Plan for Today

 Finish review of basic concepts

 Systems of linear equations in matrix form

 Operations on vectors and matrices

 Summation
 Inner product of vectors
 Matrix multiplication
A quick review of basic concepts

 Sets

 The Real Number System

 Functions, Ordered Tuples, Product Sets

 Functions
 Def: A function from a set X into a set Y is a rule f
which assigns to every xX a single member yY

 We write y = f(x)

 Also: We say f is a mapping from X into Y

and write
 Terminology
If y = f(x) is a function from X to Y, then

 x is the argument of the function

 y is the value of the function (or the image of x)

 X is the domain of f
 Y is the co-domain

 The set of all images is the range of f :

f [X]  {f(x) | x  X}

 Note that f [X]  Y

Some frequently used functions

 Polynomial functions:

y = a 0 + a 1x + a 2x 2 + … + anx n

 Constant functions

 Linear

 Quadratic

 Cubic
Some frequently used functions 2
 Rational functions: a ratio of two polynomials

 Ex: A rectangular hyperbola y = a/x

 Exponential functions:

 Ex: y = bx , b > 0
 Functions of several variables
 Functions of 2 independent variables
z = g(x,y)
y = h(x1,x2)

 Function is now a mapping from a 2-dimensional

space into a 1-dimensional space

 The domain is a set of ordered pairs, e.g. (x,y) or

(x1,x2)

 Functions of n variables: y = f(x1,x2,…,xn)

 Functions of several variables

Ex: Graph of a function of 2 variables

Chapter 3: Systems
of linear equations
 Systems of equations

 Many economic models require finding a solution to

a system of equations

Examples:

A partial market equilibrium model

A general equilibrium model

 An optimization problem
Partial Market Equilibrium – A Linear Model

 Often the equations are linear

Ex: A partial market equilibrium model

Qd = Qs
Qd = a – bP a,b>0
Qs = – c + dP c,d>0

3 linear equations
 3 variables
 4 parameters
 General Market Equilibrium
 Most commodities have substitutes and
complementary goods
 General Market Equilibrium
 A more complete model includes these other
goods as well

 A model with n commodities requires

n demand equations: Qdi , i = 1, 2, ..., n
n supply equations: Qsi , i = 1, 2, ..., n
n equilibrium conditions: Qdi = Qsi , i = 1, 2, ..., n

 With many equations, substitution of variables is

cumbersome
 Finding a solution to a system of
equations
 Is there a better method for finding a solution?

 And: How can we be sure there is a solution?

 Count equations and variables?
 Not enough

 Answer: Use matrix algebra

Matrix Algebra
 Matrices

 A matrix is a rectangular array of objects or elements

 Matrices

 We will take the elements to be real numbers,

parameters, or variables

 Ex:

 Note: Matrix A is different from matrix B

 Matrices 2
 An element is indicated by its row and column position

 Let aik (xik , etc.) denote an element in the i-th row and
k-th column

 Then we can write, for example

 Matrix dimensions
 Dimension of a matrix = (# of rows) x (# of columns)
m rows
 n columns ==> dimension is m x n

Ex:

 Alternative notation:
 Square matrices

 A matrix is
 square
if # rows = # columns
 symmetric if square and aik = aki for all i,k

Examples:
2 5 7
 
B  5  1 3
( 3  3)  
7 3 2
 Vectors as Special Matrices
 One row ==> row vector Ex: b’ = [3 2 24]

 Often indicated by a primed symbol

 One column ==> column vector Ex:

 Note:
1) A vector is merely an ordered n-tuple
a point in an n-dimensional space
2) Matrix rows can be viewed as vectors
 same goes for columns
 How does matrix algebra help us?

 First, it simplifies notation

 We can arrange
 the coefficients aik in a matrix A
 the variables xk in a matrix x
 the constant terms di in a matrix d
 How does matrix algebra help us?

 First, it simplifies notation

A= x= d=
 How does this help us? 2

 We can then write

Ax = d

Ex:
 How does this help us? 3

 Ex 2:  Can be written as

 and in matrix form as

Algebraic operations
on matrices
 Algebraic Operations on Matrices

 But how do we multiply matrices?

 Add/subtract?
 And what do we mean when we say that A = B?

 Equality: A = B <==> aik = bik for all i and k

 Addition and Subtraction:

A + B = [aik + bik ]
A – B = [aik – bik ]

 A and B must be of the same dimension!

Addition and Subtraction of Matrices

 Ex 1:
Addition and Subtraction of Matrices

 Ex 2:
Multiplication of a Matrix by a Scalar
 Scalar multiplication: Let kR. Then kA = [kaij ].
 Inner Product of Vectors

 Suppose 2 vectors (n-tuples): x,yRn

 Inner product of x and y is defined by

x  y  x1 y1  x2 y2  ...  xn yn
n
  xi yi
i 1

 Note: x and y must have the same dimension!

 Also called the dot product

 Inner Product: Example

 Ex: ’

x’ ∙ y =

 Note: The inner product is a scalar

 Matrix multiplication
 Suppose A and B can be multiplied to form a matrix C
n
 Then AB  C , where cik  a
m 1
b
im mk

 cik is the inner product of

 the i-th row from A and
 the k-th column from B
 Matrix multiplication: Example

 Ex:  a11 a12   b11 b12   c11 c12 

a  b   
 21 a 22   21 22   21 22 
b c c
 Matrix multiplication 2
 cik is defined only if the 2 vectors have the same
dimension
==>
 Conformability: A and B can be multiplied to form AB
only if
column dimension of A = row dimension of B

 Ex: b11 b12 

a11 a12 a13 
b21 b22 
a a  
 21 22 a23 
b31 b32 
 Matrix multiplication 3

 If
A is of dimension m x n
B is of dimension n x p

==> C = AB is an m x p matrix