Mathematics I

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 Outlet
• Linear and Quadratic Functions
• Graphs
• Mathematics for Finance
• Logarithms
• Differentiation of one Variable
• Applications in Economics and Business
 Evaluation
• One piece of homework 10% (upload on 25
October and 12 December 2021 deadline)
• Mid-term exam 30%
• Final Exams 60%

• Mid-term and final exams

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Introduction to Linear Algebra
 Reading List
• Basic Mathematics for Economists by Mike
Rosser, 2003, Routledge, Chapter 3
 Functions in general

Introduction
In every day speech we often hear economists
say things like
“ interest rates are a function of oil prices”,
“pension income is a function of years worked”

Sometimes such usage agrees with

mathematical usage, but not always.
 Functions of One Variable

• Variables: The basic elements of algebra,

usually called X, Y, and so on, that may be
given any numerical value in an equation
• Functional notation: A way of denoting the
fact that the value taken on by one variable
(Y) depends on the value taken on by some
other variable (X) or set of variables
Y  f (X )
8
Independent and Dependent Variables
• Independent Variable: In an algebraic
equation, a variable that is unaffected by the
action of another variable and may be
assigned any value
• Dependent Variable: In algebra, a variable
whose value is determined by another
variable or set of variables

9
 Functions in general
Example Taxidriver
What does a taxi ride cost me with company A?
• Base price: 5 Euro
• Per kilometer: 2 Euro

Price of a 7 km ride?

price  5  2  7  19
 Functions in general
Example Taxidriver
What does a taxi ride cost me with company A?
• Base price: 5 Euro
• Per kilometer: 2 Euro

Price of a 7 km ride?

price  5  2  7  19
 Functions in general
Example Taxidriver
What does a taxi ride cost me with company A?
• Base price: 5 Euro
• Per kilometer: 2 Euro

Price of an x km ride?

y  5  2x
 Functions in general
Example Taxidriver
What does a taxi ride cost me with company A?
• Base price: 5 Euro
• Per kilometer: 2 Euro

Price of an x km ride?

y  5  2x
 Functions in general
Definition
• x and y : VARIABLES
(length of ride in km) (price of ride in euro)
• y depends on x: INPUT  OUTPUT
x y

y: DEPENDENT VARIABLE
x: INDEPENDENT VARIABLE

Function: rule that assigns to

each input at most 1 output
 Functions in general
Definition
• We say: y is FUNCTION of x,
or in short f of x
• We denote: y(x) or y=f(x)
• Outputs are also called function values
Functions in general

Three representations
 Functions in general
Three representations
First way: Most concrete form!
Through a TABLE, e.g. for y = 2x + 5:
x y
0 5
1 7
2 9
… …
But: limited number of values  no overall picture
 Functions in general
Three representations
Second way: Most concentrated form!

Through the EQUATION, e.g. y = 2x + 5.

formula y = 2x + 5:
EQUATION OF THE FUNCTION
 Functions in general
Three representations
x y
Third way: y
0 5
Most visual form! 7
6 1 7
Through the GRAPH 5
rectangular coordinate system: 4
x-coordinate, y-coordinate 3
2
1

-4 -3 -2 -1 0 1 2 3 4 x
-1
 Functions in general
Three representations y
14

Third way:
Most visual form!

Through the GRAPH

e.g. for y = 2x + 5:
STRAIGHT LINE! 2

x
1 5

Note: In this example, the graph is a only a part of a straight line

 Functions in general
Exercises
The demand q of a product depends on the price p.
For a local pizza parlor some weekly demands and prices
are given
p q Remark: this table is called
10 640 a demand schedule
12 560
14 480
(a) What is the input variable? What is the output variable ?
(b) Indicate the points in the table on a graph
 Functions in general
Exercises
Suppose a 180-pound man drinks
four beers in quick succession.
The graph shows the blood alcohol
concentration (BAC) as a function
of the time.
(a) Input ? Output ?
(b) How much BAC is in the blood after 5 hours ?
(c) What will be the maximal BAC ?
After how much time, will this maximum be attained ?
(d) What’s the behavior of the BAC as a function of time ?
 Functions in general
Summary
- Definition
input x, output y
- 3 representations :
table
equation y=f(x)
graph in rectangular coordinate system
 Linear functions
Example Taxidriver
y = 5 + 2x

FIXED PART + VARIABLE PART

FIXED PART + MULTIPLE OF

INDEPENDENT VARIABLE

FIXED PART + PART PROPORTIONAL

TO THE INDEPENDENT VARIABLE
 Linear functions
Example Taxidriver
• Examples: cost of a ride with company B, C?
B  base price: 4.5 euro, price per km: 2.1 euro
C  base price 8 euro, price per km: 0.5 euro
y = 4.50 + 2.10x; y = 8 + 0.5x;

• In general: y = base price + price per km  x

y= b + m x
 Linear functions
Example Taxidriver
• Examples: cost of a ride with company B, C?
B  base price: 4.5 euro, price per km: 2.1 euro
C  base price 8 euro, price per km: 0.5 euro
y = 4.50 + 2.10x; y = 8 + 0.5x;

• In general: y = base price + price per km  x

y= b + m x
 Linear functions
Equation
A function f is a linear function if and only if
f(x) can be written in the form
f(x)=y=mx + b
where m, b are constants.

Caution: m and b FIXED: parameters

x and y: VARIABLES!

(Section 3.1 p138)

 Linear functions
Applications
• Cost y to purchase a car of 20 000 Euro and
drive it for x km, if the costs amount to 0.8
Euro per km?
y = 20 000 + 0.8x hence … y = mx + b!

• Production cost c to produce q units, if the

fixed cost is 3 and the production cost is 0.2
per unit?
c = 3 + 0.2q hence y = mx + b!
 Linear functions
Applications
• Cost y to purchase a car of 20 000 Euro and
drive it for x km, if the costs amount to 0.8
Euro per km?
y = 20 000 + 0.8x hence … y = mx + b!

• Production cost c to produce q units, if the

fixed cost is 3 and the production cost is 0.2
per unit?
c = 3 + 0.2q hence y = mx + b!
 Linear functions
Applications
• The demand q of a product depends on the
price p and vice versa. For a local pizza
parlor the function is given by
p=26-q/40

Note: The function p(q) is called the

demand function by economists
 Linear functions
Exersises
Rachel has saved $7250 for college expenses.
She plans to spend $600 a month from this account.
Write an equation to represent the situation.
 Linear functions
Exersises
For a local pizza parlor the weekly demand function
Is given by p=26-q/40.
(a) What will be the revenue for the pizza parlor
if 400 pizza’s are ordered ?
(b) Express the revenue as a function of the
demand q.

!! Not all functions are first degree functions

Note: Demand functions are not always linear !

Two Possible Forms of Functional
Relationships

• Y is a linear function of X
Y  a  bX
– Table 1.A.1 shows some value of the linear
function Y = 3 + 2X
• Y is a nonlinear function of X
– This includes X raised to powers other than 1
– Table 1.A.1 shows some values of a quadratic
function Y = -X2 + 15X
33
Table 1: Values of X and Y for Linear and Quadratic
Functions

Linear Function Quadratic Function

Y = f(X) Y = f(X)
2
x = 3 + 2X x = -X + 15X
-3 -3 -3 -54
-2 -1 -2 -34
-1 1 -1 -16
0 3 0 0
1 5 1 14
2 7 2 26
3 9 3 36
4 11 4 44
5 13 5 50
6 15 6 54

34
Graphing Functions of One Variable
• Graphs are used to show the relationship
between two variables
• Usually the dependent variable (Y) is shown
on the vertical axis and the independent
variable (X) is shown on the horizontal axis
– However, on supply and demand curves, this
approach is reversed

35
 Linear Function

• A linear function is an equation that is

represented by a straight-line graph
• Figure 1A.1 represents the linear function
Y=3+2X
• As shown in Figure 1A.1, linear functions
may take on both positive and negative
values
36
Figure 1A.1: Graph of the Linear Function Y =
3 + 2X

Y-axis
10

5
Y-intercept 3

X-axis

-10 -5 0 1 5 10
X-intercept
-5

-10
37
 Intercept
• The general form of a linear equation is
Y = a + bX
• The Y-intercept is the value of Y when when X
equals 0
– Using the general form, when X = 0, Y = a, so this
is the intercept of the equation

38
 Slopes

• The slope of any straight line is the ratio of the change in Y

(the dependent variable) to the change in X (the
independent variable)
• The slope can be defined mathematically as
Change in Y Y
Slope  
Change in X X
• where Δ means “change in”
• It is the direction of a line on a graph.

39
 Slopes

• For the equation Y = 3 + 2X the slope equals

2 as can be seen in Figure 1A.1 by the
dashed lines representing the changes in X
and Y
• As X increases from 0 to 1, Y increases from 3
to 5
Y 5  3
Slope   2
X 1  0
40
 Sample exercise 1

• Without using your calculator, calculate:

• 5 - (-12) + (-3)

• 6 -(+77) -(-77)

• 4 - 7 + (-8) + 9
 Sample exercise 2

• Without using your calculator, calculate:

• 4 /(-2)

• (-6) x (+3)

• (-5) x (-4) / (-2)

 Sample exercise 3
• Factorize:

5 - 25 + 75 = 5(1-5+15)=5(11)

- 3 - 9 + 12=3(-1-3+4)=3(0)
Or -3(1+3-4)=-3(0)

• Multiply out:

3 x (4 + 100)= 12+300=312
Or 3x104=312

- 6 x (15 - 2)
-90+12=-78

Or -6x13=-78
 Sample exercise 4
• If GDP (a measure of national production of
goods and services) fell by 3.5% between 1990
and 1991, and rose by 2.5% between 1991
and 1992, what was the level of GDP in 1992
as (a) a proportion and (b) a percentage of
GDP in 1990?
 Sample exercise 4 (cont.)
• Assume GDP(1990) was, say, 500 billion euros.
Then GDP(1991) was:
• 500*(96.5/100)=482.5 (billion Euros or TL or Yen)
And the GDP(1992) was:
• 482.5 *(102.5/100)= 494.5625

• Proportion:
• 494.5625/500= 0.989125
 Sample exercise 4 (cont.)
• Assume GDP(1990) was, say, 100 billion euros.
Then GDP(1991) was:
• 100*(96.5/100)=96.5 (billion Euros or TL or Yen)
And the GDP(1992) was:
• 96.5 *(102.5/100)= 98.9125

• Proportion:
• 98.9125 /100= 0.989125
 Example 1
• An engineering firm makes metal
components. Each component requires 0.01
tonnes of steel, 0.5 hours of labour plus 0.5
hours of machine time. Let the number of
components produced be denoted by x.
Derive algebraic expressions for:
• (a) the amount of steel required;
• (b) the amount of labour required;
• (c) the amount of machine time required
• (a) the amount of steel required;
0.01X
• (b) the amount of labour required;
0.5X
• (c) hours of machine time;
0.5X
 Example 2
• If the price per tonne of steel is given by r, the
price per hour of labour is given by w and the
price per hour of machine time is given by m,
then derive an expression for the total
production costs of the firm in the Example 1

• Cx=0.01rx + 0.5wx + 0.5mx

 Example 3
• The petrol consumption of your car is 12 miles
per litre. Let x be the distance you travel in miles
and p the price per litre of petrol in pence. Write
expressions for
• (a) the amount of petrol you use and
• (b) your expenditure on petrol.

• Quantityp=x/12
• Pricep=x*p/12
 Example 3
• The petrol consumption of your car is 12 miles
per litre. Let x (6) be the distance you travel in
miles and p (2) the price per litre of petrol in
pence. Write expressions for
• (a) the amount of petrol you use and
• (b) your expenditure on petrol.

• Quantityp=6/12=0.5
• Pricep=6*2/12=1
 Example 4
• When the UK government privatized the Water
Authorities in 1989 it decided that annual
percentage price increases for water would be
limited to the rate of inflation plus z, where z was
a figure to be determined by the government.
Write an algebraic expression for the maximum
annual percentage price increase for water and
evaluate it for an inflation rate of 6% and a z
factor of 3%.
π+z
 Example 5
• The basic hourly rate for a weekly paid worker is £8
and any hours above 40 are paid at £12. Tax is paid at
a rate of 25% on any earnings above £80 a week.
Assuming hours worked per week (H) exceed 40,
write an expression for net weekly wage in terms of
H and then simplify it.
• Solution
• gross wage = 40 × 8 + (H − 40)12 = 320 + 12H − 480 =
12H − 160
• net wage = 0.75(gross wage − 80) + 80 = 0.75(12H −
160 − 80) + 80 = 9H − 120 − 60 + 80 = 9H − 100
 Example 6
• If income tax is levied at a rate of 22% on annual
income over £5,400 then:
• (a) write an expression for net monthly salary in
terms of gross monthly salary (assumed to be
greater than £450), and
• 450+(X-450)*0.78=450+0.78X-351=99+0.78X
• (b) evaluate it if gross monthly salary is £2,650

• 99+0.78X=99+0.78*2,650=2,166
 Example 7
• Someone is booking a meal in a restaurant for
a group of people. They are told that there is a
set menu that costs £9.50 per adult and £5
per child, and there is also a fixed charge of £1
per head for each meal served. Derive an
expression for the total cost of the meal, in
pounds, if there are x adults and y children.

• TC=9.5x+5y+1(x+y)=10.5x+6y
 Example 8
• A firm produces a good which it can sell any
amount of at £12 per unit. Its costs are a fixed
outlay of £6,000 plus £9 in variable costs for each
unit produced. Write an expression for the firm’s
profit in terms of the number of units produced.
• Profit=revenue-cost
• Profit=12x-9x-6,000 where 12x=revenue
• And 9x+6,000=variable costs + fixed costs
• Profit=3x-6,000
 Example 9
Test Yourself, Exercise 3.9 page 75
• You are studying a subject which is assessed by
coursework and examination with the total mark for
the course being calculated on a 30 : 70 weighting
between these two components. Assuming you score
60% in coursework, insert the appropriate inequality
sign between your possible overall mark for the course
and the percentage figures below.
• (a) 18% ? overall mark
• (b) 16% ? overall mark
• (c) 88% ? overall mark
• (d) 90% ? overall mark
• Since I got 60 and the weight is 30%, then the part of the coursework is:
• 60x0.30=18

• The maximum I can get in the final exams is 100. Using the weight of 70%
or 0.70 I have:
• 100x0.7=70

• Taking the sum:

• Final grade of the course=courseworkx0.30+exam*0.70=
• 60x0.30+100x0.7=18+70=88

• However, the minimum can be:

• 60x0.30+0x0.7=18+0=18
Using the grade of 88
• 18% <= overall mark (18 or 88)
• 16% < overall mark (18 or 88)
• 88% >= overall mark (18 or 88)
• 90% > overall mark (18 or 88)