RREVIEW OF BASIC MATHEMATICS

Slide 1
 Overview
• Objectives:
– Define what a function is and describe other related concepts
– Differentiate between linear functions and other types of functions
– Know what linear models are
– Know what systems of equations are
– Be able to find the algebraic solutions to systems of equations

Slide 2
 Session Outline
The key topics to be covered in the session are as follows:
• Functions: Basic definitions of related concepts and types
• Linear functions and Linear Models
• Systems of equations
• Algebraic solutions

Slide 3
Topic One

FUNCTIONS: BASIC DEFINITIONS

AND RELATED CONCEPTS
Slide 4
 Importance and Applicability of Functions
in Economics
How are functions important in Economics?
1. Economics studies relationships!
– Eg. Relationship between price and qty demanded, income and consumption
etc.
– Functions provide a mathematical framework to represent these relationships.
Eg. Qd=f(P) – describes how quantity demanded changes as price varies.

2. Predictive Power:
– Knowing the function that relates advertising expenditure to sales can help us
predict how much sales might increase for an additional dollar spent on
advertising.
– Clarity in Assumptions: For example, assuming a linear relationship between
two variables is very different from assuming a quadratic one, and functions
make these distinctions clear.

Slide 5
 Functions- Definition

A function is a mathematical relation between a set of

inputs values and a set of possible output values. Each
input is related to exactly one output
Another way of saying it is that there is one and only one
output (y) with each input (x).
Consider a machine which is fed inputs and produces
outputs

x f(x) y
 Example

• Consider a simple demand function:

– What is the input?
– (price of the good)
– What are outputs?
– Quantity demanded of the good

• For every price, there is a corresponding quantity

demanded.
 Function Notation

y  f x 
Input
Output Name of
Function
Is this a relation a function?

What is the difference between a relation and function?

Read about this yourself!

Google Confidential and Proprietary

 Is this a relation a function?

• {(2, 3), (3, 0), (5, 2), (4, 3)}

2 3
f(x)

3 0
f(x)

5 2
f(x)

4 3
f(x)
Google Confidential and Proprietary
 Is this relation a function?
{(4, 1), (5, 2), (5, 3), (6, 6), (1, 9)}

4 1
f(x)

5 2
f(x)

5 3
f(x)

6 6
f(x)

1 9
f(x)
Slide 11
 Is this relation a Function?
• {(1,3), (2,3), (3,3)}

Slide 12
 Vertical Line Test

If any vertical line passes through more than one point of the graph,
then that relation is not a function.
Are these functions?
Vertical Line Test

FUNCTION!
 Related Concepts
1. Domain:
2. Range:
3. Independent Variable:
4. Dependent Variable:

Slide 15
 Related Concepts
1. Domain:
– Definition: The domain of a function is the set of all possible input
values (or arguments) which produce a valid output from a particular
function.
– Economic Example: In a demand function, the domain might represent
the range of prices for which we know the quantity demanded.
2. Range:
– Definition: The range of a function refers to the set of possible output
values. It's determined after considering all the possible values from the
domain.
– Economic Example: Using the same demand function, the range would
be the set of quantities demanded corresponding to the prices in the
domain.

Slide 16
 Related Concepts
3. Independent Variable:
– Definition: This is the variable that stands alone and isn't affected by
other variables you are trying to measure. It's often denoted by 'x'.
– Economic Example: In a simple supply function, the price might be
the independent variable, determining how much of a good is
produced.
4. Dependent Variable:
– Definition: It's something that depends on other factors. For a
function, it's the variable that depends on the value of the independent
variable, often denoted by 'y'.
– Economic Example: Continuing with the supply function example,
the quantity supplied would be the dependent variable, as it depends
on the price.
Slide 17
 Examples
Example 1: A function is defined for all numbers by
the following rule: assign any number its third
power:
f(x) =
If x=0, f(0) = = 0
If x= -3, f(-3) = = -27
If x= a+2, f(a+2)== + 3+3a+ 1

Slide 18
 Examples
Example 2: The total cost of producing x units of a
product is given by C(x) = 100x +500
Find the cost of producing (i) 25 units (ii) b units
Solution:
(i) C(25)= 100.25 + 500 = 100.25 (5) +500
=12500+500=13000
(ii) C(b) = 100.b+500= 100b +500

Slide 19
 Types of Functions
Types of Functions (A Brief Overview):
1. Linear Functions: These are functions of the form y=mx+c, where m is
the slope and c is the y-intercept.
• In economics, linear functions are often used for their simplicity, even
though real-world relationships might be more complex.
2. Quadratic Functions: Functions of the form y=ax2+bx+c.
• They represent parabolic relationships and can be used in economics to
model scenarios like diminishing returns.
3. Exponential Functions: Functions like y=ax
• These might be used in economics to model phenomena such as compound
interest or certain types of growth.
4. Logarithmic Functions: logb​x=y -The inverse of exponential functions.
• In economics, they can be used in models that capture effects like
diminishing sensitivity (e.g., in utility functions).

Slide 20
Topic Two

LINEAR FUNCTIONS

Slide 21
 Linear Functions
• Many situations involve two variables related by a linear
equation.
• When we express the variable y in terms of x, we say that y
is a linear function of x.
• Linear functions will model data when phenomena and
data changes at a constant rate
• The constant rate is the slope of the function
– Or the m in y = mx + b
• The initial value for the data/phenomena is the
y-intercept which is also referred to as the constant term of
the function
– Or the b in y = mx + b Slide 22
Examples :Linear Economic Models
1. The consumption Function: In Keynesian
macroeconomic theory, total consumption or expenditure
on goods and services, C is assumed to be a function of
national income Y. This can be expressed in functional
notation as :
C= f(Y)
• In many models the consumption function is linear, so
that an individual's consumption (C) might increase
linearly with income (Y), i.e., C=m×Y+c
• The slope m is called the marginal propensity to
consume which tells us by how much consumption will
change if national income changes by a unit.
Slide 23
 Linear Economic Models
2. Supply and Demand: The number of units of a good
demanded by customers is modelled to have a linear
relationship with the price of the good.

– Price (P) might be seen as a linear function of quantity

demanded (Qd) or supplied (Qs),
– P=m×Qd+c
– P=m×Qs+c

• where m represents the sensitivity of price to changes in

quantity.
Slide 24
 Examplem:1
• A furniture manufacturer can sell dining-room tables
for $70 apiece. The manufacture‘s total cost consists
of a fixed overhead of $8,000 plus production costs
of $30 per table.
• a. How many tables must be the manufacturer sell to
break even?
• b. How many tables must the manufacturer sell to
make a profit of $6,000?
• c. What will the manufacturer’s profit or loss if 150
tables are sold?
Slide 25
 Example:2
• A company decides to set up a small production plant for manufacturing
electronic clocks. The total cost for initial set-up is Ghs 9000. The
additional cost for producing each clock is Ghs 30. Each clock is sold at
Ghs750. During the first month, 1500 clocks are produced and sold
• (a) Determine the cost function C(x) for the total cost of producing x
clocks.
• (b) Determine the revenue function R(x) for the total revenue from the
sale of x clocks.
• (c) Determine the profit function P(x) for the profit from the sale of x
clocks.
• (d) What profit or loss the company incurs during the first month when
all the 1500 clocks are sold ?
• (e) Determine the break-even point.

Slide 26
 Example 3
• John's consumption function is given by C=200+0.75Y, where Y is his
income.
– Find out how much John will consume and save if his income is $1000.
• A company produces widgets based on the function Q=10L+5K, where L is
labor and K is capital.
– If the company employs 10 units of labor and 4 units of capital, how many widgets
will it produce?
• Given a utility function U(x,y)=3x+2y, if the consumer has 6 units of x and
4 units of y, find the total utility.

• Suppose the demand for a good is given by Qd=80−5P and the supply,
without considering an externality, is Qs=4P−10
– If a negative externality costs suppliers $3 per unit, modify the supply equation to
account for this and then solve for the new equilibrium.
Slide 27
Topic Three

SYSTEMS OF LINEAR EQUATIONS

Slide 28
 Definition and Importance
• Definition: A system of equations consists of two or more equations with a
common set of variables.
– The goal is to find values for the variables that satisfy all the given equations simultaneously.
• Why are they Essential in Economics?
1. Multiple Equilibria: In economics, it's common to encounter models with
multiple variables that interact
– For instance, supply and demand models have both price (P) and quantity (Q) as variables,
and both are affected by external factors.
2. Simultaneous Determination: Many economic variables are determined
simultaneously rather than sequentially.
– For instance, in a market, the price and quantity don't adjust in a sequence; they adjust
simultaneously based on various factors.
3. Model Complexity: As economic models become more complex, especially in
macroeconomics, the need to solve systems of equations becomes more
frequent.
– For instance, IS-LM models in macroeconomics involve several simultaneous equations.
 Systems of Equations
• In this session, we focus on only two equations at a time
• The solution of a system of linear equations in two variables is
any ordered pair that solves both of the linear equations.
Example:
– Determine whether the given point is a solution of the following system.
point: (– 3, 1)
system: x – y = – 4 and 2x + 10y = 4

•Plug the values into the equations.

First equation: – 3 – 1 = – 4 (true)
Second equation: 2(– 3) + 10(1) = – 6 + 10 = 4 (true)
•Since the point (– 3, 1) produces a true statement in both
equations, it is a solution of the system of equations
 Finding the Solution of a System of
Equations
• The solution of a system of equations can be found in
different ways. The most frequently used methods
include:
– Graphical Method
– Algebraically ( by Substitution and elimination)
– Using Matrices
• In this session, we will focus on solving the system of
equations using the algebraic approach.

Slide 31
 Algebraic Method: Substitution and
Elimination
• In the substitution method, you solve one equation
for one of the variables, then substitute the new
form of the equation into the other equation for the
solved variable.
• Another method that can be used to solve systems of
equations is called the elimination method.
• You multiply both equations by numbers that will
allow you to combine the two equations and
eliminate one of the variables.

Slide 32
 Example: Substitution Method
• Solve the following system using the substitution method.
3x – y = 6 and – 4x + 2y = –8
• Solving the first equation for y,
3x – y = 6
–y = –3x + 6 (subtract 3x from both sides)
y = 3x – 6 (multiply both sides by – 1)
• Substitute this value for y in the second equation.
–4x + 2y = –8
–4x + 2(3x – 6) = –8 (replace y with result from first equation)
–4x + 6x – 12 = –8 (use the distributive property)
2x – 12 = –8 (simplify the left side)
2x = 4 (add 12 to both sides)
x=2 (divide both sides by 2)

Slide 33
 Example Contd.
Substitute x = 2 into the first equation solved for y.
y = 3x – 6 = 3(2) – 6 = 6 – 6 = 0
Our computations have produced the point (2, 0).
Check the point in the original equations.
First equation,
3x – y = 6
3(2) – 0 = 6 (true)
Second equation,
–4x + 2y = –8
–4(2) + 2(0) = –8 (true)
The solution of the system is (2, 0).
Slide 34
 The Substitution Method: Summary of
Steps
In solving a system of Linear Equations by the
Substitution Method, follow the steps below:
1) Solve one of the equations for a variable.
2) Substitute the expression from step 1 into the other
equation.
3) Solve the new equation.
4) Substitute the value found in step 3 into either equation
containing both variables.
5) Check the proposed solution in the original equations.

Slide 35
 Substitution Method: Trial Questions
• Solve the following systems of equations using the
substitution method. Use the steps outlined on the
previous slide.
• 1. 2x +y=8 and 1+y=2x
• 2. 3x +2y=36 and 5x +4y = 64

Slide 36
 Method of Elimination: Example
• Solve the following system of equations using the
elimination method.
6x – 3y = –3 and 4x + 5y = –9
• Multiply both sides of the first equation by 5 and the
second equation by 3.
First equation,
5(6x – 3y) = 5(–3)
30x – 15y = –15 (use the distributive
property)
Second equation,
3(4x + 5y) = 3(–9)
12x + 15y = –27 (use the distributive
property Slide 37
 Method of Elimination: Example Contd.

• Solve the following system of equations using the

elimination method.
6x – 3y = –3 and 4x + 5y = –9
• Multiply both sides of the first equation by 5 and the
second equation by 3.
First equation,
5(6x – 3y) = 5(–3)
30x – 15y = –15 (use the distributive
property)
Second equation,
3(4x + 5y) = 3(–9)
12x + 15y = –27 (use the distributive
property Slide 38
 Method of Elimination: Example Contd.

Combine the two resulting equations (eliminating the variable

y).
30x – 15y = –15
12x + 15y = –27
42x = –42
x = –1 (divide both sides by 42)
Substitute the value for x into one of the original equations.
6x – 3y = –3
6(–1) – 3y = –3 (replace the x value in the first equation)
–6 – 3y = –3 (simplify the left side)
–3y = –3 + 6 = 3 (add 6 to both sides and simplify)
y = –1 (divide both sides by –3)
Our calculations have produced the point (–1, –1).
Slide 39
 Method of Elimination: Example Contd.

• Now check the point in the original equations.

First equation,
6x – 3y = –3
6(–1) – 3(–1) = –3 (true)
Second equation,
4x + 5y = –9
4(–1) + 5(–1) = –9 (true)
The solution of the system is (–1, –1).

Slide 40
Method of Elimination: Summary of Steps
In solving a System of Linear Equations by the
Elimination Method, follow the steps below:
1) Rewrite each equation in standard form, eliminating
fraction coefficients.
2) If necessary, multiply one or both equations by a number
so that the coefficients of a chosen variable are
opposites.
3) Add the equations.
4) Find the value of one variable by solving equation from
step 3.
5) Find the value of the second variable by substituting the
value found in step 4 into either original equation.
6) Check the proposed solution in the original equations.
Slide 41
 Elimination Method: Trial Questions
• Solve the following systems of equations using the
substitution method. Use the steps outlined on the
previous slide.
• 1. 2 x  1 y   3
3 4 2
1 1
x  y  2
2 4

Slide 42
 Solving Systems of Equations: Economic
Examples
• Given the following set of equations for two related markets,
beef (B) and Pork (P), find the equilibrium condition for each
market, by using the substitution method.
• =82-3+ and
• =92+2 and
Solution:
Equilibrium requires that = in each market.
– 82-3+ = ( equilibrium for beef market)
Simplifying the above expression gives : 18= 87 (1)
– 92+2= (equilibrium for pork market)
Simplifying the above expression gives: 36- 2=98 (2)

Slide 43
 Solving Systems of Equations: Economic
Examples
• Solving for in (1) gives : = 18-87 (3)
• Substituting (3) into (2) gives:
• -2+36(18-87)= 98
-2+648-3132=98
646= 3230
=5
Now substitute =5 into (3)
= 18(5)-87= 90-87=3
Equilibrium prices for beef and pork are 5 and 3 respectively.
What is the equilibrium quantity demand for beef and pork.
Slide 44
 Example 1: Demand and Supply
• Given the following set of simultaneous equations for two related
goods, x and y, find the equilibrium conditions for each market if
the consumers’ income is i=600. What types of goods are x and y?

• = 22-3+ 0.1i
• =-5+15

• =32+2-4+0.1i
• =-6+32

Slide 45
 More Trial Questions
1. The demand for a product is given by the equation Qd=800−5P
where Qd​is the quantity demanded and P is the price. The
supply for the product is given by Qs=3P−100 where Qs​is the
quantity supplied. At what price will the quantity demanded be
equal to the quantity supplied?

2. A manufacturer produces pencils. The fixed costs (like rent,

salaries) amount to $5000, and the variable cost per pencil is
$0.50. If each pencil is sold for $1.50, how many pencils must be
sold to break even?

Slide 46
 More Trial Questions
3. Jane has a monthly income comprising a fixed salary of $3000
and a commission of $20 for each unit of a product she sells. If her
monthly expenditure consists of a fixed rent of $1200 and a
variable cost of $15 for each unit she sells, how many units should
she sell to save $500 every month?

4. A farm can produce either wheat or barley. Using all its

resources, it can produce 100 tons of wheat or 50 tons of barley. If
the farm wants to produce 30 tons of barley, how much wheat can
it produce without expanding its resources?

Slide 47
 Next Class
• Non-linear functions
– quadratic
– cubic
– exponential and logarithmic
– Applications in Economics

Slide 48