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Mathematical Techniques For Economic Analysis: Australian National University DR Reza Hajargasht

The document provides an overview of various mathematical techniques used for economic analysis, including functions, graphs of functions, different types of functions such as linear, polynomial, rational, algebraic, exponential, trigonometric, and logarithmic functions. It discusses concepts like domain and range, independent and dependent variables, transformations of functions. Examples are provided to illustrate key concepts like linear, quadratic, exponential growth functions and their applications in modeling economic data.

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0% found this document useful (0 votes)
82 views60 pages

Mathematical Techniques For Economic Analysis: Australian National University DR Reza Hajargasht

The document provides an overview of various mathematical techniques used for economic analysis, including functions, graphs of functions, different types of functions such as linear, polynomial, rational, algebraic, exponential, trigonometric, and logarithmic functions. It discusses concepts like domain and range, independent and dependent variables, transformations of functions. Examples are provided to illustrate key concepts like linear, quadratic, exponential growth functions and their applications in modeling economic data.

Uploaded by

Wu Yichao
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Mathematical Techniques for

Economic Analysis

Australian National University


Dr Reza Hajargasht
Week-2 Semester1-2023
Functions
• The area A of a circle depends on the its radius r.
The rule that connects r and A is given by the
equation A =  r 2. With each positive number r there is
associated one value of A, and we say that A is a
function of r.
• The human population of the world P depends on the
time t. The table gives estimates of the world population P(t)
at time t, for certain years. For instance,

P(1950)  2,560,000,000

But for each value of the time there is a


corresponding value of P
we say that P is a function of t.
2
Function

f (x) is the value of f at x and is read “f of x.” The range of f is


the set of all possible values of f (x) as x varies throughout the
domain.
A symbol that represents an arbitrary number in the domain of
a function f is called an independent variable.
A symbol that represents a number in the range of f is called a
dependent variable. In Example A, for instance, r is the
independent variable and A is the dependent variable.
3
Representations of a Fuction

4
Graph
The most common method for visualizing a function is its graph.
If f is a function with domain D, then its graph is the set of
ordered pairs {(x, f(x)) | x  D}
In other words, the graph of f consists of all points (x, y) in the
coordinate plane such that y = f(x) and x is in the domain of f.

The graph of f also allows us to picture the domain of f on the x-


axis and its range on the y-axis
5
Example
The graph of a function f is shown in below.
(a) Find the values of f(1) and f(5).
(b) What are the domain and range of f ?

x +1
Find domain and range f ( x) =
x −1
Finding Domain
Piecewise Function
A function f is defined by
1 – x if x  –1
 2
 x if x  –1
Evaluate f (–2), f (–1), and f (0) and sketch the graph

Absolute value
Step Function
• Plot of |x|

• Step function

0.88 if 0 < w  1
1.05 if 1 < w  2
C(w) = 1.22 if 2 < w  3
1.39 if 3 < w  4
Mathematical Models

10
Decreasing and Increasing Functions

Monotonicity
Symmetry

• .

12
Mathematical Models

• Even: even powers, cosine


• Odd: odd powers, sin
• Neither: exp, log

13
Catalogue of Essential Functions

• Linear
• Polynomial (Quadratic, Cubic,….)
• Rational
• Algebraic
• Exponential
• Trigonometric
• Logarithmic
• Inverse Trigonometric

14
Linear Function
• When we say that y is a linear function of x, we mean that
the graph of the function is a line, formula for the function as
y = f (x) = mx + b
where m is the slope of the line and b is the y-intercept.
.

15
Polynomial Function

• A function P is called a polynomial if

P(x) = anxn + an–1xn–1 + . . . + a2x2 + a1x + a0

• where n is a nonnegative integer and the numbers


a0, a1, a2, . . ., an are constants called the coefficients of
the polynomial.

• The domain of any polynomial is R. If the leading


coefficient an  0, then the degree of the polynomial is
n. For example, the function

Example: P (x) = 3x6 + 8x3 - x2 is a polynomial of degree 6.

16
Quadratic Function

P(x) = ax2 + bx + c a0

Its graph is always a parabola obtained by shifting the parabola


y = ax2. The parabola opens upward if a > 0 and downward if a <
0.

The graphs of quadratic functions are parabolas.


Polynomial Function
A polynomial of degree 3 is of the form
P(x) = ax3 + bx2 + cx + d a0
and is called a cubic function. Following figures show the graph
of a cubic function in part (a) and graphs of polynomials of
degrees 4 and 5 in parts (b) and (c).
Polynomial Functions
A rational function f is a ratio of two polynomials:

where P and Q are polynomials.


The domain consists of all values
of x such that Q(x)  0.

A simple example of a rational


function is the function f(x) = 1/x.

A more complicated example


Algebraic Functions
A function f is called an algebraic function if it can be
constructed using algebraic operations (such as addition,
subtraction, multiplication, division, and taking roots) starting
with polynomials. Any rational function is automatically an
algebraic function.
Algebraic Functions
An example of an algebraic function occurs in the theory of
relativity. The mass of a particle with velocity v is

where m0 is the rest mass of the particle and c = 3.0 x 105 km/s is
the speed of light in a vacuum.
Trigonometric Functions
There are three basic trigonometric functions including sin, cosine
and tangent (there are also secant, cosecant and cotangent)
For both the sine and cosine functions the domain is ( , )
and the range is the closed interval [–1, 1].

Thus, for all values of x, we have

or, in terms of absolute values,

|sin x|  1 |cos x|  1
Trigonometric Functions

Also, the zeros of the sine function occur at the integer


multiples of  ; that is,

sin (x) = 0 when x = n n an integer

An important property of the sine and cosine functions is


that they are periodic functions and have period 2.

This means that, for all values of x,


Trigonometric Functions

The tangent function is related to the sine and cosine functions


by the equation

and its graph is shown in


Figure 19. It is undefined
whenever cos x = 0, that is,
when x =   /2,  3 /2, . . . .
Its range is ( , ). y = tan x

Notice that the tangent function has period  :


tan(x + ) = tan x for all x
Exponential Functions

The exponential functions are the functions of the form


f(x) = ax, where the base a is a positive constant.

The graphs of y = 2x and y = (0.5)x are shown in Figure 20.


In both cases the domain is ( , ) and the range is
(0, ).

(a) y = 2x (b) y = (o.5)x


Exponential Functions

• The function f (x) = 2x is called an exponential


function because the variable, x, is the exponent.
• In general, an exponential function is a function of
the form f (x) = bx
• where b is a positive constant. Let’s recall what this
means. If x = n, a positive integer, then

• If x = 0, then b0 = 1, and if x = –n, where n is a


positive integer, then
Exponential Functions
• If x is a rational number, x = p /q, where p and q are
integers and q > 0, then

• But what is the meaning of bx if x is an irrational


number? For instance, what is meant by or 5 ?
• let b be a real number, and let b1 , b2 ,b3 ,…. be an
infinite sequence of rational numbers such that the
sequence (bn) has limit b . It can be shown that the
sequence (bn) has a limit, which is independent of the
particular sequence (bn) that we have chosen, as long
as the sequence has b as a limit.
Applications of Exponential Functions
• Table 1 shows data for the population of the world in
the 20th century and Figure 8 shows the
corresponding scatter plot.

Scatter plot for world population growth


• The pattern of the data points in Figure 8 suggests exponential
growth, so we use a graphing calculator with exponential
regression capability to apply the method of least squares and
obtain the exponential model

P = (1436.53) • (1.01395)t

• where t = 0 corresponds to 1900.


This figure shows the graph of this
exponential function together
with the original data points.

Exponential model for population growth


Number e

• Figures 13 and 14 show the tangent lines to the graphs of


y = 2x and y = 3x at the point (0, 1).

• (For present purposes, you can think of the tangent line to


an exponential graph at a point as the line that touches the
graph only at that point.) If we measure the slopes of these
tangent lines at (0, 1), we find that m  0.7 for y = 2x and
m  1.1 for y = 3x.
Exponential Functions
• It turns out, that some of the formulas of calculus will be
greatly simplified if we choose the base b so that the slope of the
tangent line to y = bx at (0, 1) is exactly 1.

• We will see that the value of e, correct to five decimal places, is


e  2.71828
• We call the function f (x) = ex the natural exponential
function.
Example

Classify the following functions as one of the types of


functions that we have discussed.

(a) f(x) = 5x

(b) g(x) = x5

(c)

(d) u(t) = 1 – t + 5t 4
Transformation

Now let’s consider the stretching and reflecting transformations.


If c > 1, then the graph of y = cf(x) is the graph of y = f(x) stretched
by a factor of c in the vertical direction (because each y-coordinate is
multiplied by the
same number c).
Transformation

The graph of y = –f(x) is the graph of y = f(x) reflected about


the x-axis because the point (x, y) is replaced by the
point (x, –y).

(See Figure 2 and the


following chart, where the
results of other stretching,
shrinking, and reflecting
transformations are also
given.)
Stretching and reflecting the graph of f
Transformation
Transformation

Figure 3 illustrates these stretching transformations when


applied to the cosine function with c = 2.
Combination of Functions

Two functions f and g can be combined to form new


functions f + g, f – g, fg, and f/g in a manner similar to the
way we add, subtract, multiply, and divide real numbers.
The sum and difference functions are defined by
(f + g)(x) = f(x) + g(x) (f – g)(x) = f(x) – g(x)
If the domain of f is A and the domain of g is B, then the
domain of f + g is the intersection A ∩ B because both
f(x) and g(x) have to be defined.
For example, the domain of is A = [0, ) and the
domain of is B = ( , 2], so the domain of
is = A ∩ B = [0, 2].
Combination of Functions

Similarly, the product and quotient functions are defined by

The domain of fg is A ∩ B, but we can’t divide by 0 and so


the domain of f/g is {x  A ∩ B | g(x)  0}.

For instance, if f(x) = x2 and g(x) = x – 1, then the domain of


the rational function (f/g)(x) = x2/(x – 1) is {x | x  1},
or ( , 1) U (1, ).
Combination of Functions

There is another way of combining two functions to obtain a


new function. For example, suppose that y = f(u) =
and u = g(x) = x2 + 1.

Since y is a function of u and u is, in turn, a function of x, it


follows that y is ultimately a function of x. We compute
this by substitution:

y = f(u) = f(g(x)) = f(x2 + 1) =

The procedure is called composition because the new


function is composed of the two given functions f and g.
Composite Functions

In general, given any two functions f and g, we start with a


number x in the domain of g and find its image g(x). If this
number g(x) is in the domain of f, then we can calculate the
value of f(g(x)).

The result is a new function h(x) = f(g(x)) obtained by


substituting g into f. It is called the composition
(or composite) of f and g and is denoted by f  g (“f circle g”).
Composite Functions
The domain of f  g is the set of all x in the domain of g such
that g(x) is in the domain of f.

In other words, (f  g)(x) is


defined whenever both
g(x) and f(g(x)) are defined.

Figure 11 shows how to


picture f  g in terms of machines.
The f  g machine is composed of
the g machine (first) and then
the f machine.

If f(x) = x2 and g(x) = x – 3, find the composite functions


f  g and g  f.
One-to-One Function

Let’s compare the functions f and g whose arrow diagrams are


shown in Figure 1.

Note that f never takes on


the same value twice (any two
inputs in A have different outputs),
whereas g does take on the same
value twice (both 2 and 3 have
the same output, 4).
In symbols,
g(2) = g(3)
but f(x1) ≠ f(x2) whenever x1 ≠ x2 f is one-to-one; g is not.
One-to-One Function
Functions that share this property with f are called one-to-one
functions.
Example

Is the function f(x) = x3 one-to-one?

Solution 1:
If x1 ≠ x2, then x13 ≠ x23 (two different numbers can’t have
the same cube).
Therefore, by Definition 1, f(x) = x3 is one-to-one.

Solution 2:
From Figure 3 we see that no
horizontal line intersects the
graph of f(x) = x3 more than once.
Therefore, by the Horizontal f(x) = x3 is one-to-one.
Line Test, f is one-to-one.
Inverse Function

One-to-one functions are important because they are precisely the


functions that possess inverse functions according to the
following definition.

This definition says that if f maps x into y, then f –1 maps y back


into x. (If f were not one-to-one, then f –1 would not be uniquely
defined.)
Example
For example, the inverse function of f(x) = x3 is f –1(x) = x1/3
because if y = x3, then
f –1(y) = f –1(x3) = (x3)1/3 = x
Caution
Do not mistake the –1 in f –1 for an exponent. Thus f –1(x) does
not mean .

If f(1) = 5, f(3) = 7, and f(8) = –10, find f –1(7), f –1(5), and


f –1(–10).
Inverse Function
The first cancellation equation says that if we start with x, apply
f, and then apply f –1, we arrive back at x, where we started.

Thus f –1 undoes what f does.

For example, if f(x) = x3, then f –1(x) = x1/3 and so the cancellation
equations become

f –1(f(x)) = (x3)1/3 = x
f(f –1(x)) = (x1/3)3 = x
Inverse Function
If we have a function y = f (x) and are able to solve this equation for x in terms
of y, then x = f –1(y).
If we want to call the independent variable x, we then interchange x and y and
arrive at the equation y = f –1(x).
Logarithmic Function
If b > 0 and b ≠ 1, the exponential function f(x) = bx is either
increasing or decreasing and so it is one-to-one by the Horizontal
Line Test. It therefore has an inverse function
f –1, which is called the logarithmic function with base b and
is denoted by logb.

If we use the formulation of an inverse function given by


f –1(x) = y f(y) = x
then we have

Thus, if x > 0, then logb x is the exponent to which the


base b must be raised to give x. For example, log10 0.001 = –3
because 10–3 = 0.001.
Logarithmic Function

The logarithmic function logb has domain (0, ) and


range . Its graph is the reflection of the graph of y = bx about
the line y = x.

Figure 11 shows the case


where b > 1. (The most
important logarithmic functions
have base b > 1.)

The fact that y = bx is a very


rapidly increasing function
for x > 0 is reflected in the fact
that y = logb x is a very slowly
increasing function for x > 1.
Logarithmic Function

Figure 12 shows the graphs of y = logb x with various values of


the base b > 1.
Since logb 1 = 0, the graphs of all logarithmic functions pass
through the point (1, 0).

Figure 12
Logarithmic Function

The following properties of logarithmic functions follow from the


corresponding properties of exponential functions.
Example

Use the laws of logarithms to evaluate log2 80 – log2 5.

Solution:
Using Law 2, we have

log2 80 – log2 5 = log2

= log2 16

=4

because 24 = 16.
Natural Logarithm

Of all possible bases b for logarithms, we will see that the most
convenient choice of a base is the number e. The logarithm with
base e is called the natural logarithm and has a special
notation:

Therefore

In particular
Example
Find x if ln x = 5.
Solution 1:
From (8) we see that

ln x = 5 means e 5 = x

Therefore x = e 5.

Evaluate log8 5 correct to six decimal places.

Solution:
Formula 10 gives

log8 5  0.773976
Natural Logarithm

The graphs of the exponential function y = ex and its inverse


function, the natural logarithm function, are shown in Figure 13.

Because the curve y = e x


crosses the y-axis with a slope
of 1, it follows that the reflected
curve y = ln x crosses the x-axis
with a slope of 1.
Example

Sketch the graph of the function y = ln(x – 2) – 1.


Solution:
We start with the graph of y = ln x as given in Figure 13.
We shift it 2 units to the right to get the graph of
y = ln(x – 2) and then we shift it 1 unit downward to get the
graph of y = ln(x – 2) – 1. (See Figure 14.)
Inverse Trigonometric Functions

When we try to find the inverse trigonometric functions, we have


a slight difficulty: Because the trigonometric functions are not
one-to-one, they don’t have inverse functions.

The difficulty is overcome by restricting the domains of these


functions so that they become one-to-one.

But the function f(x) = sin x,


–/2  x  /2, is one-to-one
(see Figure 18).
Inverse Trigonometric Functions

You can see from Figure 17 that the sine function y = sin x is not
one-to-one (use the Horizontal Line Test).

Figure 17

But the function f(x) = sin x,


–/2  x  /2, is one-to-one
(see Figure 18).
y = sin x, x

Figure 18
Inverse Trigonometric Functions
• Inverse Sin Function: sin -1 or arcsin is the inverse of
the restricted sine function, y = sin(x), [-π/2, π/2]
• The equations y = sin -1 x or y = arcsin x which also
means, sin y = x, where -π/2 < y < π/2, -1 < x < 1
(remember range of f is domain of f -1 and vice versa).

• Other inverse trigonometric functions can be defined


60
similarly

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