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Partial Derivative and Its Economic Application

This document discusses partial derivatives and their applications in economics. It covers the history, theory, and formulas of partial derivatives, provides examples of calculating partial derivatives, and explains how partial derivatives are used in economics to measure marginal functions and rates of substitution between variables.

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sujay giri
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313 views21 pages

Partial Derivative and Its Economic Application

This document discusses partial derivatives and their applications in economics. It covers the history, theory, and formulas of partial derivatives, provides examples of calculating partial derivatives, and explains how partial derivatives are used in economics to measure marginal functions and rates of substitution between variables.

Uploaded by

sujay giri
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Partial Derivative

and its Economic


applications.
By-Group 10:(SujayGiri,Anirban Paul, Bratin Mondal)
Guided by: Prof Amit Kumar Biswas
Contents
Acknowledgement
Introduction
History of Partial derivatives
Theory
Formula
Examples
Questions
Partial derivative in Economics
Examples of economic applications
Inference
Acknowledgement

•We would like to express our special thanks of gratitude to our teacher (Prof
Amit Kumar Biswas) who gave us the golden opportunity to do this
wonderful project on the topic (Partial Derivative and its Economic
applications), which also helped us in doing a lot of Research and we came to
know about so many new things we are thankful to him.
Secondly, we would also like to thank our parents and friends who helped us
a lot in finalizing this project within the limited time frame.
Introduction
• Mathematical economics is a method of economics that utilizes math principles and tools to create
economic theories and to investigate economic quandaries.
• Mathematics permits economists to construct precisely defined models from which exact conclusions
can be derived with mathematical logic, which can then be tested using statistical data and used to
make quantifiable predictions about future economic activity.
• The marriage of statistical methods, mathematics, and economic principles enabled the development
of econometrics.
• Advancements in computing power, big data techniques, and other advanced mathematics
applications have played a large part in making quantitative methods a standard element of
economics.
History of Partial derivatives

 In circa 1671, English physicist Isaac Newton wrote his then-unpublished The Method of Fluxions and Infinite Series (published in 1736),
in which he classified first order differential equations.
 The first two classes contain only ordinary derivatives of one or more dependent variables, with respect to a single independent variable,
and are known today as "ordinary differential equations";
 The third class involves the partial derivatives of one dependent variable and today are called "partial differential equations".

Ordinary differential equations Partial differential


equations

Class 1 Class 2 Class 3


Theory
i) partial derivatives.
• Consider some function with a two-dimensional input and a one-dimensional output.
• There's nothing stopping us from writing the same expression and interpreting it the
same way:
• dx can still represent a tiny change in the variable x, which is now just one component of
our input.
• df can still represent the resulting change to the output of the function f(x, y)
• However, this ignores the fact that there is another input variable y. The input space now
has multiple dimensions, so we can change the input in many directions other than the x-
direction. For example, what about changing y slightly by some small value dy?
• Now if we re-interpret df to represent the tiny change to the function that this dy shift
brings about, we would have a different derivative df/dy.
• Neither one of these derivatives tells the full story of how our function f(x, y) changes
when its input changes slightly, so we call them partial derivatives.
• To emphasize the difference, we no longer use the letter d to indicate tiny changes, but
instead introduce a newfangled symbol ∂ to do the trick, writing each partial derivative as
∂f/∂x , ∂f/∂y etc.
• You read the symbol ∂f/∂x out loud by saying "the partial derivative of f with respect
to x".
ii)Dependent and Independent Variables :
• It is within a dependable framework which depends on the values of independent variables.
• For eg. The notation for the derivative dy/dx which implies that y is the dependent variable and x is the
independent variable.
• For a function z=f(x,y) of two variables x and y are the independent variables and z is the dependent
variable.
iii) Additively separable functions:
• A functions of two variables F(x,y) will be called Additively separable if it can be written as f(x)+g(y) for
some single-variable functions f(x) and g(y).
• This means that the cross partials are zero, and so there is no "cross" effect of the one argument over
the marginal effect that the other has on the value of the function. Since marginal effects are at the very
heart of Economics , assuming additive separability greatly simplifies the analysis.
Formula

For a multivariable function, like f(x, y) = x^2y computing partial


derivatives looks something like the Fig 1.
The generalization of formula gives us Fig 2. Fig 1

Fig 2
Examples

Example 1:
Determine the partial derivative of the function: f (x,y) =
Solution:
Given function: f (x,y) =
To find ∂f/∂x, keep y as constant and differentiate the function:
Therefore, ∂f/∂x = 3
Similarly, to find ∂f/∂y, keep x as constant and differentiate the function:
Therefore, ∂f/∂y = 4
Example 2:
Find the partial derivative of f(x,y) = x2y + sin x + cos y.
Solution:
Now, find out fx first keeping y as constant
fx = ∂f/∂x = (2x) y + cos x + 0
= 2xy + cos x
When we keep y as constant cos y becomes a constant so its derivative becomes zero.
Similarly, finding fy
fy = ∂f/∂y = x2 + 0 + (-sin y)
= x2 – sin y
Example 3:
Find ∂f/∂x, ∂f/∂y, ∂f/∂z for the given function, f(x, y, z) = x cos z + x2y3ez
Solution:
To find ∂f/∂x, ∂f/∂y, ∂f/∂z
Given Function: f(x, y, z) = x cos z + x2y3ez
∂f/∂x = cos z + 2xy3ez
∂f/∂y = 3x2y2ez
∂f/∂z =-x sin z + x2y3ez
Think?
• f(x, y) = x2 + xyz + z Find fx at (1,1,1)
a) 0
b) 1
c) 3
d) -1

• Partial derivative of logx +logy with respect to y at (1,1):


a) 0
b) 1
c) 3
d) -1

• Differentiate - 4y in respect to y.
a) -4
b) 0
c) 3
d) 1
Answers
Explanation:
1)f’x = 2x + yz
Put (x,y,z) = (1,1,1)
fx = 2 + 1 = 3

2)f’y=1/y
So at (1,1), the value of f’y=1

3)f’y=-4
Partial Derivative in economics

Marginal functions
•For a multivariable function which is a continuously differentiable function, the first-order partial
derivatives are the marginal functions, and the second-order direct partial derivatives measure the slope
of the corresponding marginal functions.
•For example, if the function f(x,y) is a continuously differentiable function,
Marginal function with respect to x is fx.
Slope of the marginal function fx is fxx.
Marginal function with respect to y is fy.
Slope of the marginal function fy is fyy.
Measuring the slope
• Consider a multivariable function =f(x,y).
• Suppose, for each pair of (x,y), we evaluate f(x,y) to obtain the same value of z, say . If we draw the
locus in the xy-plane of (x,y) pairs for which the function has the value , the corresponding curve is
called the level curve of the function.
• In economics frequently used level curves are indifference curves and isoquants.
• If we draw the level curve of z=f(x,y)= while measuring y on the vertical axis and x on the horizontal
axis, the slope of the level curve :

• Example:
Consider the function f(x,y)=2x+3y.
• The slope of the level curve is dy/dx=−fx/fy=−2/3.
Marginal rate of substitution (MRS)
• Consider a multivariable function f(x,y) which is a continuously differentiable function.
• For such functions, partial derivatives can be used to measure the rate of change of the
function with respect to x divided by the rate of change of the function with respect
to y, which is fx/fy.
• If there exists level curves for the function f(x,y), the ratio fx/fy is called the marginal rate of
substitution.
• For example, if a function is f(x,y)=2x+3y, then fx/fy=2/3 is the marginal rate of substitution
between x and y for its corresponding level curves.
Examples
Example 1
Example 2
Inference

• The partial derivative and economics go hand in hand ,


• It helps the economist and the people in government to analyze the
data given more accurately.
• The application of partial derivative enables economists to consider and
dispose certain criteria required and not required respectively during
their thesis or policy making.

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