Chuong 1 Questions

MATHEMATICS
FOR ECONOMICS AND BUSINESS

IAN JACQUES CHAPTER 1
Linear Equations
The main aim of this chapter is to introduce the mathematics of linear equations. This is an
obvious first choice in an introductory text, since it is an easy topic which has many applications.
There are seven sections, which are intended to be read in the order that they appear.
Sections 1.1, 1.2, 1.3, 1.4 and 1.6 are devoted to mathematical methods. They serve to revise the
rules of arithmetic and algebra, which you probably met at school but may have forgotten. In
particular, the properties of negative numbers and fractions are considered. A reminder is given
on how to multiply out brackets and how to manipulate mathematical expressions. You are also
shown how to solve simultaneous linear equations. Systems of two equations in two unknowns
can be solved using graphs, which are described in Section 1.3. However, the preferred method
uses elimination, which is considered in Section 1.4. This algebraic approach has the advantage
that it always gives an exact solution and it extends readily to larger systems of equations.
The remaining two sections are reserved for applications in microeconomics and macroeconomics.
You may be pleasantly surprised by how much economic theory you can analyse using just the
basic mathematical tools considered here. Section 1.5 introduces the fundamental concept of an
economic function and describes how to calculate equilibrium prices and quantities in supply and
demand theory. Section 1.7 deals with national income determination in simple macroeconomic
models.
The first six sections underpin the rest of the text and are essential reading. The final section is
not quite as important and can be omitted at this stage.
NINTH EDITION
TT GIÁO DỤC SỚM & XUẤT SẮC PMH

Vinhomes Grand Park Slide 1
Chapter 1: Linear equations

Content

1.1&1.2 Introduction to algebra
expression
! Expression: is a combination of variables, constants

and at least an arithmetic operator connecting them.
The operators maybe +, −,×,÷.

1.1&1.2 Introduction to algebra (cont.)
expression
• Variable: represent numbers which are unknown or

uncertain, e.g., y = the height of a father , x = the height of
his son
• the letter as name of variable, e.g., F = the future value of an
investment, Q = the quantity demanded ...

expression
• Constant: takes place a number that is unchanged

• Coefficient: the number in front of a variable,
which represents how many times the variable is
multiplied

equation
! Equation: a statement that values of two expression

equal.

equation
! A solution of an equation is any value of the variable

for which two sides of the equation are equal.
• solution set: set of all solutions of the equation

equation
! Equations are equivalent if they have the same

solution set.

equation
! The solution set of an equation is unchanged when

apply the following to both sides of the equation:
• Adding the same quantity
• Subtracting the same quantity
• Multiplying a nonzero number

inequality
! Inequality: a statement that the values of two

expressions are unequal (<, >, ≤, ≥)

inequality
! A solution of an inequality is any number that

makes the statement (inequality) true
! Inequalities are equivalent if they have the same
solution set
! The solution set of an inequality is unchanged when
apply the following to both sides of the inequality:
• Adding the same quantity
• Subtracting the same quantity
• Multiplying a positive number

1.3 Graph of linear equations
coordinate axes
! A coordinate axes: two number lines that intersect at
a right angle to form a coordiate system

1.3 Graph of linear equations (cont.)
coordinate axes
! A coordinate axes:
• The horizontal line: x-axis, the vertical line: y-axis
• The intersection: origin O(0,0)
• Each point on the plane is located by its
coordinate (x,y)

! A line is set of points connecting to make a straight

path

! What is common for the points on the blue line?

• (-3, -3), (-1, 1), (0, 3), (1, 5), (3, 9)

! Any line on the coordiate plane can be described by

an equation A𝑥 + 𝐵𝑦 + 𝐶 = 0
• B = 0: vertical line
• A = 0: horizontal line
• 𝐵 ≠ 0: the equation can be rewritten in the slope-
intercept form 𝑦 = 𝑚𝑥 + 𝑏

slope-intercept form
• Slope-intercept form 𝑦 = 𝑚𝑥 + 𝑏

1.4 Solving simultaneous linear equations
! Simultaneous linear equations: two linear equations

in two varibales are taken together

1.4 Solving simultaneous linear equations (cont.)
! The solution of a system of simultaneous linear

equations: an ordered pair or tuple that satisfies both
the linear equations

• On the coordinate plane, each linear equation is a

straight line
• Intersection is the point that belongs both the
straight lines

elimination method
! Elimination method: when the coefficients of the
varibales are appropriate, do adding (or subtracting)
side by side to obtain a new equation equivalent and
simpler

! System of simultaneous linear equations may have:

no solution, one solution or infintely many solutions

1.5 Apply and demand analysis
function
! Function is a rule (law) that defines a relationship
between one variable (independent, input, x) and
another variable (dependent, output, y, or f(x))

1.5 Apply and demand analysis (cont.)
demand
! Demand: the quantity of a good or service that
consumers are willing and able to buy at a given
price in a given time period.

demand function
! demand function: is a mathematical function describing how a
variable, quantity demanded of a good, depends on other
factors.

demand function
! Algebraically, the demand function can be described
as the following
Dx = f(Px, I, Pr, E, T)
• The demand of commodity x (Dx)
• The function of product x (f)
• Price of good or service (Px)
• Incomes of buyers (I)
• Prices of related goods& services (Pr)
• The future expectation of the product (E)
• Taste patterns of buyers (T)

law demand
! Law of demand states that the price of commodity
increases, demand decreases, provided other factors
remain constant.

demand curve
! For simplicity, we hypothesise that the demand
function is linear so that P = aQ + b

endogenous and exogenous variables
! In the model of consumer demand,
Dx = f(Px, I, Pr, E, T),
• Dx, Px: endogenous
• I, Pr, E, T: exogenous

inferior good vs normal good
• Inferior good: demand drops when people’s
income rises
• Normal good: demand rises as income rises

substitute goods vs complementary goods
• substitute goods: goods could be used for the same
purpose by consumers
• complementary goods: A and B are complementary
if using more of A requires the use of more of B

supply
! In economics, supply is the number of products that
a producer or seller is willing and capable to provide
to buyers.

supply function
! The supply function in economics is a mathematical
formula that depicts the relationship between
quantity supplied, price of the commodity, and other
related variables.

law of supply
! The law of supply states that as the price of a good or
service increases, supply quantity of goods or
services increases and vice versa.

supply curve
! For simplicity, we hypothesises that the supply
function is linear so that P = aQ + b

equilibrium
! Equilibrium: a state in which the supply and demand
for a given good or service are in balance.

equilibrium price
! Equilibrium price: of a given good or service, also
known as a clear-market price, is a price where the
demand and supply are matched.

equilibrium price
! Equilibrium point is intersection of the demand and
supply curves.

equilibrium price
! Market forces push prices toward the equilibrium.

equilibrium price
! If the market price is above equilibrium, quantity
suplied will greater than quantity demanded;
creating a surplus. When that occurs, market forces
push the price downward toward equilibrium until
the surplus is eliminated.

equilibrium price
! If the market price is below equilibrium, quantity
suplied will less than quantity demanded; creating a
shortage. When that occurs, market forces pull the
price upward toward equilibrium until the shortage
is eliminated.

shilfs in supply and demand
! Shilfs in supply or demand curves move the
equilibrium price and quantity.
• If demand increases, equilibrium price and
quantity both increase.

• If demand decreases, equilibrium price and
quantity both decrease.

• If supply increases, equilibrium price and quantity
both decrease.

• If supply decreases, equilibrium price and
quantity both increase.

double shilfs
! When supply and demand both shift, either price or
quantity will be indeterminate
• When supply and demand move in the same
direction, the equilibrium price is indeterminate,
the equilibrium quantity definitely increase.

double shilfs
• When supply and demand move in opposite
directions, the equilibrium quatity is
indeterminate, the equilibrium price definitely
decrease.

double shilfs
• Excise tax shilf the supply curve to the left
decreasing supply and increasing the equilibrium
price.

1.6&1.7 National income determination
factors of production
! Factors of production: the inputs needed for creating
a good or service, which include land, labor,
entrepreneurship, and capital.

1.6&1.7 National income determination (cont.)
national income
! National income is the monetary value of the sum
total of all final goods and services produced by the
factors of production of a country during a year.

circular flow of income
! The circular flow of income shows the economy as a
simple model where the households own all the
factor of production– land, labour, capital and
enterprise-– and the firms produce goods.

circular flow of income
! Money moves from households to firms for the
exchange of goods and services; and money moves
back to households as payment for the use of the
factors of production in the form of rent, wages,
interest and profit.

consumption function
! The consumption function is an economic formula
that measures the relationship between income and
total consumption of goods and services in the
economy.

consumption function
! The consumption function is represented as
𝐶 = 𝐶! + 𝑐𝑌
• Y0 is known as autonomous consumption
• Slope c is marginal propensity to consume

withdrawals
! Withdrawals from the circular flow is money which
leaves the flow, and does not flow back from
households to firms.

withdrawals
• Savings: money saved by households is not spent
again so does not flow back to firms
• Taxation: money paid by households to the
government (this money is not spent on goods
from firms)
• Imports: spending by residents on goods and
services made abroad

saving function
! The formula representing the relationship between
consumption, savings and income can be written as:
𝑌 =𝐶+𝑆

saving function
! Saving function establishes a functional relationship
between income and saving.
𝑆 = −𝐶! + (1 − 𝑐)𝑌
• -C0: autonomous saving
• 1 – c: marginal propensity to save

injections
! Injections into the circular flow is concumption
which does not come from households

injections
• Investment: spending by firms on capital stock
• Government spending: spending by central or
local government
• Exports: spending by foreigners on goods and
services made domestically.

balance between injections and withdrawals
• If all the injections equal leakages, the economy is
in equilibrium
• If injections are greater than withdrawals: an
economic growth
• If withdrawals are greater than injections: a
negativve economic growth

demand for money
! Demand for money comes from three sources:
transactions, precautions and speculations.

demand for money
• Transaction motive: hold money for the
conduction of day-to-day transactions.
• Households: demand money to meet the
household needs and expenditure; business
firms: carry on their bussiness activities.

demand for money
• precautionary motive: hold money for unforeseen
contigent situations, such as accidents, sickness,
etc.

demand for money
! More or less cash holding for the transaction and
precautionary motive directly depends on the income
level of people.
! Let L1 denote the aggregate transaction-
precautionary demand then
𝐿" = 𝑘"𝑌
• k1 is a positive constant, Y is the national income

demand for money
• speculative motive: hold cash as an alternative to
different financial assets. People may use it to
exchange back and forth to make a quick profit.

demand for money
! The speculative demand of money at high interest
rates becomes less, and at low interest rates becomes
high.
! We model this by writing
𝐿# = 𝑘#𝑟 + 𝑘$
• where L2 denotes speculative demand, k2 is
negative constant and k3 is a positive constant

total demand for money
! The total demand, MD, is the sum of the transaction-
precautionary demand and speculative demand:
𝑀% = 𝐿" + 𝐿#
= 𝑘"𝑌 + 𝑘#𝑟 + 𝑘$
! If the money market is in equilibrium, then
𝑀& = 𝑀%

IS-LM model
! The IS-LM model, which stands for “investment-saving” and
“liquidity preference-money supply”, is a Keynesian
macroeconomic model that shows how the maket for economic
goods (IS) interacts with the money market.

IS curve
! The IS-LM model, which stands for “investment-saving” and
“liquidity preference-money supply”, is a Keynesian
macroeconomic model that shows how the maket for economic
goods (IS) interacts with the money market.

Quizzes on the canvas


Chuong 1 Questions

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chuong 1 Questions

Uploaded by

Copyright:

Available Formats

MATHEMATICS

FOR ECONOMICS AND BUSINESS

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! Expression: is a combination of variables, constants

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

• Variable: represent numbers which are unknown or

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

• Constant: takes place a number that is unchanged

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! Equation: a statement that values of two expression

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! A solution of an equation is any value of the variable

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! Equations are equivalent if they have the same

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! The solution set of an equation is unchanged when

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! Inequality: a statement that the values of two

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! A solution of an inequality is any number that

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! A line is set of points connecting to make a straight

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! What is common for the points on the blue line?

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! Any line on the coordiate plane can be described by

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! Simultaneous linear equations: two linear equations

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! The solution of a system of simultaneous linear

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

• On the coordinate plane, each linear equation is a

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

! System of simultaneous linear equations may have:

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH

TT GIÁO DỤC SỚM & XUẤT SẮC PMH