Mathematical

Economics
Week 2

Relation and Function

Relation

A relation: (between two variables) is a

set of ordered pairs of real numbers
Unordered sets or pairs NOT a relation

Example: finalist of Indonesia Idol {(Mike, 1),

(Judika,2), (Firman,3)} = {(Judika,1), (Firman,2),
(Mike,3)} = {(Firman,1), (Mike,2), (Judika,3)}

Ordered sets or pairs a relation

Example: Juara Indonesia Idol diurutkan

berdasarkan pooling SMS yang masuk
{(Mike,1), (Judika,2), (Firman,3)}
3

Domain and Range

Domain: The set

of all first
elements of a
given relation
Range of the
relation: The set
of all second
elements of a
given relation

Juara
Indonesia
Idol
(Domain)

Pooling SMS
(Range)

Relation: example

Ekki
Bagdja

Mutiara

Ekki

Wawan

Feyza

Bagdja

Rahmat

Intan

Ari

Fahmi

Hubungan Ayah - Anak

Hubungan Pertemanan

Relation

Another example, the set

{(x,y):yx} y
y=x
x

Function

A function is a relation with the property that

for each x in the domain there corresponds
exactly one y
Thus, a function is a set of ordered pairs such
that any x value uniquely determines a y
value
For example, the set M = {(x,y): y = 2x} is a
function
If f denotes a function {(x,y)...}, we can write
y = f (x) which is read a "y equals f of x"
or "y is the image of x under the function f ".
7

Function: example
Matematika

Ari

Ek. Makro

Ferry

Statistika

Amel

Ekonometrika

Maman

Fungsi Mata Kuliah - Dosen

10
20
30
40
50
60
70

1000
2000
3000
4000
5000
6000
7000

Fungsi Kuantitas - Biaya

Function

In the function y = f(x), x is called

the argument of the function and
y is the value of the function
Alternatively, we may refer to x
as the independent variable and y
as the dependent variable

Function

For example, if y = f(x) = x2, we

obtain y by squaring the value of x.
In specifying a function, we should
in principle specify its domain (D)
Example: y=x2,xR y=x2,xR+

One to one function :

f(x1) f(x2) x1x2, x1,x2D
10

One to one Function:

example
f(x1) f(x2) x1x2, x1,x2D
xi
Angki

Ratna

Bagdja

Ira

Ari

Endang

Fungsi Pernikahan

1
2
3
4
5
6

f(xi)
1
4
9
16
25
36

f(xi)={(xi,f(xi):f(xi)=xi2,1x6,xiZ++
11

Summary
Relation

Function

1to1 Correspondence

Function

Relation
1to1 correspondence
12

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, 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
f(t)=et f(t)=logey=ln y

A
13

Inverse function,
graphically
t

y=et

t=ln y
450

450
y

14

Composite functions

Composite functions: If y is a
function of x and x is a function of
t, then y is a function of t
Generally, if y = f(x) and x = g(t),
then we write y = f(g(t))
For example, if y = 2x and x = t2,
then y = f(g(t)) = 2t2
15

General and Specific

Function

General function: the function is written

only in symbols of independent variables
and commas with no numerical
coefficients
Example :

C=C(Y)
Dfx=Dfx(IM,KO,,*,i,i*,e[Pim],)
U1 = U1(X11,X12,,X1n,U2,U3,,Un)
C=C0+MPC.Yd

Depends on the level of generality

16

General and Specific

Function

Specific function: numerical

coefficients (and a constant) is
(are) attached to the argument of
the function
Example:

C=100+0,8.Yd
Md=-300i + 1000Y
Qdx=-3Px+4Py-0.5Pz+10Y
17

Explicit vs implicit
functions

Explicit when we can determine which

variable is the dependent variable, and which
variable(s) are the independent variable(s)
Dibatasi oleh tanda = (atau inequality signs)

Implicit when we can not determine (are

not sure) which variable is the dependent /
independent variable
All variables are on the left hand side of the
equality (inequality) sign

Example of implicit function:

f(x,y,z)=0; 4x+5y-2=0
18

Types of functions
Fungsi
Fungsi Aljabar
Fungsi irasional

Fungsi non-alljabar

Fungsi rasional

Fungsi eksponensial
Fungsi linear

Fungsi logaritma

Fungsi kuadrat

Fungsi trigonometri

Fungsi Kubik
Fungsi pangkat (tinggi)
Fungsi pecah
19

Linear Function

y=a+bx, xIR the power of

independent variable(s) is(are) = 1
Graph: straight line
a=intercept (y axis), the value of y when
x=0
The change in the dependent variable
because of one unit change in the
independent variable is constant (the
slope, b, is constant) b = y/x
Example: a constant opportunity cost
PPF
20

Example: constant cost

PPF

y=100-(1/4)x,
y
xZ+
Slope = -1/4
100
Intercept = 100
If x is not
produced, then a
country can
produce a
maximum of 100 y

Feasible
region
x
400
21

Quadratic function

y=ax2+bx+c, a0, xIR

The power of
independent variable(s)
is(are) 2
Often: domain is IR+
a>0 convex (Ushaped), has a minimum
point
a<0 concave
(inverted U-shaped), has
a maximum point

Minimum or maximum
occurs at the point x=b/2a
Maximum/minimum in a
positive value of x if
b>0, in negative value
of x if b<0
y axis intercept = c
x axis intercept(s)
y=0 quadratic
equation, can use the
2
formula:
b b 4 a
c

x1,2

2a
22

Quadratic function

Discriminant : D = b2 4ac
If D>0 : both of the roots are real
numbers and have different values
If D=0 : both of the roots are real and
have equal values
If D<0 : both of the roots are not real
D/-4a=the maximum value of the
dependent variable (if a<0) or
minimum value (if a>0)
23

Example

Qd

Qd=-P2 + 4
a<0, b=0, c>0,
D=0-(4.(-1).(4))
=16>0
An inverted U
shaped curve
with a maximum
point at P=0 and
has real roots

-2

PIR+

24

Cubic function

y=ax3+bx2+cx+d
The power of independent variable(s)
is(are) 3
To find the roots (xi) can use factoring
No general rule of factoring exists trial
and error

To graph use curve tracing method

Can be found in Total Cost Curve or
Total Product Curve
25

Cubic Function

Example: y = x3 x2 4x + 4
Find the roots!

To find the roots, y=0

x3 x2 4x + 4 = 0
(x 1) (x + 2) (x 2) = 0
x1=1, x2=-2 x3=2

Graph

mathca
mathca
dd
26

Rectangular Hyperbola

Rational function xy=a or y=a/x

More general form y=(ax+b)/(cx+d), c0
In economics, we restrict xIR+
Intersection with y axis = b/d
Intersection with x axis = ax+b=0 x=-b/a
Asymptot: y ~ and x ~
y~ then cx+d=0, x=-d/c
x~ then y=a/c [proof!]
Example: y=(2x+3)/(x+1)
27

Power, exponential,
and logarithmic
functions
Exponential function,
Power Function,

General form: y=axb

Basic rules (review)

anam=an+m
(an)m=anm
an/am=an-m
a0=1
a1/n=na
a-n=1/an
ambm=(ab)m

General form: y=bx

b base of the
function
In many cases b
takes the number
e=2.718

ea number that has

a characteristic of ln
e=1

y=ex
28

Derivation of the
number e and its rules

Derivation of e
Consider the function:
f(m) =
(1+(1/m))m
If larger and larger
values are assigned to
m, then f(m) will also
assume larger values
f(1)=2; f(2)=2,25;
f(4)=2,44141;
f(100)=;f(1000)=
f(m) will converge to
the number 2,71828

Rules of e
e0=1
ea(eb) = ea+b
(ea)b=eab
ea/eb=ea-b

29

Logarithmic function

Logarithmic function is the inverse of

exponential function
General form: y=blog x or y=logb x
The inverse: x = by
Common log: b = 10
Natural log: b = e

Natural logarithm, general form: y=log e y = ln x

The log of the base = 1
Example:
100 = 102 2 = log10 100 or log 100 = 2
ln e = 1
ln e3 = 3
30

Logarithms Rules

ln(uv) = ln u + ln v
(u,v>0)

ln(e3.e2) = ln e3 + ln
e2 = 3+2=5

ln(u/v) = ln u ln v
(u,v>0)
ln(e2/c) =2 ln c

ln(uva)= ln u + ln va
= ln u + a ln v

ln(xy2) = ln x + 2 ln y

ln(uv) ln u ln v

ln(e5e2) ln (5+2)
ln (5-2)

Logbu=(blog e)(elog u)
u = ep p = elog u
logbep=(blog e) p
p logb e = p (blog e)
p blog e = p blog e

ln(ua)=a ln u
ln e15 = 15

logb e =1/(loge b)
Let u = b

31

Logarithms Rules

logb e =1/(loge b)

Let u = b
Logb b=(logb e)(loge
b)
1 =(logb e)(loge b)
logb e= 1/(logb e)

32

Exponential equation

Solve abx c = 0, lets try to solve

this

33

Function with 2 or
more independent
variables
In economics, this type of function is
used frequently

Q=f(K,L)
Cobb Douglass production function: Q=AKL

Example:
y=x12.x22
Q=K0.5L0.5
U=x1x2-2x1

3D Grapher (demo)
34

Convexity and
Concavity of a function

The function z=f(x1,x2) is concave

(convex) if, for any pair of distinct
points M and N on its graph a surface
line segment MN lies either on or
below (above) the surface.
The function is strictly concave
(convex) iff line segment MN lies
entirely below (above) the surface,
except at M and N
35

Convexity and
Concavity of a function
M

N
M

36

Level Set

Shows the set of points in the domain

of the function that gives equal values
of the function
Moving from 3D to 2D
Example:
y = a1x1+a2x2 , (x1,x2) IR2+, a1,a2>0
and
y = x1ax2b (x1,x2) IR2+, a1,a2>0, a+b>1
37

Level Set

Applying the definition of a level

set:
a1x1+a2x2 = c x2=c/a2 (a1/a2)x1
x1ax2b = c x2=(cx1-a)1/b

Now can be graphed in a 2D space

38

Level Set
x2

x2

c2
c1
c0
x1
c0

c1

x1

c2

39

Sequences,
Sequences, Series,
Series, and
and
Limits
Limits

40

Sequence

A succession of numbers; A function whose

domain is the positive integers; a set of numbers
that are ordered according to a specific rules;
The element of a sequence is usually denoted by
aian
Example:
{1,2,3,4,an} an=n
{3,6,9,12,,an} an=?
Use the formulae an=+(n-1), where
= the first element of a sequence
= the difference between two consecutive elements
an = the n-th element of a sequence
a10 = 3 + (9)3 = 30

41

Limit of a sequence

Some sequences have limits. For example:

f(n)=1/n0 as n
f(n)=(n+1)/(n+2) 1 as n
these sequences are convergent
Other do not have limits, e.g., f(n)=2n+3
this sequence is divergent
A divergent sequence is said to be definitely divergent if:

For any (arbitrarily large) value of K there is an N sufficiently

large that an>K for all n>N, then the sequence is definitely
divergent and limnan=
For any (arbitrarily large) value of K there is an N sufficiently
large that an<-K for all n>N, then the sequence is definitely
divergent and limnan=-
42

Definition of Limit of a
sequence

A sequence has a limit L provided

all values of the sequence
beyond the term can be made
as close to L as one wishes
an=(1/n) has limit L=0

43

Number e and limit

Derivation of e
Consider the function:
f(m) = (1+(1/m))m
If larger and larger
values are assigned to
m, then f(m) will also
assume larger values
f(1)=2; f(2)=2,25;
f(4)=2,44141;
f(100)=;f(1000)=
f(m) will converge to
the number 2,71828

Hence, the function

f(m) has a limit
e=limm f(m)
e=limm
(1+(1+m))m

44

Bounded and
unbounded sequence

A sequence is bounded if there is some

finite value K > 0 such that
lim an < K
(bounded above)
n

lim an > -K

(bounded below)

A sequence is bounded if and only if it

has a lower bound and an upper bound
45

Monotonic Sequence

A sequence is monotonically
increasing if a1 a2 a3
A sequence is monotonically
decreasing if a1a2

46

Properties of a series

Limncan=cLa for c any constant

Example: limn 2/n = 2 (limn
1/n)=0

Limn(anbn)=La Lb
Limn (an)(bn)=La Lb
Limn(an/bn) = La/ Lb
47

Series

A special type of sequence

Each of its member is obtained by
summing the members of the
sequence arithmatic series
If at, t=1,2,3, is a sequence, then sn
= nt-1at, n=1,2,3, is called a
(arithmatic) series
Deret aritmatika adalah deret yang
diperoleh dengan menjumlahkan sukusuku suatu barisan aritmatika
48

Determining
convergency of a
series
If sn=nt-1at is a series associated

with sequence at and

Limn~ |(an+1)/an| = L
It follows that

If L < 1 then series sn converges

If L > 1 then series sn diverges
If L = 1 then series sn may converge
or diverge
49

Geometric Series

One of the most important series in

mathematics and in economics
Deret geometrik adalah deret yang
diperoleh dengan memjumlahkan sukusuku barisan geometri
Barisan yang setiap suku berikutnya
diperoleh dengan mengalikan suku
sebelumnya dengan sebuah bilangan tetap
tertentu

Bilangan tetap tersebut disebut rasio (r) atau

50

Example

Barisan geometrik: u1,u2,u3,u4,un

Jika : u2/u1 = u3/u2 = un/un-1=r

Jika u1=a, maka u2=ar, u3=ar2

Sehingga un=u1rn-1=arn-1
Bentuk umum barisan geometri:
a,ar,ar2,ar3,,arn-1
51

Example

Sn=a+ar+ar2+ar3++arn-1
u1=a
un=arn-1

Sn=a(rn1)/(r-1) if r>1
Sn=a(1rn)/(1-r) if r<1

52

Economic Application

Present Value (PV) of a stream

Investment
Cost Benefit Analysis of a project

PV of a cash stream r = 6%/year

We have u1=a=Rp 100,000,000.00

We have n = 10 years
We have a geometric series of:
PV = V/(1+r)n

53

UNIVARIATE CALCULUS
and OPTIMISATION

54

Continuity of Functions

Important: many mathematical

techniques only applicable if the
function is continuous
Continuity of a function
explained easily with the aid of a
graph
A Function is continuous if the graph of
the function has no breaks or jumps
55

Continuity of a
function
f(x)

y=2x

6+
6
6-

x
3- 3 3+

Function y=2x is
continuous at every
point x IR
x=3 f(x)=6
Choose a small
number,there is
some value > 0
such that all the
function values
defined on the set of
x values
56

Discontinuous function
f(x)

f(x)=+1, x 0
= -1, x > 0

f(x) = +1, x 0
= -1, x > 0
The function has
an obvious break
or jump at the
point x = 0

-1

57

Formal definition

A function f(x) which is defined on

an open interval including the
point x=a is continuous at that
point if
Limxa f(x) exists, i.e

Limxa- f(x) = Limxa+ f(x)

Limxa f(x) = f(a)

58

DERIVATIVE AND
DIFFERENTIAL

59

Derivative

A convenient way to express how a

change in the level of one variable (say
x) determines a change in the level of
another variable (say y)
Examples:
How a change in a tariff rate determines a
change in domestic (border) price of
importables
How a change in export price determines a
change in export supply
60

Definition of derivative

The derivative of
a function y=f(x)
is simply the
slope of the
tangent line
A tangent line (to
a curve) is a line
which just
touches the curve
at a given point

y
y=f(x)
P

61

Definition of derivative

The derivative of
a function y=f(x)
at the point
P=(x1,f(x1)) is the
slope of the
tangent line at
that point
Notation: y/x
or dy/dx or f(x)

tangent
line
y=f(x)
P

62

Definition of derivative
Secant
line

y
y+y
y

y=f(x)

x
x

x
x+x

63

Definition of
Differential

If f(x0) is the derivative of the

function y=f(x) at the point x0, then
the total differential at a point x 0 is
dy=df(x0,dx) = f(x0) dx

The differential is a function of both

x and dx
64

Differential

The differential provides us with a

method of estimating the effect of
a change in x of amount dx = x
on y, where y is the exact
change in y while dy is the
approximate change in y

65

Differential

The differential is
sometimes described
as the linear (or
straight-line)
approximation to the
change in y when x
changes by dx.

Overestimated
differential

For smaller changes

in x, the expression
of differential offers a
better approximation
66

Conditions for
differentiability

67

Rules of differentiation

Derivative of a constant functio

Derivative of a linear function

Derivative of a power functio

Derivative of a
constant multiple of
a function

68

Rules of differentiation

69

Rules of differentiation

70

Higher Order
Differentiation

71

MathCAD for differenti

ation

72