Outline

I.  Summation Operation and Descriptive 
Statistics
Basic Mathematical Tools II. Properties of Linear Functions
III. Proportions and Percentages
Read Wooldridge, Appendix A IV. Special Functions
V.  Differential Calculus

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 2

Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

I.  Summation Operation and 
Descriptive Statistics Summation Operation
• Summation operator () involves the sum of many numbers.
• Property s.1:  For any constant c,
n
• Given a sequence of n numbers
{xi; i=1, …, n}
 c  nc
i 1

• The sum of these numbers
• The sum of n constants (c) equals the product of n and c
n

 x = x
i1
i 1 + x2 + …. + xn

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 3

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 4
I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Summation Operation Summation Operation
• Property s.2: • Property s.3:  If {(xi,yi): i=1, …,n} is a set of n pairs of 
numbers and a and b are constants, then
n n

 cxi  c xi n n n
i 1 i 1
 (ax  by )  a x  b y
i 1
i i
i 1
i
i 1
i

The sum of c times xi equals c time the sum of xi.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 5

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 6
I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Summation Operation Summation Operation
• Notes that the sum of ratios is not the ratio of the sums. • Note that the sum of the squares is not the square of the sum.
n n

x  ( xi ) 2
n

n
xi x i i
2

y  i 1
n
i 1 i 1
i 1 i
y
i 1
i

• Example: n = 2
• Example: n = 2 x12 + x22  (x1 + x2 ) 2

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 7

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 8
I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Summation Operation and  Descriptive Statistics: Sample average
Descriptive Statistics
• When the xi are a sample of data on a particular variable, we 
• Given a sequence of n numbers {xi; i=1, …, n}, the average  call this the sample average or sample mean.
or mean can be written as
1 n • Sample average is an example of a descriptive statistic.
x 
n
i 1
xi
• Sample average is a statistic that describes the central 
tendency of the set of n points.
• Average is computed by adding them up and dividing by n

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 9

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 10
I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Descriptive Statistics: Sample median Descriptive Statistics: Sample median

• Other measure of central tendency is sample  • Steps in finding sample median
median.
Step 1: order the values of the xi from smallest to largest.

• Example: Given numbers, {‐4, 8, 2, 0, 21, ‐10, 18} Step 2: if n is odd, the sample median is the middle number of 
– Sample mean = 35/7 = 5 the ordered observations.
– Sample median = 2
• Ordered sequence {‐10, ‐4, 0, 2, 10, 18, 21} Step 3: if n is even, the median is defined to be the average of 
the two middle values.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 11

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 12
I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Summation Operation and Descriptive 
Descriptive Statistics: Sample median
Statistics

• If 21 is changed to 42
• Numbers {‐4, 8, 2, 0, 42, ‐10, 18} • Deviations
– Sample mean = 56/7 = 8
– Sample median = 2 • Deviations can be found by taking each observation and subtracting off 
• Ordered sequence {‐10, ‐4, 0, 2, 10, 18, 42} the sample average

• Sample median:   di  xi  x
Good point: it is less sensitive than sample average to changes 
in the extreme values in a list of numbers. Examples are 
median housing values or median income.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 13

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 14
I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Summation Operation and Descriptive 
Statistics Deviations and Demean Sample
Example: n =5
• Properties d1: Given {xi; i=1, …, n},
x1 = 6, x2 = 1, x3 = ‐2, x4 = 0, x5 = 5
The sum of the deviations equal zero.
n n
x ?
 di   xi  x  0
i 1 i 1
Demean sample is {4, ‐1, ‐4, ‐2, 3}
n

x x 0
i 1
i

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 15

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 16
I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Descriptive Statistics: Algebraic Fact Descriptive Statistics: Algebraic Fact

• Properties d2: Given {xi; i=1, …, n}, • Properties d3: Given  {(xi,yi): i=1, …,n},
the sum of squared deviations is the sum of squared xi minus  It can be shown that
n n
n times the squared of sample mean.
 ( xi  x )( yi  y )   xi ( yi  y )
i 1 i 1
n n

 (x  x )   x
i 1
i
2

i 1
i
2
 n( x ) 2 n n
  ( xi  x ) yi   xi yi  n( x  y )
i 1 i 1

• Show!

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 17

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 18
I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Summary: Summation and Deviation Problem A.1
Summation Deviation A.1 The following table 
contains monthly housing 
s.1    d.1     expenditures for 10 families.
s.2   d.2     2
2 (i) Find the average monthly 
housing expenditure. [ans.]
s.3 d.3         
(ii) Find the median monthly 
housing expenditure. [ans.]

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 19

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 20
I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Housing
Problem A.1 continue Solution A.1 (i) Family Expenditures
1 300
2 440
• (iii) If monthly housing expenditures were measured in  (i) $566. 3 350
hundreds of dollars, rather than in dollars, what  4 1100
would be the average and median expenditures?  1 n
x   xi
5 640
[ans.] 6 480
n i 1 7 450
• (iv) Suppose that family number 8 increases its monthly  8 700

housing expenditure to $900 dollars, but the  9 670
10 530
expenditures of all other families remain the same. 
Sum 5,660
Compute the average and median housing 
Mean 566
expenditures. [ans.]

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 21

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 22
I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Solution A.1 (ii) Solution A.1 (iii)
(ii) 505
(iii)
Steps in finding sample mean
• $566 and $505 (in dollars), respectively
• Step 1: order the values of the xi from smallest to largest. • 5.66 and 5.05 (in hundreds of  dollars), 
{300, 350, 440, 450, 480, 530, 640, 670, 700, 1100,}
respectively.
• Step 3: if n is even, the median is defined to be the average of 
the two middle values.
The two middle numbers are 480 and 530; when these are averaged, 
we obtain 505, or $505.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 23

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 24
I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 II. Properties of Linear Functions
Solution A.1 (iv)
Housing Housing
Family Expenditures Expenditures
(iv)  1 300 300 A linear function can be written as
• The average increases to  2 440 440 y = 0 + 1x
$586 from $566. 3 350 350
4 1100 1100 • y and x are variables;
• while the median is  5 640 640
• 0 and 1 are parameters;
unchanged ($505). 6 480 480
– 0 is called the intercept;
7 450 450 – 1 is called the slope.
{300, 350, 440, 450,  8 700 900
480, 530, 640, 900,  9 670 670 • We say that y is a linear function of x.
670, 1100,}  10 530 530
Sum 5,660 5,860
Mean 566 586
I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 25
I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 26
I. Summation Operation and Descriptive Statistics Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Example A.2  Linear Housing Expenditure 
Linear Functions
Functions

• Relationship between monthly housing (dollar) expenditure 
• y = 0 + 1x and monthly income (dollar)
y = 1x – housing = 0 + 1income
 denotes “change”. – housing = 164 + 0.27income

• The change in y is always 1 times the change in x, x. • Interpret: 1 = 0.27 or slope 

– When family income increases by 1 dollar, housing expenditure will go 
up by 0.27 dollar or 27 cents
• In other words, the marginal effect of x on y is constant 
and equals to 1.
• What if family income increases by $300?? 

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 27

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 28
II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Example A.2  Linear Housing Expenditure  Example A.2  Linear Housing Expenditure 
Functions Functions

– housing = 0 + 1income

– housing = 164 + 0.27income

• Interpret: 0 = 164 or intercept
– When income=0, housing expenditures equal $164.
– A family with no income spends $164 on housing.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 29

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 30
II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Example A.2  Linear Housing Expenditure 
Functions  Linear functions
• housing = 164 + 0.27income
• MPC and APC • A linear function can have more than two variables.
– 1 is the marginal propensity to consume (MPC). • y = 0 + 1x1 + 2x2
1 = 0.27
– The average propensity to consume can be written as
hou sin g 164
– 0 is called the intercept (the value of y when x1=0 and 
  0.27 x2=0)
income income
– 1 and 2 are slopes.
• Note that     (1) APC is not constant 
(2) APC>MPC 
(3) APC gets closer to MPC as income increases.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 31

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 32
II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Linear functions Linear functions
• y = 0 + 1x1 + 2x2 • 1 is the slope of the relationship in the direction of x1

y
• The change in y, for given changes in x1 and x2 is 1  .... if x2  0
y = 1 x1 + 2 x2 x1
• 1 is how y changes with x1, holding x2 fixed.  We called the 
• If x2 does not change (x2 =0), then partial effect of x1 on y.
y = 1 x1 if x2 =0.
• The notion of ceteris paribus.
• If x1 does not change (x1 =0), then Note that partial effect involves holding some factors fixed.
y = 2 x2 if x1 =0.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 33

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 34
II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Example A.2:  Demand for Compact Discs Example A.2: Demand for Compact Discs

• y = 0 + 1x1 + 2x2

• quantity = 120 – 9.8price + 0.03income
price:  dollars per disc
income: measured in dollars

• Interpretation
 – 9.8 is the partial effect of price on quantity.  Holding income fixed, 
when the price of compact discs increases by one dollar, the quantity 
demanded falls by 9.8.
 Interpret 2

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 35

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 36
II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Problem A.2 Problem A.2 continue
• A.2 Suppose the following equation describes the  • (ii) What is the average number of classes 
relationship between the average number of classes  missed for someone who lives five miles 
missed during a semester (missed) and the distance from 
school (distance, measured in miles): away? [ans.]

missed = 3 + 0.2distance. • (iii) What is the difference in the average 

number of classes missed for someone who 
(i) Sketch this line, being sure to label the axes. How do you  lives 10 miles away and someone who lives 20 
interpret the intercept in this equation? [ans.]
miles away? [ans.]

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 37

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 38
II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Solution A.2 (i) Solution A.2 (ii)
(i)  (ii)
missed = 3 + 0.2distance distance = 5
missed = 3 + 0.2distance
• This is just a standard linear equation with 
intercept equal to 3 and slope equal to .2.  
• The intercept is the number of missed classes  • 3 + .2(5) = 4 classes.
for a student who lives on campus.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 39

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 40
II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Solution A.2 (iii) Problem A.3
(iii)  A.3 In Example A.2, quantity of compact disks 
was related to price and income by
missed = 3 + 0.2distance
Difference quantity = 120 – 9.8price  +.03 income.
distance = 20: missed = 3 + 0.2(20)
distance = 10: missed = 3 + 0.2(10) What is the demand for CDs if price = 15 and 
income = 200?  What does this suggest about 
• 10(.2) = 2 classes. using linear functions to describe demand 
curves? [ans.]
I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 41
I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 42
II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

III. Proportions and Percentages
Solution A.3
A.3 quantity = 120 – 9.8price + 0.3income • Proportions and percentages play an important role 
in applied economics. 
• If price = 15 and income = 200,
quantity = 120 – 9.8(15) + .03(200) • Examples in the form of percentages
= –21,  – inflation rates, 
– unemployment rates, and 
• This is nonsense.  
– entrance acceptance rates.
• This shows that linear demand functions generally 
cannot describe demand over a wide range of prices 
and income.
I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 43
I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 44
II. Properties of Linear Functions Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat III. Proportions and Percentages Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Proportions and Percentages Proportions and Percentages
• A proportion is the decimal form of percent. 
Example: Admission Rate
A percentage is simply obtained by multiplying a proportion 
by 100.  
• Proportion: 
• When using percentages, we often need to convert them to  – the proportion of applicants who are admitted to MABE is 0.50.
decimal form.   • Percentage:
For example: find interest income – 50 percent of the applications are admitted to MABE program.
– if the annual return on time deposit is 7.6% and we save 30,000 baht 
at the beginning of the year,
– 7.6% = 0.76 (percentage = proportion) • If there are 200 applicants, how many students are admitted?
– our interest income is 30,000*0.076 = 2280

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 45

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 46
III. Proportions and Percentages Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Proportions and Percentages Proportions
• Find changes in various quantities.
• A report by popular media can be incorrect.
• Let x be annual income 
x0 is the initial value
Which one is correct?
x1 is the subsequent value.
• In Thailand, the percentage of high school dropout is .20. The proportionate change in x in moving from x0 to x1 is
• Her percentage in econometric exam is .75.  x1  x0 x

x0 x0
This is sometimes called the relative change.

• Note that to get the proportionate change we simply divide the change in 
x, or x, by its initial value.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 47

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 48
III. Proportions and Percentages Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat III. Proportions and Percentages Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
Proportions Percentages 
• The percentage change in x in going from x0 to x1 is
• For example, if income goes from $30,000 per year to $36,000 
per year, what is the proportionate change? x
%x  100*
x0 = 30,000  (initial value: income in 1994) 
x0
x1 = 36,000  (subsequent value: income in 1995
• It is simply 100 times the proportionate change.
proportionate change = 6,000/30,000 = 0.2
x1  x0 x • %x is read as the percentage change in x.

x0 x0

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 49

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 50
Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat III. Proportions and Percentages Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Percentage Point Change vs. Percentage Change

Percentages and Proportions
• Percentage Point Change vs. Percentage Change
• Suppose the real GDP in 2010 and 2011 are 300 and 315 
trillion baht, respectively.  What are the proportionate change  • Variable in interest is itself a percentage!
and the percentage change in real GDP in 2011?
x1  x0 x • How to find percentage change?
– proportionate change = 15/300 = 0.05 
x0 x0 Let x be unemployment rate.  Suppose 
x2002 is 4% and 
– percentage change = 100*(0.05) = 5% x
%x  100* x2003 is 5%, 
x0
what is the percentage point change?  What is the percentage change?
• True or False: The percentage change in GDP is 0.05. 1) percentage point change = x = 5%‐4% = 1%
2) percentage change = 100*x/x0 = 1%/4% = 25%
x
%x  100*
x0

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 51

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 52
Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat III. Proportions and Percentages Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Percentages Proportions and Percentages

• Unemployment rate has increased by one percentage point.
• Example: During General Chavalit administration (1997), the 
• But unemployment rate has increased by 25 percent! value added tax was increased from 7% to 10%.

• Summary • Who is correct?
– The percentage point change is the change in the percentages. – Supporters
– The percentage change is the change relative to the initial value (x2002) This is simply a three percentage point increase!  or an increase of 
x1  x0 x three satang on the baht.
100*  100* – Opponents
x0 x0
This is a 43% increase in value added tax! 
x
%x  100*
x0

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 53

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 54
Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat III. Proportions and Percentages Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Problem A.4 Solution A.4 (i)
• A.4 Suppose the unemployment rate in the  (i) 
United States goes from 6.4% in one year to  • The percentage point change is 5.6 – 6.4 = –.8, 
5.6% in the next.

(i) What is the percentage point decrease in the  • or an eight‐tenths of a percentage point 
unemployment rate? [ans.] decrease in the unemployment rate.

(ii) By what percent has the unemployment rate 
fallen? [ans.]
I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 55 56
III. Proportions and Percentages Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Solution A.4 (ii) Problem A.5
(ii)  • A.5 Suppose that the return from holding a particular 
firm’s stock goes from 15% in one year to 18% in the 
• The percentage change in the unemployment  following year.
rate is 
– The majority shareholder claims that “the stock 
100[(5.6 – 6.4)/6.4] = –12.5%. return only increased by 3%,” 

– while the chief executive officer claims that “the 
return on the firm’s stock has increased by 20%.” 

– Reconcile their disagreement. [ans.]

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 57

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 58
III. Proportions and Percentages Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat III. Proportions and Percentages Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

IV.  Some Special Functions and  A. quadratic
B. Logarithm
Solution A.5 Their Properties C. Exponential

A.5
• Linear function
• The CEO is referring to the change relative to the  – y = 0 + 1x1
initial return of 15%.  – Interpret: 
• One unit change in x results in a same change in y, regardless of the 
starting value of x.
• The majority shareholder is referring to the  • Marginal effect of x on y is constant
percentage point increase in the stock return, 
– To be precise, the shareholder should specifically refer to a  • Example: utility function – the notion of diminishing marginal 
3 percentage point increase. returns is not consistent with a linear relationship.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 59

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 60
III. Proportions and Percentages Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Some Special Functions and  A. quadratic A. quadratic
B. Logarithm Quadratic functions B. Logarithm
Their Properties C. Exponential C. Exponential

• Many economic phenomena requires the use of nonlinear 
• One way to capture diminishing returns is to include a 
functions    quadratic term to a linear function.
y = 0 + 1x + 2x2
• Nonlinear function is characterized by the fact that the 
change in y for a given change in x depends on the starting  • Given 1>0 and 2 <0
value of x. The relationship between y and x has the parabolic shape.  Let 
• Quadratic functions 0=6 1=8 and 2 = ‐2
• Natural Logarithm
• Exponential Function
y = 6 + 8x ‐ 2x2 

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 61

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 62
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

A. quadratic A. quadratic
B. Logarithm B. Logarithm
Graph: Quadratic functions C. Exponential
Quadratic functions C. Exponential

• When 1>0 and 2 <0, the maximum of the function occurs at
1
x* 
(2  2 )

• This is called the turning point.
If y = 6 + 8x ‐ 2x2 (so 1=8 and 2 = ‐2), the largest value of y 
occur at
x* = 8/4 = 2 
y* = 6+8(2)‐2(22) = 14

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 63

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 64
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 A. quadratic A. quadratic
B. Logarithm B. Logarithm
Quadratic functions C. Exponential
Quadratic functions C. Exponential

• 2 <0.  This implies a diminishing marginal effect of x on y • A diminishing marginal effect of x on y is the same as saying that 
– the slope of the function decreases as x increases.

– Suppose we start at a low value of x and then increase x by 
some amount, say c • Calculus: the derivative of the quadratic function: 
• This has a larger effect on y than if we start at a higher value of x  y = 0 + 1x + 2x2
and increase x by the same amount. (See graph)
• For “small” changes in x, the approximate slope of the quadratic function 
– Once x>x*, an increase in x actually decreases y. is
y
slope   1  2  2 x
x

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 65

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 66
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

A. quadratic A. quadratic
Example A.4: A quadratic wage  B. Logarithm B. Logarithm

function
C. Exponential
Quadratic functions C. Exponential

• wage hourly wage • y = 0 + 1x + 2x2

• exper years in the workforce
• When 1<0 and 2>0, the graph of the quadratic function 
wage = 5.25 + .48exper – 0.008exper2 has U‐shape.

Interpretation:
1)  Since 2<0, this implies the diminishing marginal effect of exper on wage. 1) there is an increasing marginal return.
2)  exper* = .48/[2(.008)] = 30.  This is turning point. 2) the minimum of the function is at the point
– exper has a positive effect on wage up to the turning point.
3) The marginal effect of exper on wage depends on years of experience. 1
1st year (x0=0, x1=1, x=1)  wage = .48 – 2*0.008(0) = .48 x* 
5th year (x4=4, x5=5 x=1)  wage = .48 – 2*0.008(4) = .416
4) At 30 years, an additional year of experience would lower the wage.
(2  2 )
32th year (x31=31, x32=32 x=1)  wage = .48 – 2*0.008(31) = ‐.016

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 67

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 68
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 A. quadratic A. quadratic
Natural Logarithm B. Logarithm
C. Exponential
Natural Logarithm B. Logarithm
C. Exponential

• Properties
1)  The log function is defined only for positive values of x (x>0).
• The natural logarithm, an important nonlinear function, plays an  See graph of a log function
important role in econometric analysis.
for 0<x<1  log(x) < 0
• We denotes the natural logarithm as the log function for x=1 log(x) = 0
for x>1  log(x) >0
y = log(x)
2)  When y= log(x), the effect of x on y never becomes negative.
• Other common symbols include loge(x) and ln(x). y 1
y = log(x) 
– Most calculators use ln(x). x x
– Different symbols are useful when we use logarithm with different bases.
• The relationship between x and y displays diminishing returns.
• The slope of the function gets closer and closer to zero as x gets large

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 69

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 70
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

A. quadratic A. quadratic
B. Logarithm Natural Logarithm B. Logarithm
Graph: log function C. Exponential C. Exponential

• What is the difference in slopes between the quadratic and 
the log function?  
Ans.  The marginal effect of x on y of the log function never 
becomes negative.

• Some useful algebraic facts:
l.1) log(x1x2) = log(x1) + log(x2)
l.2) log(x1/x2) = log(x1) – log(x2)
l.3) log(xc) = clog(x) for any constant c.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 71

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 72
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 A. quadratic A. quadratic
Natural Logarithm B. Logarithm B. Logarithm
C. Exponential
Natural Logarithm C. Exponential

• Let x0 and x1 be positive values. • How good is the approximation? 

• The difference in logs can be used to approximate proportionate changes.   • Example, for a small change: x0=40 and x1=41 
x1  x0 x
– Exact percentage change 
log( x1 )  log( x0 )   for small changes in x. = 100*(41‐40)/40 = 2.5%
x0 x0
– Approximate percentage change 
• Note that log(x) = log(x1)‐log(x0) = 100*[log(41)‐log(40)] = 2.47%

• Approximate percent change is • Example, for a large change: x0=40 and x1=60 
– Exact percentage change 
= 100*(60‐40)/40 = 50%
100 log(x) ≈ %x for small changes in x.
– Approximate percentage change 
= 100*[log(60)‐log(40)] = 40.55%

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 73

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 74
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

A. quadratic A. quadratic
B. Logarithm B. Logarithm
Natural Logarithm C. Exponential
Natural Logarithm C. Exponential

• Elasticity of y with respect to x can be written as • Constant Elasticity Model
y x %y log(y) = 0 + 1log(x)

x y %x
• The slope or elasticity is approximately equal to
– It is the percentage change in y when x increases by 1%
 log( y )
1 
• If y is a linear function, y = 0 + 1x, then the elasticity is   log( x)

y x x x
 1  1
x y y  0  1 x • It is the elasticity of y with respect to x
– It depends on the value of x.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 75

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 76
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 A. quadratic A. quadratic
Example A.5: Constant Elasticity  B. Logarithm B. Logarithm

Demand Function 
C. Exponential
Natural Logarithm C. Exponential

• Log‐level model
log(y)  = 0 + 1x
• Let   q quantity demanded (unit)
log(y)  = 1x
p price (dollar) 100log(y)  = 1001x
%y = (1001)x

log(q) = 4.7 – 1.25log(p)
• The slope or the semi‐elasticity of y with respect to x is

%y
– The price elasticity of demand = ‐1.25  100  1
– Interpret x
• A 1% percent increase in price leads to a 1.25% fall in the quantity 
• The semi‐elasticity is the percentage change in y when x increases by one 
demanded.
unit.  It is equal to 1001.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 77

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 78
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

A. quadratic A. quadratic
Example A.6: Logarithmic  B. Logarithm B. Logarithm

Wage Equation
C. Exponential
Natural Logarithm C. Exponential

• Level‐log function
• Hourly wage and years of education are related by y = 0 + 1log(x)
y = 1 log(x) 
log(wage) = 2.78 + .094 educ 100y = 1100 log(x) 

• Using approximation, 
%(wage) = 100(.094)educ
100y = 1%x
%(wage) = 9.4educ
y = (1/100)(%x)
• Interpret: • Interpret
– One more year education increases hourly wage by about 9.4% – 1/100 is the unit change in y when x increases by 1%

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 79

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 80
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 A. quadratic A. quadratic
Example A.7: Labor Supply  B. Logarithm
C. Exponential Summary B. Logarithm
C. Exponential
Function

• Let   hours hours worked per week
wage hourly wage

hours = 33 + 45.1log(wage)
hours = (45.1/100)(%wage)
hours = 0.451(%wage)

• Interpret
1% increase in wage increases the weekly hours worked by 
about 0.45, or slightly less than one‐half hour.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 81

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 82
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

A. quadratic A. quadratic
B. Logarithm B. Logarithm
Exponential Function  C. Exponential
Exponential Function C. Exponential

• We write the exponential function as
• The exponential function is related to the log function.  
y = exp(x)
– Other notation can be written as
• For example, given log(y) that is a linear function of x,  y = ex
– How to find y itself as a function of x?
• Facts
– exp(0) =1; 
– exp(1) = 2.7183 
– exp(x) is defined for any value of x.
– exp(x) is always greater than 0

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 83

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 84
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 A. quadratic A. quadratic
B. Logarithm B. Logarithm
Graph: Exponential Function C. Exponential
Exponential Function C. Exponential

• The exponential function is the inverse of the log function in the following 
sense:

log[exp(x)] = x, for all x
exp[log(x)] = x, for x>0

 In other words, the log 
“undoes” the exponential, and 
vice versa.

 The exponential function is 
sometimes called the anti‐log 
function.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 85

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 86
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

A. quadratic
B. Logarithm
Exponential Function C. Exponential Summary: Logarithm and Exponential
• Given a function,

log (y)= 0 + 1x Logarithm Exponential

• It is equivalent to the function
l.1  log(x1x2) = log(x1) + log(x2) e.1  exp(x1+ x2) = exp(x1)∙exp(x2)
y = exp(0 + 1x)

• If 1>0, then x has an increasing marginal effect on y. l.2   log(x1/x2) = log(x1) – log(x2) e.2  exp(x1‐ x2) = exp(x1)/exp(x2)

• Some algebraic facts:
e.1) exp(x1+ x2) = exp(x1)∙exp(x2) or ex1+ x2 = ex1∙ex2 l.3 log(xc) = clog(x) e.3 exp[clog(x)] = xc
e.2) exp(x1‐ x2) = exp(x1)/exp(x2) or ex1‐ x2 = ex1/ex2
e.3) exp[clog(x)] = xc or eclog(x) = xc

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 87

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 88
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Problem A.6 Solution A.6 (i)
A.6 Suppose that Person A earns $35,000 per  (i)
year and Person B earns $42,000. 100[42,000 – 35,000)/35,000] 
= 20%.
(i) Find the exact percentage by which Person B’s 
salary exceeds Person A’s. [ans.]

(ii) Now use the difference in natural logs to find 
the approximate percentage difference. [ans.]
I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 89
I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 90
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Solution A.6 (ii) Problem A.7
(ii)  • A.7 Suppose the following model describes the 
• The approximate proportionate change is  relationship between annual salary (salary) and 
the number of previous years of labor market 
log(42,000) – log(35,000) =.182,  experience (exper):

so the approximate percentage change is %18.2.   log(salary) = 10.6 + .027exper.

• [Note:  log() denotes the natural log.]
(i) What is salary when exper = 0? when exper =
5? (Hint: You will need to exponentiate.) [ans.]
I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 91
I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 92
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Problem A.7 continue …  Solution A.7 (i)
(ii) Use equation (A.28) to approximate the  (i)  log(salary) = 10.6 + .027exper
percentage increase in salary when exper 
increases by five years. [ans.] • When exper = 0, 
log(salary) = 10.6; therefore,  salary = 
exp(10.6) = $40,134.84.  
(iii) Use the results of part (i) to compute the 
exact percentage difference in salary when 
exper = 5 and exper = 0. Comment on how this  • When exper = 5, 
compares with the approximation in part (ii).  salary = exp[10.6 +.027(5)]
[ans.] = $45,935.80.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 93

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 94
IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat IV. Some Special Functions and Their Properties Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat

Solution A.7 (ii) Solution A.7 (iii)
(iii)  log(salary) = 10.6 + .027exper
(ii)  exper=0 log(salary) = 10.6 + .027exper
100log(y)= 1001x (A.28) salary = exp(10.6) = $40,134.84.  

exper=5 log(salary) = 10.6 + .027exper
salary = exp[10.6 +.027(5)] = $45,935.80.
• The approximate proportionate increase is 
.027(5) = .135,  • Exact percentage increase
100[(45,935.80‐40,134.84)/40,134.84)
= 14.5%, 
so the approximate percentage change is 
13.5%. so the exact percentage increase is about one percentage 
point higher.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 95

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 96
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 Problem A.8 Solution A.8
A.8 Let  A.8 grthemp = –.78(salestax).  
grthemp denote the proportionate growth in 
employment, at the county level, from 1990 to 1995, and  • Since both variables are in proportion form, we can multiply 
the equation through by 100 to turn each variable into 
let  percentage form.  
salestax denote the county sales tax rate, stated as a  • Slope = –.78.  
proportion.   – So, a one percentage point increase in the sales tax rate (say, from 4% 
to 5%) reduces employment growth by –.78 percentage points.
Interpret the intercept and slope in the equation
• Intercept = .043
– When salestax = 0, the proportionate growth in employment is .043.
grthemp  = .043  –.78salestax.  [ans.]

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 97

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 98
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V.  Differential Calculus Differential Calculus

 Let y = f(x) for some function f • Example

 For small changes in x y = log(x)

dy 1

dx x
• For a small change, evaluated at the initial point x0,
 df/dx is the derivative of the function f, evaluated at the
1 x , 
initial point x0. y  x  log( x) 
x0 x0
which is the approximation of the proportionate change in x.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 99

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 100
V. Differential Calculus Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat V. Differential Calculus Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Differential Calculus Differential Calculus
• Other Important Rules
• Let y = f(x)
DC.5 Let y =cf(x)  = c

DC.1 Let f(x) = c = 0 or    = 0 – The derivative of a constant times any function is that same constant times the derivative of 

the function, 
– The derivative of a constant c is zero. – Example: y =cf(x) = xc
= c = cxc‐1
DC.2 Let f(x) = log(x) =  or    = 
– The derivative of the log function of x is one over x. DC.6 Let y = f(x)+g(x) =   + 

– The derivative of the sum of two functions is the sum of the derivatives
DC.3 Let f(x) = exp(x) = exp(x) or    = exp(x)
– The derivative of the exponential function of x is the exponential function of x
DC.7 Let y = z(f(x))  =  

DC.4 Let f(x) = xc = cxc‐1 or    = cxc‐1 – Chain Rule

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 101

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 102
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Chain Rule
Differential Calculus
Find the derivatives of the following functions:
DC.7 Let y = f(z(x))  =   =  
– y = 0 + 1x+ 2x2
Example:
y = exp(0 + 1x) – y = 0 + 1/x
z = 0 + 1x
– y = 0 + 1
x
=   = 
=  exp – y = 0 + 1log(x)
= exp x
– y = exp(0 + 1x)

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 103

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 104
V. Differential Calculus Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat Basic Mathematical Tools . Intensive Course in Mathematics and Statistics . Chairat Aemkulwat
 Summary: Calculus  Differential Calculus
• Notion of a partial derivative
DC.1 Let f(x) = c = 0 DC.5 Let y =cf(x)    = c
• Suppose that

DC.2 Let f(x) = log(x) =  DC.6 Let y = f(x)+g(x) =   + 

y = f(x1, x2)

DC.3 Let f(x) = exp(x) = exp(x) DC.7 Let y = z(f(x))  =   • Two partial derivatives

y
1) The partial derivative of y with respect to x1 =
Example DC.7: y = exp(0 + 1x) x1
(where x2 is treated as a constant)
DC.4 Let f(x) = xc = cxc‐1 x
=   =  y
2) The partial derivative of y with respect to x2 =
=  exp = exp x x2
(where x1 is treated as a constant)

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 105

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 106
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Differential Calculus Differential Calculus
• We can approximate the change in y as • y = f(x1,…, xn)

x2,…, xn fixed

• Example
Example:
y = 0 + 1x1 + 2x2 log( ) = 0 + 1educ + 2exper + 3tenure + 4age
log( ) = .514 + .078educ +.002exper +.0088tenure +.0033age
1) What is the partial derivative of y with respect to x1 ?

2) What is the partial derivative of y with respect to x2? 1) What is the partial derivative of y with respect to x1 ?

2) What is the partial derivative of y with respect to x4?

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 Example A.8 wage function 
Differential Calculus with interaction

• Example wage = 3.1 + .41educ + .19exper ‐ .004exper2 + .007educexper

• Find the partial effect of exper on wage:
wage/exper = .19 ‐ .008exper +.007educ

• At the initial values (exper0=5, educ0=12), the approximate change in wage 
1) What is the partial derivative of y with respect to x1 ? is
wage/exper = 23.4 cents per hour

2) What is the partial derivative of y with respect to x2? • Given exper0=5, educ0=12; and exper1=6, educ1=12, the exact change in 

wage is
wage = 23 cents per hour

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 109

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 110
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Basic Mathematical Tools

Differential Calculus Problem A.9
• Minimizing and maximizing functions.  Let f(x1, x2, …, xk) is the  A.9 Suppose the yield of a certain crop (in bushels per acre) 
differentiable function of k variables. is related to fertilizer amount (in pounds per acre) as
• A necessary condition for x1*, x2*, …, xk* to optimize f over all possible 
values of xj is yield = 120 +.19 fertilizer

(i) Graph this relationship by plugging in several values for 
fertilizer. [ans.]
• Notes
1) All of the partial derivatives of f must be zero when they are evaluated at  (ii) Describe how the shape of this relationship compares 
the xh*. with a linear function between yield and fertilizer. [ans.]
2) These are called the first order conditions.
3)  We hope to solve above equations for the xh*.

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 111

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 112
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 Solution A.9 (i)
Solution A.9 (ii)
(i) 
• The relationship between yield and fertilizer is graphed below.
(ii) 
yield 122
• Compared with a linear function, the function
yield =  .120 + .19
has a diminishing effect. fertilizer
121
• The slope approaches zero as fertilizer gets large.  
– The initial pound of fertilizer has the largest effect, and 
each additional pound has an effect smaller than the 
previous pound.
120
0 50 100
fertilizer

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 113

I. Summation II. Linear III. Prop&Perc IV. SpecFunc V. Calculus 114
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