FACULTY OF ECONOMICS

UNIVERSITAS PADJADJARAN

Mathematics for Economics

Linear Function
• GENERAL FORM:

y=a+bx, xIR
the power of independent variable(s)
is = 1
• a=intercept (y axis), the value of y when x=0
• b=slope/gradient
– measures the change in the dependent variable
because of one unit change in the independent
variable.
– b is constant
• Graph: straight line
Example

• y = 10 – 2x
• a = 10, b = – 2
• How to graph?
– Set y = 0, we have the the value of x if
y=0x=5
– Or, use a table, say, start from -5 up
to 5
Example
x y
-5 20
-4 18
-3 16
-2 14
-1 12
0 10
1 8
2 6
3 4
4 2
5 0
Example
y

25

20

15

10

0
-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6
Constant Function
Y

Y=5

0 X
6
 Ingredients of a mathematical
model
• A mathematical Economic Model
will consist of:
– Variables, Constants
– Parameters, Equations and Identities
• Example: Supply-demand model
Qd =  - P demand equation
Qs =  + P supply equation
Qd = Qs equilibrium
condition
 Example: demand function

• For each price level of a product,

there is a corresponding quantity of
that product that consumers will
demand during some time period
• Usually, the higher the price, the
smaller the quantity demanded: as
the price falls, the quantity
demanded increases (ceteris
paribus)
 Example

• The demand for automobile tires

can be expressed as a linear
function where
• Qd=26400 – 200 Pd
• TO DRAW: Rewrite this function
into its inverse (so we can have P
as “dependent” variable)
• Pd=132 – 0.005Qd
 Inverse function
• If a function y = f(x) is
one-to-one, with domain
A and range B, we can
construct its inverse f-1,
with domain B and range A B
A, such that if (xi, f(xi)) is
an ordered pair of the
function f then there
exists (yi,f-1(yi)) such that
yi = f(xi) and f-1(yi) = xi
• f(x)=2x  f-1(y)=1/2 f(x)
• y=1/x  x=1/y B A
• f(t)=et f’(t)=logey=ln y
Example: demand curve

Px

X
 Example: supply function

• For each price level of a product,

there is a corresponding quantity of
that product that producers will sell
during some time period
• Usually, the higher the price, the
higher the quantity supplied: as the
price falls, the quantity supplied
decreases (ceteris paribus)
 Example

• The supply of automobile tires can

be expressed as a linear function
where
• Qs=-12666.66 + 333.33 Ps
• Rewrite this function into its inverse
(so we can have P as “dependent”
variable)
• Ps= 38 + 0.003Qs
Example: supply curve

Px

X
 Linear Function (univariate)
A small enterprise is considering to
purchase a van. The management
estimates that the purchase of that van
would be Rp 100,000,000. They also have
estimated an average operating cost of Rp
5,000 per km.
– Determine the mathematical function which
represents the total cost C of owning and
operating the car in terms of the number of
kms it is driven
– What are the projected total costs if the car
is driven 3,000 kms during this month?
 Answer
• Biaya=f(jarak)
– Biaya = 5000.jarak + 100,000,000
• Projected total cost when the car is
driven 3,000 kms:
Biaya = 5000(3000) + 100,000,000
= Rp 115,000,000
 Answer
Jarak Biaya Biaya
Pembelian Operasional
0 100000000 0
500 100000000 2,500,000
1000 100000000 5,000,000
1500 100000000 7,500,000
2000 100000000 10,000,000
2500 100000000 12,500,000
3000 100000000 15,000,000
Graph
Formulas of Gradient

1. y  y1
tg  b 
x  x1
2.
y  y1 y2  y1
tg  b  
x  x1 x2  x1