DI RANGKUM
OLEH
ASOGIA AKBAR
201434025004
CHAPTER 5
A. Partial Differentiation
funtions of more than one variable. In many ways chapter can be rearded as the
climax of the whole book. It is summit of the mathematical mountain that we have
been merrly climbing. Not only are the associated mathematical ideas and
sousce of application. In one sense there is no new material presented here. If you
know how to differentiate a function of one variable then you also know how to
partally differentiate a function of several because the rules are the same.
Similary, if you can optimisme a function of one variable then you need have bo
values of a function as described in chapter 4 then you really are fighting a lost
couse. Under these circumstantance you are best advised to omit this chapter
entirely. There is no harm in doing this, because it does not form gant and useful
branches of mathematics.
There are six sections. It is importan thyat sections 5.1 and 5.2 are read first.
But the remaining sections can be studied in any order. Sections 5.1 and 5.2
and then use them to determine marginal functions and elasticities. Section 5.3
describes the multiplier concept and completes the topic of national income
The final three sec5tions are devoted to optimization. For function of several
variable, optimization problem are split into two groups, unconstrained and
maxiimisation and minimization of function in which the variable are free to take
variable are examined. For example, affirm might wish to minise cost but is
maximize utility but is subject to a budgetary constraint, and so on. There are two
ways of solving contraind problem : the method of substitution and the method of
Objectives
for a good depends not only on its own price but also on the price of
expenditure and so on. Likewise, the output from a production process depend on
a varety of inputs, including land, capital and labour. To analyse general ecomics
behaaviour we must extend the concept of function, and patticu, larly the
A function, f,of two variableis is a rule that assingns to each incoming pair
Figure 5.1. The black box fperform some arithmetic operation on x and y to
produce z. for example, the rule might be ‘multiply the two number together and
add twich the second number;. In symbols we write this either as.
F(x,y)=2x+2y
Or as
Z=xy+2y
Inorder to be able to evaluate the function we have specity the numerical values of
both x and y.
F(3,4)=3x4+2x4=20
F(4,3)=4x3+2x3=18
We have used the labels x and y for the two incoming numbers (called the
Y=x1x2+2x2
Say, using x1 and x2 to denote the independent variable and using y this time to
denote the dependent variable. This use of subscripts may seem rather
Y=f(x1,x2,……………….,xn)
SECTION 5.2
OBJECTIVES
indifference curve.
more difficult than ordinary differentiatlon. The only difference is that for
functions of several variables you have to be clear at the outset which letter in a
remaining letters are then iuSt constants in disguise! Once you have done this,
the aetual differentiation itself obeys the usual rules. In Sections 4.3 and 4.5 we
relationship between ordinary and partial differentiation, you should not be too
Elasticity of Demand
Utility
Production
Suppose that demand, Q, for a certain good depends on its price,P, the
Q=f(P,PA,Y)
one of these three variable. This can be measured quantitatively using elasticity.
Whith PA dan Y he;d constant. This definition is ident following the same
white bread and bus transportation are examples of inferior goods. if a good is
normal then demand rises as income rises and EY is positive. Sometimes the value
of EY of a normal good might am exceed 1. These goods are called superior. For
these goods the percentage rise in consumptron is greater than the percentage
Example
Q= 100 – 2P + PA + 0.1 Y
Solution
∂Q = -2
∂P
b) To find the cross-price elasticity of demand we partially differentiate
Q=100 – 2P +PA+0.1Y
PRACTICE PROBLEM
Q=500-3P-2PA+0.0|Y
Unfortunately, it is not so easy to identify the motivation for their behaviour. One
this were the case then individuals would try to work 24 hours a day for 7 days a
week, which is not so. In practice, people like to allocate a reasonable proportion
Consumers are faced with a choice of how many hours each week to spend
working and how many to devote to leisure. In the same way, a consumer needs to
decide how many items of various goods to buy and has a preference between the
associate with each set of options a number, U, called utility, which indicates the
level of satisfacrion. Suppose that there are two goods, GI and 62, and that the
consumer buys xl items of GI and x2 items of G2. The variable U is then a
U=U (x1,x2)
If
for example, then the consumer. derives g-reater satistaction trom buymg tour
items of G1 and Live items of G2 than from buying three items of G1 and seven
items of G2. Utility is a functionof two variables, so we can work out two first-
PRACTICE PROBLEM
Where x1 is the amount of leisure measured in hours per week and x2 is carned
for example, then the consumer. derives g-reater satistaction trom buymg tour
items of G1 and Live items of G2 than from buying three items of G1 and seven
items of G2. Utility is a functionof two variables, so we can work out two first-
It was pointed out in Section 5.1 that functions of two variables could be
represented by surfaces in three dimensions. This is all very well in theory, but in
practice the task of sketching such a surface by hand is virtually impossible. This
difficulty has been faced by geographers for years and the way they circumvent
the problem is to produce a two-dimensional contour map. A contour is a curve
joining all points at the same height above sea level. Exactly the same device can
be used for utility functions. Rather than attempt to sketch the surface, we draw an
indifference map. This consists of indifference curves joining points (x,, x2)
defined by an equation
U(x1,x2)=U0
for some fixed value of U0. A typical indifference map is sketched in Figure 5.4.
Points A and B both lie on the lower indifference curve, U0 = 20. Point A
corresponds to the case when the consumer buys aI units of G1 and a2 units of
COMPARATIVE STATICS
Objectives
ADVICE
The content of this section is quite difficult since it depends on ideas covered
earlier in this book. You might find it helpful to read quickly through Section 1.7
The simplest macroeconomic model, dlscusscd 1n bection 17, assumes mat were
are two sectors, households and firms, and that household consumption, C, is
In this equation Y denotes national income and a and b are parameter. The
parameter a is the marginal propensinsity to consume and lies in the range 0<a<1.
equilibirium
Y=c+1
I=I
For some constant I. Equations (1),(2), and (3) describe the structure of the model
and as such are called structural eqations. Substituating equations (1) and (3) into
Y =aY +b+ 1
Y-aY = b+1
(1-a)Y=b+1
This is known as the reduced form because it compresses the model into a Single,
level of income in this way IS referred to as statics because it assumes that the
considered in Chapter 9.
We should like to do rather more than just to calculate the equilibrium values
here. In particular, we are interested in the effect on the endogenous variables in a
model brought about by changes in the exogenous variables and parameters. This
is known as comparative statics, since we seek to compare the effects obtained by
varying each variable and parameter in turn. The actual mechanism for change
will be ignored and it will be assumed that the
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