PART B

THE REPORT ABOUT THE APPLICATION OF MATHEMATICS IN ECOMONICS

1.0 Introduction
First of all, Economics is a social science. Economics also does not just describe what
goes on in the economy. It is attempts to explain how the economy operates, to make
predictions about what may happen to specified economic variables if certain changes take
place, e.g. what effect a crop failure will have on crop prices, what effect a given increase in
sales tax will have on the price of finished goods, what will happen to unemployment if
government expenditure is increased. Next, it is suggested some guidelines that firms,
governments or other economic agents might follow if they wished to allocate resources
efficiently. Besides, Mathematics is fundamental to any serious application of economics to
these areas. The Applications of Mathematics in Economics presents an overview of the
(qualitative and graphical) methods and perspectives of economists. It provides concrete form
to economic laws and relationships that made it more practically. Use of Mathematics helps
in systematic understanding of the relationship and in derivation of certain results which
would either be impossible through verbal argument, or would involve complex and difficult
processes. Nowadays, mathematics is very important tool used in economic analysis. Use of
mathematics gives a better understanding about different economic conditions.
Secondly, in the application of mathematics in economics, assumption and
conclusions are stated in mathematical symbol and equations. While in literary economics,
assumption and conclusion stated in word and sentences. Mathematics economics also refer
to the theoretical aspects of economics analysis whereas the application of mathematical in
economics. In addition, the use of mathematics in economics puts the literary form of
economics theory into mathematical language. It is provided a concrete form to economics
laws and relations between economy and mathematics. Not only that but it is also makes it
more practical and logical if there are calculation in economics. Besides, the mathematics
helps in the systematic understanding of the relations involved and in the derivation of the
results which would be very difficult through verbal logic.
Next, the applications of mathematics in the field of economics can be used to
compute marginal economic values. The marginal analysis of economic variables is closely
related to differential calculus. All marginal economics concepts like marginal cost, marginal
revenue, marginal product, multiplier and marginal propensity to consume. It can be
expressed as derivatives or ratios. Different orders of the derivative also used to determine
the slop or the rate of change of economics functions. Additionally, application mathematics
in economics can compute the economic values. All economics functions in aggregate form
can be computed with the help of integration. It has an application on the theories of
consumer’s and producer’s surplus, capital budgeting and others fields of economics where
the techniques of differential equations are needed. On the other hand, the application of
mathematics in economics field also may to solve problems of optimization. The economics
units have optimization problems such as cost minimization, output/profit maximization and
sales maximization. All of these problems can be solved with the help of mathematics. For
example, the function of equations, inequalities, linear programming and the maxima and
minima.
Furthermore, economics and mathematical application also can be used to find
determine of equilibrium price. The equilibrium price is said to occur at the price at which the
market demand is equal to the market supply. This refers to the solution of simultaneous
equations with two variables it is price, quantity and matrix algebra or determination in
different orders. Lastly, mathematics in economics may to determine economics function.
The function can be represented by an equation or graph. This is because it is a mathematical
concept and it plays an important role in deriving different economic functions. For
examples, demand function, supply function, cost function, production function, the
consumption function, investment function and many more.
2.0 The Illustrations of the Application Mathematics in Economics

a) Function
According to an economics, Demand is a function of price. Meanwhile, production is
a function of the factor of production. The utility, revenue, cost, supply, saving, cost and
more are the function of some related variables. These two function were called as
mathematical concept. As be a known demand (D) is depends on the price, however in terms
of application mathematics in economics it would be the function of price that in symbol
notations which is D = f(P). In this function, ‘f’ is stands for function symbol.
b) Straight line
The linear function is usually represented in the graph as a straight line and also can
be used in the economics analysis, it is supply and demand analysis such as the straight line
demand curve in perfect competition. The straight line can be expressed as a Linear Equation
that can be write, ‘D = f(p)’ and ‘D = 7-p. In the function ‘D’ is the dependent variable while
‘p’ is the independents variable. Therefore, it can be said that the demand is rises by a unit
meanwhile a unit fall in the price.
c) Parabola
Parabola is a quadratic function in the mathematical concept. The curves for this
function in graph is “Parabola” or “U” shaped. This mathematical concept is applied in the
economics which is the cost function. This is because in economics, the curve of cost
function is a “U” shaped.
d) Differentiation
In the differentiation, the most of the economics decisions are according to derivatives
in the mathematical concept. This process also called a Marginal Analysis. The marginal
analysis is the basic concept in economics such as if the total utility function is U = f(Q).
Meanwhile, the marginal utility is the first older derivative of the total utility function, for
example du/dq. Moreover, it is the same application to all the marginal concept like marginal
cost, marginal revenue, marginal propensity to consume (MPC), marginal propensity to save
(MPS) and more, all are the first derivatives of the relevant function. Hence, the
differentiation concept is very helpful solve derive marginal function.
e) Slope
Slope or the gradient of the curve is a graphical value of the dy/dx. This concept had
been used economics. The mathematical concept to solve slope of the curves such as demand
curve, cost curves, revenue curves indifference curves and isoquants. Additionally, if the
slope is positive, the curves will be rising. While, if the slope is negative the curves will be
falling.
f) Partial differentiation or Euler’s theorem
 This application mathematics in economics is known as Euler’s Theorem on
homogeneous function. It is can be applied to the marginal productivity theory of distribution
in economics. If the function, Z = f(x,y) is homogeneous functions the degree ‘x’ then,
x.dz/dy + y.dz/dy = xZ. Other than that, if Z =(L.K) is linearly homogeneous function, Z =
L.dz/dl + K.dz/dl.
g) Maxima
The maximum context in the application mathematics in economics can be founded in
the equilibrium firm’s and consumer equilibrium. The concept help everyone understand the
study of the consumer’s and firm’s equilibrium. The consumer equilibrium can be achieved
only when the utility is maximum. It can be said that it is help to optimizing the maximum
utility of consumer and in turn the consumer’s equilibrium. For example, the firm equilibrium
only if the profit is maximum, through the differentiation it helps to determine the
equilibrium and the maximum profit of the firm. It can be represented in symbolically, such
as π = R – C, which is π = profit, R = revenue and C = cost.
h) Minima
Minimization in the application of mathematics and economics is to calculate the
minimum average cost and minimum marginal cost a given to level of output. This is because
the firm’s objective to minimize the cost by the given of output. For instance, a minimization,
First derivative = 0, and the second derivative > 0. For maximization, first derivative = 0,
second derivative < 0.
i) Difference and Differential Equations
The mathematical concept such as difference and differential equations is important in
Macroeconomics theories and the theories of Economics Growth. The difference-differential
equation is two variable element equation consisting of the ordinary differential and
difference equation. The idea of how the difference equation can come up in economics
should be considered where the national income (y) of the particular country has been
growing. To be contrast, differential equation (D.E.) is an equation which involves in the
derivatives (dy/dx) of function y = f(x) such as dy/dx + py = q.
j) Elasticity
The concept of elasticity is widely used in economics. Anyone who has studied knows
the law of demand, which is elasticity of demand and elasticity of supply. The own price
elasticity of demand is the percent change in the quantity demanded of a good or service
divided by percentage change in price. This shows the responsiveness of the quantity
demanded. In addition, it is similar to the own price elasticity of supply is the change in the
quantity supplied divided by the percentage change in price. It is also shows the
responsiveness of quality supplied to a change in price. The formula for elasticity is
% ∆ Quantity
. This formula can be used for most elasticity problems, use different prices
% ∆ price
and quantities for different situation.
k) Simultaneous Equations
 In economics, the equilibrium price is where quantity demanded equals with quantity
supplied. The analysis solutions of systems or simultaneous equations are price and quantity.
For example, demand function = 5P + 20 , Supply function = 10P + 12.
5P – 10P = 10 – 20
-5P = 10P
P = -10/-5
P=2
3.0 Conclusion

Mathematical economics is the application of mathematical methods to represent theories

and analyze problems in economics. Using mathematics allows economists to form
meaningful, testable propositions about complex subjects that would be hard to express
informally. The versatility of the roles that mathematics carries out in economics- such as
technique, analysis and rhetorical tool- implies that it is to be considered by all means a
professional requisite indispensable to the modern economist. Mathematical also enables
economists to make specific and positive claims that are supported through formulas, models,
and graphs. Mathematical disciplines, such as algebra and calculus, allow economists to
study complex information and clarify assumptions.
Math is a tool for understanding economics and economic relationships can be expressed
mathematically using algebra or graphs. The algebraic equation for a line is y = b + mx,
where x is the variable on the horizontal axis and y is the variable on the vertical axis, the b
term is the y-intercept and the m term is the slope. The slope of a line is the same at any point
on the line and it indicates the relationship (positive, negative, or zero) between two
economic variables.
Economic models can be solved algebraically or graphically. Graphs allow you to
illustrate data visually. They can illustrate patterns, comparisons, trends, and apportionment
by condensing the numerical data and providing an intuitive sense of relationships in the data.
A line graph shows the relationship between two variables: one is shown on the horizontal
axis and one on the vertical axis. A pie graph shows how something is allotted, such as a sum
of money or a group of people. The size of each slice of the pie is drawn to represent the
corresponding percentage of the whole. A bar graph uses the height of bars to show a
relationship, where each bar represents a certain entity, like a country or a group of people.
The bars on a bar graph can also be divided into segments to show subgroups.
Any graph is a single visual perspective on a subject. The impression it leaves will be
based on many choices, such as what data or time frame is included, how data or groups are
divided up, the relative size of vertical and horizontal axes, whether the scale used on a
vertical starts at zero. Thus, any graph should be regarded somewhat skeptically,
remembering that the underlying relationship can be open to different interpretations.
Hence from the above study we can conclude that economical concepts are incomplete
without the use of mathematics. To understand economics properly we need to use
mathematics in every point. With the use of mathematical techniques, nowadays economical
concepts are understood in such a way that one can grow their interest in the subject. Hence
both the subjects are very much inter related with each other and use of mathematics cannot
be denied in economic analysis.
 The need for mathematics in economics is more that obvious. I consider that in fact,
mathematics and economics have formed a symbiosis, each one acting as ‘Alma mater’ for
the other, offering new sources for theories postulates, axioms, theorizations and
explanations.
4.0 Preferences

 Carl P. S., Lawrence B. (1994) Mathematics for Economics.

 James Berlin. (2015) Mathematics for Economist with Application.
 Edgeworth F. (1881) Mathematical Psychics. An Essay on the Application of
Mathematics to the Moral Sciences.
 Appendix A. The use of Mathematics in Principle of Economics