
the change in another variable. As we expand our understanding of the rules
of differentiation involving two or more functions, we can combine many
different variables in statistical analysis to understand the complex
relationships between these variables.
Additionally, discrimination rules relating to different functions of
variables become necessary in comparative statistics when comparing the
effects of different variables from different populations or groups. Partial
differentiation, an important concept in comparative statistical analysis,
allows us to isolate the effects of specific variables while holding other
variables constant. Applying discrimination rules in comparative statistical
analysis allows us to identify trends, relationships, and patterns in complex
statistical data. It is a powerful tool for exploring differences between groups
or populations, measuring the effects of different independent variables, and
making predictions based on existing data.
Additionally, in the context of comparative statistical analysis, notes
about the Jacobian determinant become important when dealing with
transformations of variables. The Jacobian determinant helps us understand
how changes in the original variables will affect the transformed variables.
This is key in converting statistical data for further analysis and ensuring
consistency in comparisons across groups or populations. In short, a solid
understanding of discrimination rules and the ability to apply them
judiciously in comparative statistics are at the heart of the effort to discover
meaning and insight from complex statistical data. complex and diverse.
B. Problems of The Paper
1. What is rules of differentiation for a function of one variable?

1
2. What is rules of differentiation involving two or more function?
3. What is rules of differentiation involving functions different variables?
4. What is partial differentiation?
5. How application to comparative-static analysis?
6. What is note on Jacobian determinants?
C. Purpose of The Paper
1. To find out the rules of differentiation for a function of one variable
2. To find out the rules of differentiation involving two or more function
3. To find out the rules of differentiation involving functions different
variables
4. To find out what is partial differentiation
5. To find out how application to comparative-static analysis
6. To find out what is note on Jacobian determinants

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 CHAPTER II
DISCUSSION
A. Rules of Differentiation for a Function of One Variable
1. Constant-Function Rule
The derivative of a constant function y = k, atau f(x) = k, is identically
zero, i.e., is zero for all values of x. Symbolically, this rule may be stated
as: Given y = f(x) = k, the derivative is
𝑑𝑦 𝑑𝑘
= 𝑑𝑥 = 0 or f’(x) = 0
𝑑𝑥
Alternatively, we may state the rule as: Given y = f’(x) = k, the derivative
is
𝑑 𝑑 𝑑
𝑦 = 𝑑𝑥 𝑓′(𝑥) = 𝑑𝑥 𝑘 = 0
𝑑𝑥

2. Power-Function Rule
The derivative of a power function y = f’(x) = 𝑥 𝑛 is 𝑛𝑥 𝑛−1 . Symbolically,
this is expressed as
𝑑
𝑥 𝑛 = 𝑛𝑥 𝑛−1 or f’(x) = 𝑛𝑥 𝑛−1 (7.1)
𝑑𝑥
Example 1.
𝑑𝑦 𝑑
The derivative of y = 𝑥 3 is 𝑑𝑥 = 𝑑𝑥 𝑥 3 = 3𝑥 2 .
Example 2.
𝑑
The derivative of y = 𝑥 9 is = 𝑑𝑥 𝑥 9 = 9𝑥 8 .
Example 3.
Find the derivative of y = 𝑥 0 . Applying (7.1), we find
𝑑
𝑥 0 = 0(𝑥 −1 ) = 0
𝑑𝑥

3. Power-Fuction Rule Generalized

When a multiplicative constant c appears in the power function, so that
f’(x) = c𝑥 𝑛 , its derivative is
𝑑
𝑐𝑥 𝑛 = 𝑐𝑛𝑥 𝑛−1 or f’(x) = 𝑐𝑛𝑥 𝑛−1
𝑑𝑥
The result shows that, in differentiating cxn , we can simply retain the
multiplicative constant c intact and the differentiate the term xn according
to (7.1)
Example 4.
Given y = 2x, we have dy/dx = 2x0 = 2
Example 5.
Given f(x) = 4𝑥 3 , the derivative is f’(x) = 12𝑥 2
Example 6.
The derivative of f (x) = 3𝑥 −2 is f’(x) = −6𝑥 −3

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B. Rules of Differentiation Involving Two or More Function
1. Sum-Difference Rule
The derivative of a sum (difference) of two functions is the sum
(difference) of the derivatives of the two functions:
𝑑 𝑑 𝑑
[𝑓(𝑥 ) ± 𝑔(𝑥 )] = 𝑓 (𝑥 ) ± 𝑔 (𝑥 ) = 𝑓 ′ (𝑥 ) ± 𝑔 ′ (𝑥 )
𝑑𝑥 𝑑𝑥 𝑑𝑥
The proof of this again involves te application f the definition of a
derivative and of the various limit theorems. We shall omit the proof and
instead, merely verify its validity and illustrate its application.
Example 1:
From the function y = 14x3, we can obtain the derivative dy/dx = 42x2.
But 14x3 = 5x3 – 9x3 , so that y may be regarded as the sum of two
function f(x) = 5x3 and g(x) = 9x3. According to the sum rule, we then
have
𝑑𝑦 𝑑 𝑑 𝑑
= (5𝑥 3 + 9𝑥 3 ) = 5𝑥 3 + 9𝑥 3 = 15𝑥 2 + 27𝑥 2 = 42𝑥 2
𝑑𝑥 𝑑𝑥 𝑑𝑥 𝑑𝑥
Which is identical with our earlier result
This rule, which we stated in terms of two functions, can easily be
extended to more functions. Thus, it is also valid to write
𝑑
[𝑓 (𝑥 ) ± 𝑔(𝑥 ) ± ℎ(𝑥 )] = 𝑓 ′ (𝑥 ) ± 𝑔′ (𝑥 ) ± ℎ′ (𝑥)
𝑑𝑥
Example 2:
𝑑
(𝑎𝑥 2 + 𝑏𝑥 + 𝑐 ) = 2𝑎𝑥 + 𝑏
𝑑𝑥
Example 3:
𝑑
(7𝑥 4 +2𝑥 3 − 3𝑥 + 37) = 28𝑥 3 +6𝑥 2 − 3 + 0 =
𝑑𝑥
28𝑥 +6𝑥 2 − 3
3

2. Product Rule
The derivative of the product of two (differentiable) functions is equal to
the first function times the derivative of the second function plus the
second function times the derivative of the first function:
𝑑 𝑑 𝑑
[𝑓(𝑥 )𝑔(𝑥 )] = 𝑓(𝑥 ) 𝑔(𝑥 ) + 𝑔(𝑥) 𝑓(𝑥 )
𝑑𝑥 𝑑𝑥 𝑑𝑥
= 𝑓(𝑥 )𝑔′ (𝑥) + 𝑔(𝑥)𝑓′(𝑥 )
(7.4)
It is also possible, of course, to rearrange the terms and express the rule
as
𝑑
[𝑓 (𝑥 )𝑔(𝑥 )] = 𝑓 (𝑥 )𝑔′ (𝑥) + 𝑔(𝑥 )𝑓′(𝑥)
𝑑𝑥
(7.4’)
Example 4:

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 Find the derivative of y = (2x+3)(3x2). Let f(x) = 2x + 3 and g(x) = 3x2.
Then it follows that f’(x) = 2 and g’(x) = 6x, and according to (7.4) the
desired derivative is
𝑑
[(2𝑥 + 3)(3𝑥 2 ) = (2𝑥 + 3)(6𝑥) + (3𝑥 2 )(2) = 182 + 18𝑥
𝑑𝑥
This result can be checked by first multiplying out 𝑓 (𝑥 )𝑔(𝑥) and then
taking the derivative of the 𝑓 (𝑥 )𝑔(𝑥) = (2𝑥 + 3)(3𝑥 2 ) = 6𝑥 3 +
9𝑥 2 , and direct differentiation does yield the same derivative, 18𝑥 2 +
18𝑥
3. Finding Marginal-Revenue Function from Average-Revenue Function
If we are given an average-revenue (AR) function in specific form,
𝐴𝑅 = 15 − 𝑄
the marginal-revenue (MR) function can be found by first multiplying
AR by Q to get the total-revenue (R) function:
𝑅 ≡ AR .𝑄 = (15 − 𝑄)𝑄 = 15𝑄 − 𝑄2
and then differentiating R:
𝑑𝑅
MR ≡ 𝑑𝑄 = 15 − 2𝑄
but if the AR function is given in the general form AR = 𝑓(𝑄), then the
total-revenue function will also be in general form:
𝑅 ≡ AR .𝑄 = 𝑓(𝑄). 𝑄
and therefore the “multiply out” approach will be to no avail. However,
because R is a product of two functions of Q, namely, f(Q) and Q itself,
the product rule can be put to work. Thus we can differentiate R to get
the MR function as follows:
𝑑𝑅
MR ≡ = 𝑓(𝑄). 1 + 𝑄. 𝑓 ′ (𝑄) = 𝑓 (𝑄) + 𝑄𝑓′(𝑄)
𝑑𝑄
(7.7)
However, can such a general result tell us anything significant about the
MR? Indeed it can. Recalling thet f(Q) denotes the AR function, let us
rearrange (7.7) and write
𝑀𝑅 − 𝐴𝑅 = 𝑀𝑅 − 𝑓 ′ (𝑄) = 𝑄𝑓′(𝑄)
(7.7’)
The gives us an important relationship between MR and AR: namely,
they will always differ by the amount Qf’(Q).

4. Quotient Rule
𝑓(𝑥)
The derivative of the equation of two functions, 𝑔(𝑥), is
𝑑 𝑓 (𝑥 ) 𝑓 ′ (𝑥 )𝑔(𝑥 ) − 𝑓 (𝑥 )𝑔′ (𝑥)
=
𝑑𝑥 𝑔(𝑥 ) 𝑔2 (𝑥)

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 In the numerator of the right-hand expression, we find two product
terms, each involving the derivative of only one of the two original
function. Note that 𝑓 ′ (𝑥 ) appears in the positive term, and g’(x) in the
negative term. The denominator consist of the square of the function
g(x); that is, 𝑔2 (𝑥 ) ≡ [𝑔(𝑥 )]2
Example 5
𝑑 2𝑥 − 3 2(𝑥 + 1) − (2𝑥 − 3)(1) 5
( )= 2
=
𝑑𝑥 𝑥 + 1 (𝑥 + 1) (𝑥 + 1)2
Example 6.
𝑑 𝑎𝑥 2 + 𝑏 2𝑎𝑥(𝑐𝑥 ) − (𝑎𝑥 2 + 𝑏)(𝑐)
( )=
𝑑𝑥 𝑐𝑥 (𝑐𝑥 )2
𝑐 (𝑎𝑥 2 − 𝑏) 𝑎𝑥 2 − 𝑏
= =
(𝑐𝑥 )2 𝑐𝑥 2

5. Relationship Between Marginal-Cost and Average-Cost Functions

As an economic application of the quotient rule, let us consider the rate
of change of average cost when output varies.
Given a total-cost function 𝐶 = 𝐶 (𝑄), the average-cost (AC) function is
𝐶(𝑄)
a quotient of two function of Q, since AC≡ , defined as long as 𝑄 >
𝑄
0. Therefore, the rate of change of AC with respect to Q can be found
by differentiating AC:
𝑑 𝐶(𝑄) [𝐶 ′ (𝑄).𝑄−𝐶(𝑄).1] 1 𝐶(𝑄)
= = 𝑄 [𝐶 ′(𝑄) − ]
𝑑𝑄 𝑄 𝑄2 𝑄
(7.9)
From this it follows that, for 𝑄 > 0,
> >
𝑑 𝐶(𝑄) ′( 𝐶(𝑄)
=0 if 𝐶 𝑄 )= 𝑄
𝑑𝑄 𝑄
< <
(7.10)

Since the derivative C’(Q) represents the marginal-cost (MC) function, and
C(Q)/Q represents the AC function, the economic meaning of (7.10) is: The
slope of the AC curve will be positive, zero, or negative if and only if the
marginal-cost curve lies above, antersects, or lies below the AC curve. This
is illustrated in Fig. 7.3, where the MC and AC function plotted are based on
the specific total-cost function
𝐶 = 𝑄3 − 12𝑄2 + 60𝑄

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To the left of 𝑄 = 6, AC is declining, and thus MC lies below it; to the
right, the opposite is true. At 𝑄 = 6, AC has a slope of zero, and MC and
AC have the same value
C. Rules of Differentantion involving function of different variable
Rules of Differentiation involving function of different variable are rules that
are used to find the derivative of functions that are composed of two or more
other functions. These rules are also called the chain rule. A general form of
multivariable chain rule is a formula for the derivative of a composite function
of two or more mathematical functions that have more than one independent
variable.
1. Chain rule for one independent variable
If 𝑧 = 𝑓 (𝑢, 𝑣) are differentiable functions of u and v, where 𝑢 = 𝑔(𝑥) and
𝑣 = ℎ(𝑥) then apply:

Example : 𝑦 = 𝑢2 + 𝑣 3
𝑢 = 𝑥2 + 1
𝑣 =𝑥+2

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 𝑑𝑦 𝑑𝑦 𝑑𝑢 𝑑𝑦 𝑑𝑣
Answer: = 𝑑𝑢 ∙ 𝑑𝑥 + 𝑑𝑣 ∙ 𝑑𝑥
𝑑𝑥

= 2𝑢 ∙ 2𝑥 + 3𝑣 2 ∙ 1
2. Chain rule for two independent variables
In Chain Rule for Two Independent Variables, z=f(x,y) is a function of x
and y, and both x=g(u,v) and y=h(u,v) are functions of the independent
variables u
and v. So
𝑑𝑧 𝑑𝑧 𝑑𝑥 𝑑𝑧 𝑑𝑦 𝑑𝑧 𝑑𝑧 𝑑𝑥 𝑑𝑧 𝑑𝑦
= 𝑑𝑥 ∙ 𝑑𝑢 + 𝑑𝑦 ∙ 𝑑𝑢 and = 𝑑𝑥 ∙ 𝑑𝑣 + 𝑑𝑦 ∙ 𝑑𝑣
𝑑𝑢 𝑑𝑣

Example :
𝜕𝑧 𝜕𝑧
Calculate 𝜕𝑢 𝑎𝑛𝑑 using the following function:
𝜕𝑣

z=f(x,y)=3x2−2xy+y2,x=x(u,v)=3u+2v,y=y(u,v)=4u−v.
Solution
To implement the chain rule for two variables, we need
six partial derivatives— ∂z/∂x,∂z/∂y,∂x/∂u,∂x/∂v,∂y/∂u,and ∂y/∂v

find ∂z/∂u

Next, we substitute x(u,v)=3u+2v and y(u,v)=4u−v:

find ∂z/∂v

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 Then we substitute x(u,v)=3u+2v and y(u,v)=4u−v:

3. The Generalized Chain Rule

The chain rule extended to functions of more than one independent variable,
in which each independent variable may depend on one or more other
variables.
Let w = f(x1,x2,…,xm) be a differentiable function of m independent
variables, and for each i∈1,…,m,let xi=xi(t1,t2,…,tn) be a differentiable
function of n independent variables. Then

Example:
𝜕𝑤 𝜕𝑤
Calculate 𝑎𝑛𝑑 using the following function:
𝜕𝑢 𝜕𝑣

Solution:
The formulas for ∂w/∂u and ∂w/∂v are

Therefore, there are nine different partial derivatives that need to be

calculated and substituted. We need to calculate each of them:

9
Now, we substitute each of them into the first formula to calculate ∂w/∂u:

Then subtitute 𝑥(𝑢, 𝑣) = 𝑒 𝑢 sin 𝑣, 𝑦(𝑢, 𝑣) = 𝑒 𝑢 cos v, and z(u, v) =

𝑒 𝑢 into this equation:

Next, we calculate ∂w/∂v:

Then we substitute 𝑥(𝑢, 𝑣) = 𝑒 𝑢 sin 𝑣, 𝑦(𝑢, 𝑣) = 𝑒 𝑢 cos 𝑣, 𝑎𝑛𝑑 𝑧 (𝑢, 𝑣) =

𝑒 𝑢 into this equation:

D. Partial Differentation
A partial derivative is a mathematical concept used to calculate the rate of
change of a function against one of its variables, while assuming the other
variable is fixed. Partial derivatives are useful in the fields of vector calculus
and differential geometry, as well as in physical, chemical, biological, and
engineering applications.

10
Defintion:
Suppose f functions two variables x and y. If y is kept constant,Let's say y =
y0, then f(x, y0) is a function of one variable x.Its derivative at x = x0 is called
a Partial Derivative f against x at
(x0, y0) and expressed by fx (x0, y0), with notation:

In the same way, the partial derivative f to y in (x0, y0) expressed by

fy (x0, y0) with notation

Example:

Solution:
To find fx(x,y) we treat y as constant and derived against x,

So obtained

In the same way, obtained

So that

E. Application to comparative-static analysis

Comparative-static analysis is a technique used in economics, engineering,
and other fields to understand how changes in certain variables affect the
equilibrium or optimal values of a system or model. The rules of
differentiation are valuable tools in conducting comparative-static analysis
because they help us determine how small changes in independent variables
influence the dependent variables, providing insights into how a system

11
responds to perturbations. Here's how these rules are applied in comparative-
static analysis:
1. Market Model
First let us consider again the simple one-commodity market model . That
model can be written in the form of two equations:
𝑄 = 𝑎 − 𝑏𝑃 (𝑎, 𝑏 > 0) 𝑑𝑒𝑚𝑎𝑛𝑑
𝑄 = −𝑐 + 𝑑𝑃 (𝑎, 𝑏 > 0)𝑠𝑢𝑝𝑝𝑙𝑦
with solutions
𝑎+𝑐
𝑃∗ =
𝑏+𝑝
𝑎𝑑 − 𝑏𝑐
𝑄∗ =
𝑏+𝑑
These solutions will be referred to as being in the reduced form: The two
endogenous variables have been reduced to explicit expressions of the four
mutually independent parameters a, b, c, and d. To find how an infinitesimal
change in one of the parameters will affect the valuc of P*, one has only to
differentiate (1) partially with respect to cach of the parameters. If the sign of
𝛿𝑃 ∗
a partial derivative, say, , can be determined from the given informalion
𝛿𝑎

about the parameters, we shall know the direction in which P* will move
when the parameter a changes his constitutes a qualitative conclusion. If the
𝛿𝑃 ∗
magnitude of can be ascertained, it will constitute a quantitative
𝛿𝑎

conclusion.
Similarly, we can draw qualitative or quantitative conclusions from the
𝛿𝑄∗
partial deriva- tives of Q* with respect to cach parameter, such as . To
𝛿𝑎

avoid misunderstanding. however, a clear distinetion should be made between

𝛿𝑄 ∗ 𝛿𝑄
the two derivatives and 𝛿𝑎 .
𝛿𝑎

𝛿𝑃∗ 1 1
= [𝑝𝑎𝑟𝑎𝑚𝑒𝑡𝑒𝑟 𝑎 ℎ𝑎𝑠 𝑡ℎ𝑒 𝑐𝑜𝑒𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑡 ]
𝛿𝑎 𝑏+𝑑 𝑏+𝑑

𝜕𝑃∗ 0(𝑏 + 𝑑 ) − 1(𝑎 + 𝑐 ) −(𝑎 + 𝑐 )

= = [𝑞𝑢𝑜𝑡𝑖𝑐𝑛𝑡 𝑟𝑢𝑙𝑒]
𝜕𝑏 (𝑏 + 𝑑 )2 (𝑏 + 𝑑 ) 2

12
 𝛿𝑃∗ 1 𝜕𝑃∗
= (= )
𝛿𝑐 𝑏+𝑑 𝜕𝑏

𝜕𝑃∗ 0(𝑏 + 𝑑 ) − 1(𝑎 + 𝑐 ) −(𝑎 + 𝑐 ) 𝜕𝑃 ∗

= = (= )
𝜕𝑑 (𝑏 + 𝑑 )2 (𝑏 + 𝑑 )2 𝜕𝑏

Conclusion :

𝛿𝑃 ∗ 𝛿𝑃∗ 𝜕𝑃∗ 𝜕𝑃∗

= > 0 𝑑𝑎𝑛 = <0
𝛿𝑎 𝛿𝑐 𝜕𝑏 𝜕𝑑
Can be described as follows :

Figure pictures an increase in the parameter a (to a'). This means a higher
vertical intercept for the demand curve, and inasmuch as the parameter b (the
slope parameter) is unchanged, the increase in a results in a parallel upward
shift of the demand curve from D to D'. The intersection of D' and the supply
curvc S determines an equilibrium price P", which is greater than the old
𝛿𝑃 ∗
equilibriunm price P*. This corroborates the result hat > 0, although for
𝛿𝑎

the sake of exposition we have shown in figure (a) much larger change in the
parameter (a) than what the concept of derivative implies.

13
 The situation in figure (c) has a similar interpretation; but since the inercase
takes place in the parameter (c), the result is a parallel shift of the supply curve
instead. Note that this shift is downward because the supply curve has a
vertical intercept of -c; thus an increase in c would mcan a change in the
intervcpt, say, from -2 to -4. The graphical comparative- static result, that P
𝛿𝑃 ∗
exceeds P*, again conforms to what the positive sign of the derivative 𝛿𝑐

would lead us to expect.

Figures (b) and (d) illustrate the effects of changes in the slope parameters
h and d of the two functions in the model. An increase in b means that the
slope of the demand curve will assume a larger numerical (absolute) value;
𝛿𝑃 ∗
i.c., it will become stecpcr. In accordance with the result <0, we find a
𝛿𝑏

decrease in P* in this diagram. The increase in (d) that makes the supply curve
steeper also results in a decrease in the equilib- rium price. This is, of course,
𝛿𝑃 ∗
again in ine with the negative sign of the comparative-static derivative .
𝛿𝑑

Thus far, all the results in the final resultseem to have been obtainable
graphically. If so, why should we bother to use differentiation at all? The
answer is that the differentiation approach has at least two major advantages.
First, the graphical technique is subject to a dimensional restriction, but
differentiation is not. Even when the number of endogenous variables and
parameters is such that the equilibrium state cannot be shown graphically. We
can nevertheless apply the ditterentiation techniqucs to the problem. Second,
the dillerentiation method can yicld results that are on a higher level of
generality. The results in the final resultwill remain valid, regardless of the
specific values that the parameters a, b, c, and d take, as long as they satisfy
the sign restrictions. So the comparative-static conclusions of this model are,
in effect, applicable io an inanite number of combinaions of (linear) demand
and supply functions. In contrast, the graphical approach deals only with
some specific members of the family of demand and supply curvcs, and the
analytical result derived therefrom is upplicable, strictly speaking, only to the
specific functions depicted.

14
 This discusion serves to ilustrate the application of partial differentiation to
comparative- static unalysis of the simple market model, but only half of the
task has actualy been accomplished, for we can also fnd the comparative-
static derivatives pertaining to Q*. This we shall leavc to you as an exercise.
2. National-Income Model
We now work with a slightly enlarged modei with three endogenous
variables. Y (national income), C (consumption), and T (taxes):

𝑌 = 𝐶 + 𝐼𝑂 + 𝐺 𝑂
𝐶 = 𝛼 + 𝛽 (𝑌 − 𝑇) (𝛼 > 0; 0 < 𝛽 < 1)
𝑇 = 𝛾 + 𝛿𝑇 (𝛼 > 0; 0 < 𝛽 < 1)

The first equation in this system gives the equilibrium condition for nalional
incone, while the second and third equations show, respectively, how C and
T are determined in the model.
The restricions on the values of the parameters 𝛼, 𝛽, 𝛾 𝑎𝑛𝑑 𝛿 can be
explained thus:
𝛼 is positive because consumption is positive even if disposable income (Y -
T) is zero, 𝛽 is a positive fraction because it represents the marginal
propensity to consune, 𝛾 is positive because even if Y is zero the goverment
will still have a positive tax revenue (from tax bases olher than income); and
𝛿 is a positive fraction because it represents an income tax rate, and as such
it cannot exceed 100 percent. The exogenous variables o (investment) and Go
(government cxpenditure) are, of course, nonnegative. Ail the parameters and
exogenous variables are assumed to be independent of one another, so that
any one of them can be assigned a new valuc without affecting the others.
This model can be solved for Y* by substituting the third equation into the
second and then substituting the resulting equation into the first.

𝛼 − 𝛾𝛽 + 𝐼𝑂 + 𝐺 𝑂
𝑌∗ =
1 − 𝛽 + 𝛽𝛿

15
 Similar equilibrium values can also be found for the endogenous variables
C and T, but we shall concentrate on the equilibrium income. From this
equation, there can be obtained six Comparative-static derivatives. Anong
these, the following three have special policy signiticance:

𝜕𝑌 ∗ 1
= >0
𝜕𝐺 𝑂 1 − 𝛽 + 𝛽𝛿

𝜕𝑌 ∗ −𝛽
= <0
𝜕𝛾 1 − 𝛽 + 𝛽𝛿

𝜕𝑌 ∗ −𝛽(𝛼 − 𝛾𝛽 + 𝐼𝑂 + 𝐺 𝑂 ) −𝛽𝑌 ∗
= = <0
𝜕𝛿 (1 − 𝛽 + 𝛽𝛿)2 1 − 𝛽 + 𝛽𝛿
The partia! derivative in the equilibrium givcs us the government-
expenditure multiplier. It has a positive sign here because 𝛽 is less than 1,
and 𝛽𝛿 is greater than zero. If numerical valucs are given for the parameters
𝛽 and 𝛿, we can also find the numerical value of this muliplicr from the
equilibrium. The derivative in the equilibrium may be called the nonincome-
tax muttiplier, because it shows how a change in 𝛾, the government revenuc
from nonincome-tax sources, will affect the equilibrium income. This
multiplier is negative in the present model because the đenominator in the
equilibrium is positive and the numerator is negative. Lastly, the partial
derivative in the equilibrium which is not in the nature of a multiplier, since
it does not relate a dollar change to another dollar change as the derivativcs
in the equilibrium doells us the cxtent to which an increase in the income tax
rate 𝛿 will lower the equilibriun income.
3. Input-Output Model
The solution of an open input-output model appcars as a matrix equation .x*
=(1-A)-1d. If we denote the inverse matrix (1-A)-1 by 𝑉 = [𝑣𝑖𝑗 ], then, for
instance. the solution for a three-industry economy can be written as x* = Vd,
or

16
 𝑥1∗ 𝑣11 𝑣12 𝑣13 𝑑1
∗
[𝑥2 ] = [𝑣21 𝑣22 𝑣23 ] [𝑑2 ]
𝑥3∗ 𝑣31 𝑣32 𝑣33 𝑑3

What are the rates of changc of the solution values 𝑥𝑗∗

𝜕𝑥𝑗∗
= 𝑣𝑗𝑘
𝜕𝑑𝑘

See this, let us multiply out Vd in this equation and express the solution as
𝑥1∗ 𝑣11 𝑑1 𝑣12 𝑑2 𝑣13 𝑑3
∗
[𝑥2 ] = [𝑣21 𝑑1 𝑣22 𝑑2 𝑣23 𝑑3 ]
𝑥3∗ 𝑣31 𝑑1 𝑣32 𝑑2 𝑣33 𝑑3
In this system of three equations, each one gives a particular solution value
as a function of the cxogenous final demands. Partial diferentiation of these
produces a total of nine comparative-static derivatives:

𝜕𝑥1∗ 𝜕𝑥1∗ 𝜕𝑥1∗

= 𝑣11 = 𝑣12 = 𝑣13
𝜕𝑑1 𝜕𝑑2 𝜕𝑑3

𝜕𝑥2∗ 𝜕𝑥2∗ 𝜕𝑥2∗

= 𝑣21 = 𝑣22 = 𝑣23
𝜕𝑑1 𝜕𝑑2 𝜕𝑑3

𝜕𝑥3∗ 𝜕𝑥3∗ 𝜕𝑥3∗

= 𝑣31 = 𝑣32 = 𝑣33
𝜕𝑑1 𝜕𝑑2 𝜕𝑑3

This is simply the expanded version of this equation. We may combine the
three derivativcs in cach column into a matrix (vector) derivative:

17
 𝑣11 𝑣12 𝑣13
𝜕𝑥 ∗
= [𝑣21 𝑣22 𝑣23 ] = 𝑉 = (𝐼 − 𝐴)−1
𝜕𝑑 𝑣31 𝑣32 𝑣33

Thus, (𝐼 − 𝐴)−1 the inverse of the Leonticf matrix, gives us an ordercd

display of all the comparative-static derivatives of our open input-output
model. Obviously, this matrix derivative can easily be extended from the
present three-industry model to the general n-industry case.
Comparative-static derivatives of the input-output model are uscful as tools
of economic planning, for they provide the answer to the question: Ifthe
planning targets, as reflected in (d1, d2...., dn), are revised, and if we wish to
take care of all direct and indirect requirements in the economy so as to be
completcly fece of bottlenecks.

F. Note on Jacobian Determinants

Partial derivatives also provide a means of testing whether there exists
functtonal (linear or nonlinear) dependence among a set of n functions inn
variables. This is related to the notion of Jacobian dexerninants named after
Jucobi.
Consider the two functions =

𝑦1 = 2𝑥1 + 3𝑥2

𝑦2 = 4𝑥12 + 12𝑥1 𝑥2 + 9𝑥2

If we get all the four partial derivatives

𝜕𝑦1 𝜕𝑦1 𝜕𝑦2 𝜕𝑦2

=2 =3 = 8𝑥1 + 12𝑥2 = 12𝑥1 + 18𝑥2
𝜕𝑥1 𝜕𝑥2 𝜕𝑥1 𝜕𝑥2

18
and arrange them into a squarc matrix in a preseribed order, called a Jacobian
matrix and denoted by J, and then take its deternminant, result will be what
is known as a Jacobian determinant (or a Jacobian, for short). denoted by |J|:

𝜕𝑦1 𝜕𝑦1
𝜕𝑥 𝜕𝑥2 | 2 3
|𝐽| = || 1 | =| |
𝜕𝑦2 𝜕𝑦2 8𝑥1 + 12𝑥2 12𝑥1 + 18𝑥2
𝜕𝑥1 𝜕𝑥2

For economy of space, this Jacobian is sometimes also expressed as

𝜕𝑦 𝑦
|𝐽 | = | 1 2 |
𝜕𝑥1 𝑥2

More gençrally, if we have n differentiable functions in n variables, not

necessarily lincat.

𝑦1 = 𝑓1 (𝑥1 , 𝑥2 , … , 𝑥𝑛 )

𝑦2 = 𝑓 2 (𝑥1 , 𝑥2 , … , 𝑥𝑛 )

.................................

𝑦3 = 𝑓 𝑛 (𝑥1 , 𝑥2 , … , 𝑥𝑛 )

where the synbol f denotes the nth function (and not the function raised to the
mth power), we can derive a total of n² partial derivatives. Adopting the
notation f = ay' fBx,. we can write the Jacobian

19
 𝜕𝑦1 𝜕𝑦1
⋯
|𝜕𝑥1
𝜕(𝑥1 , 𝑥2 , … , 𝑥𝑛 ) 𝜕𝑥𝑛 |
|𝐽 | ≡ | |≡ ⋮ ⋱ ⋮
𝜕(𝑥1 , 𝑥2 , … , 𝑥𝑛) |𝜕𝑦 𝜕𝑦𝑛 |
𝑛
⋯
𝜕𝑥1 𝜕𝑥𝑛

The Jacobian |J| defincd in (2) will be identically zero for all values of
𝑥1 , 𝑥2 … 𝑥𝑛 if and only if the n functions 𝑓 1 , 𝑓 2 , … , 𝑓 𝑛 in (1) are functionally
(linearly or nonlinearly) depcndent.

|𝐽| = (24𝑥1 + 36𝑥2 ) − (24𝑥1 + 36𝑥2 ) = 0

That is, the Jacobian vanishes for all values of x1 and x2. Therefore,
according to the theo- rerm, the two fonctions in this equation must be
dependent. You can verify that y2 is simply y1 squared; thus they are indecd
functionally dependent here norlinearly dependent.

Let us now consider the special case of linear functions. We have earlier
shown that the rows of the coefficient matrix A of a linear-equation system
are linearly dependent if and only if the determinant |A| = 0. This result can
now be inter- preted as a special application of the Jacobian criterion of
functional dependence.

𝑎11 𝑥1 + 𝑎12 𝑥1 + ⋯ + 𝑎1𝑛 𝑥𝑛 = 𝑑1

𝑎21 𝑥1 + 𝑎22 𝑥1 + ⋯ + 𝑎3𝑛 𝑥𝑛 = 𝑑2

....................................

𝑎31 𝑥1 + 𝑎32 𝑥1 + ⋯ + 𝑎𝑛𝑛 𝑥𝑛 = 𝑑𝑛

Take the left side of each equation in this equation as a separate function of
the n variables 𝑥1 , 𝑥2 … 𝑥𝑛 and đenote these functions by 𝑦1 , 𝑦2 … 𝑦𝑛 The
𝜕𝑦 𝜕𝑦
partial derivatives of these functions will turn out to be 𝜕𝑥1 = 𝑎11 , 𝜕𝑥2 = 𝑎12 ,
1 1

20
 𝜕𝑦𝑗
ctc., so that we may write, in general, = 𝑎𝑗𝑖 . In view of this, the elements
𝜕𝑥𝑖

of the Jacobian of these n functions will be precisely the elements of the

cocfficient matrix A, already arranged in the correct order. That is, we have
|𝐽| = |𝐴| and thus the Jacobian criterion offunctional dependence among
y1,y2,...,yn or what amounts to the same thing, linear dependence among the
rows of the coefficient matrix A is equivalent to the criterion |A| =0 in the
present linear case.

21
 CHAPTER III
CONCLUSION
A. Conclusion
This paper explores differentiation, a crucial component of comparative
statistical analysis, in its conclusion. Beginning with the functions of one
variable, it establishes the fundamental significance of differentiation rules.
By quantifying the relationship between variables, these rules help us
understand trends and average changes. The scope of the paper broadens as it
goes along to cover differentiation rules for various functions and variables,
revealing the subtleties of intricate relationships. In addition, the paper
emphasizes the importance of partial differentiation, a crucial idea in
comparative statistical analysis. This method is essential for examining
complex relationships and patterns in data because it enables researchers to
isolate the effects of particular variables while keeping the effects of other
variables constant.
The topic of differentiation rules' use in comparative-static analysis is also
brought up in the discussion. These guidelines are essential for measuring the
impact of independent variables and conducting predictive modeling based
on historical data, as well as for comparing the effects of various variables on
various populations or groups. The paper clarifies the significance of the
Jacobian determinant when dealing with variable transformations in the
context of comparative statistics. It is essential to comprehend this
determinant in order to guarantee data consistency and comparability across
various groups or populations.
In the end, this paper is committed to the search for insight and meaning in
large-scale statistical data. It is a useful tool for those looking for a thorough
understanding of differentiation rules and how to apply them wisely in
comparative statistical analysis, providing answers to the crucial issues
brought up in the problem section to achieve the specified goals.

22
 BIBLIOGRAPHY
Al-Arif, M.N.R. (2013) Matematika Terapan Untuk Ekonomi. 1st edn.
Bandung: PUSTAKA SETIA.
Aturan diferensiasi Dan penggunaannya dalam statika komparatif. (n.d.).
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SlideShare. https://www.slideshare.net/trizqi/aturan-diferensiasi-
dan-penggunaannya-dalam-statika-komparatif
Chiang, A. C., & Wainwright, K. (2005). Fundamental methods of
mathematical economics. Erlangga.
Diferensial (Turunan) dalam Ilmu Ekonomi Dan Bisnis. (2017, March 26).
Dosen Perbanas - Sarana tukar menukar informasi dan pemikiran
dosen. Retrieved October 01, 2023,
from https://dosen.perbanas.id/diferensial-turunan-dalam-ilmu-
ekonomi-dan-bisnis/

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