CHAPTER THREE

3.0 SPECIAL DETERMINANTS AND MATRICES IN ECONOMICS

3.1. A Jacobian Determinant

A Jacobian determinant is special types of matrix used to test functional dependency
between linear & non – linear functions. A Jacobian determinant is composed of all the
first order partial derivatives of a system of equations arranged in ordered sequence. It is
denoted by J
.
If Jacobian determinant becomes zero then it is to mean that there is linear or non – linear
functional dependency between two or more equations. The reverse is true if the
determinant different from zero.
Example given y1 = f 1 (x1 , x 2 , x 3 )

y 2 = f 2 (x1 , x 2 , x 3 )

y 3 = f 3 (x1 , x 2 , x 3 )

∂y 1 ∂y 1 ∂y 1
∂x 1 ∂x 2 ∂x 3
∂y 2 ∂y 2 ∂y 2
J =
∂x 1 ∂x 2 ∂x 3
∂y 3 ∂y 3 ∂y 3
∂x 1 ∂x 2 ∂x 3

- If J = 0, then there is functional dependency among equations and hence no

unique solution exists.

Example

∂y 1 ∂y 1
y1 = 4 x1 x 2 ⇒ y1 = 4 & y 2 =
1 1 1 1
1 y 2 means and y 1 means
∂x 2 ∂x 1

∂y 2
y 2 = 16 x 1 + 8 x 1 x 2 + x 2 ⇒ = 32 x 1 + 8 x 2
2 2

∂x 1

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 ∂y 2
= 8 x1 + 2 x 2
∂x 2

4 1
J   64 x 1  16 x 2 ≠ 0 ,
32 x 1  8 x 2 8x12 x2

Thus, the system has a solution because the value of the Jacobian determinant is non-
singular, i.e., different from zero.

As stated in the preceding paragraphs, partial derivatives can provide a means of testing
whether there exists functional (linear or nonlinear) dependence among a set of n
functions in n variables. This is related to the notion of Jacobian determinant.

Exercises

Use Jacobian determinants to test the existence of functional dependence between the
functions paired below:

(a) 3 (b) 3
9 ( ) ( ) 5

3.2. Hessian Determinant

It is special types of matrix which is denoted H

. The economic importance of hessian
matrix determinant is characterization of the free/unconstrained optimization problem
whether it has relative maximum value or relative minimum value or neither of the two
(inflection value).

A Hessian determinant is composed of all the second order partial and cross partial
derivatives objective function arranged in ordered sequence.

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Hessian Determinant Test:
a) n-variable case
z  f ( x1 , x 2 , , xn )

dz  f 1 d x1  f2dx2   fndxn

f1 1 f1 2 f1 n

f 21 f 22 f2n
H 

f n1 fn2 f nn

P rin c ip a l m in o rs : H 1
, H 2
, , H n

F .O .C .: f1  f2   fn  0

S .O .C .: n p rin c ip a l m in o rs m u s t b e p o s iti v e (m in im u m )

n p r in c ip a l m in o r s m u s t a lte r n a te in s ig n ( m a x im u m )

b) Three-variable case
First order condition:
z  f ( x1 , x 2 , x 3 )

First partials: f1 , f 2 , f 3

2
 z
Second partials: f ij 
 xi x j

Young‟s theorem: f ij  f ji

For max, min, dz  0 (for arbitrary values of dx1, dx2, dx3, not all zero)
dz  f 1 d x1  f2dx2  f3d x3  0

 f1  0, f2  0, f3  0 , is the necessary condition for extreme

Second Order Condition:

At stationary value of z, or dz=0,
2
If d z is positive definite, sufficient condition for minimum
2
If d z is negative definite, sufficient condition for maximum

Technique: regard dxi as variables that can take on any values, fij as coefficients
We have a symmetric Hessian Determinant.

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 f1 1 f1 2 f1 3

H  f 21 f 22 f 23
f31 f32 f33

Successive principal minors

f1 1 f1 2
H1  f1 1 , H 2
 , H 3
 H
f 21 f 22

Rules:


m a x im u m  
H 1  0, H 2  0, H 3  0 
 
d z is n e g a tiv e d e fin ite 

2

z is a   if  
o r  
 
m i n i m u m H 1  0, H 2  0, H 3  0 

  

2
d z is p o s itiv e d e fin ite 

Example 1

Optimize the following functions

z = f (x , y ) = 6 x 7y+5y
2 2
9x 3 xy

Solution:
First order condition:
f x = 12 x 9 3y = 0

fy = 3x 7 + 10 y = 0

Solving simultaneously yields the critical values x =1 & y=1

Second order condition:

f xx  12 , f yy  10 and f xy   3

12  3
H1  12  0 , and . H 2
  121  0
 3 10

2
Thus, d z >0 (positive definite).i.e. the equation is minimized at the critical values.

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Example 2

Find the extreme values of

2 2 2
z  2 x1  x1 x 2  4 x2  x1 x 3  x3  2

f1  4 x1  x2  x3  0

f2  x1  8 x2  0

f3  x1  2 x3  0

Solution:
 x1  x1
x2  , x3 
8 2
 x1  x1
4 x1    0
8 2
3 2 x1  x1  4 x1  0

2 7 x1  0

x1  0, x2  0 , x3  0, z  2

f1 1 f1 2 f1 3 4 1 1

H  f 21 f 22 f 23  1 8 0

f31 f32 f33 1 0 2

H 1
 f1 1  4

f1 1 f1 2
H 2
  31
f 21 f 22

H 3
 H 1
 54

H 1
 0, H 2
 0, H 3
 0  p o s itiv e d e fin ite , m in im u m

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