Paper Group 7
Paper Group 7
Paper Group 7
By :
7th Group
Haerunnisa (210101512005)
YEAR 2023
FOREWORD
ii
TABLE OF CONTENTS
Cover Page
Foreword ............................................................................................................. ii
Introduction ......................................................................................................... 1
` CHAPTER II Discussion...................................................................................... 3
A. Differential ................................................................................................. 3
BIBLIOGRAPHY ............................................................................................... iv
iii
CHAPTER I
INTRODUCTION
A. Background
In economics, it is known that there is a balance regarding an economic condition,
be it closed market balance (price equilibrium and quantity equilibrium), national income
balance, or other equilibrium cases. The balance of an economic condition will of course
not always be at one point. It will change along with changes in the variables that
influence it, be they variables in the model (endogenous) or variables outside the model
(exogenous).
It must be understood that the problem being considered is primarily to find the
rate of change, the rate of change in the equilibrium value of the endogenous variable
relative to changes in specific parameters or exogenous variables. For this reason, the
mathematical concept of derivative has a broader meaning in comparative statics.
Because this concept, which is one of the most basic in the branch of mathematics known
as differential calculus, is directly concerned with understanding the rate of change. Apart
from that, we also have to know the concept of derivatives which is very important for
optimization problems.
The partial differential procedure used in differentiation rules and its use in
comparative statics can be fully justified. However, if there is a model containing general
functions, we cannot obtain an explicit compact form solution. In such cases we have to
look for direct static-comparative derivatives of the equations in the originally given
model.
We must return to total differentiation (and not partial differentiation). Based on the idea
of total differentiation, the total differentiation process can lead us to the concept of total
derivative, which measures the degree of change of a function such as with respect to the
argument , if it also affects other arguments, .
So, once we know this concept, we will be able to handle the functions
whose arguments are not completely independent, and this will remove the biggest
obstacle that has been hindering the study of comparative statics from general function
models.
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B. Formulation
1. What is meant by differential?
2. What is an example of the application of differentials in economics?
3. What is meant by total differential?
4. What is an example of the application of total differential in economics?
5. What is meant by differential rules?
6. What is an example of the application of differential rules in economics?
7. What is meant by total derivatives?
8. What are examples of the application of total derivatives in the economic field?
9. What is meant by a derivative of an implicit function?
10. What is an example of the application of derivatives from implicit functions in
economics?
11. What is meant by Comparative Statistics of General Function Models of Market
Models
12. What is an example of the application of Comparative Statistics from General
Function Models of Market Models
13. What is meant by the limitations of comparative statistics?
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CHAPTER II
DISCUSSION
In a broad sense, a curve shift can mean a rotation of a curve or a rotation a curve that
pivots at a point (think of it like the movement of a wiper windshield). In other words, what is at
the heart of comparative static analysis is compare equilibrium values before and after parameter
changes and exogenous/autonomous variables.
Comparative static analysis uses general function models so it cannot solved with partial
differentials then the answer is we have to go back to total differential. based on total differential
thinking, total differential processes can be brings us to the concept of total derivative, which
measures the rate of change of something function.
A. Differential
The symbol dy/dx, for the derivative of the function y = f(x), until now was considered
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to be a unit. Now we will reinterpret it as a relationship between two quantities, dy and dx.
𝑑𝑦 Δ𝑦
= 𝑓 ′ (𝑥 ) = lim
𝑑𝑥 ∆𝑥→0 Δ𝑥
Therefore, naturally. ∆y/∆x (without requiring ∆x →0) is not the same as dy/dx. If
we express the difference between the two quotients by , we can write𝛿
Δ𝑦 𝑑𝑦
− 𝑑𝑥 = 𝛿 Where 𝛿→0 when ∆𝑥 → 0
Δ𝑥
𝑑𝑦
∆𝑦 = 𝑑𝑥 ∆𝑥 + 𝛿∆𝑥 or ∆𝑦 = 𝑓 ′ (𝑥 )∆𝑥 + 𝛿∆𝑥
Figure 1
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However, if we draw the tangent line AD through point A, and use AD instead of AB
to approximate the value of ∆y, we obtain the distance CD, leaving DB as a discrepancy
or approximation error. Since the slope AD is f'(x0), the distance CD is equal to f'(x0) ∆x ,
the distance DB is equal to δ∆x. Of course as ∆x decreases, point BB will move along the
curve towards point A, thereby reducing the deviation and making f'(x) or dy/dx or a
better approximation to ∆y/∆x .
By focusing on the tangent line AD, and taking the distance CD as an approximation
to CB, we rename the distances AC and CD as dx and dy respectively, as in Figure 1.
So
𝑑𝑦
= 𝑘𝑒𝑚𝑖𝑟𝑖𝑛𝑔𝑎𝑛 𝑇𝑎𝑛𝑔𝑒𝑛 𝐴𝐷 = 𝑓′(𝑥)
𝑑𝑥
There are two ways to measure the elasticity of a function, namely arc elasticity
and point elasticity. Point elasticity is elasticity that measures [ CITATION Wir17
\l 1033 ].
𝑑𝑄/𝑄 𝑑𝑄/𝑑𝑃
𝜀𝑑 = =
𝑑𝑃/𝑃 𝑄/𝑃
For any total function y = f (x), we can write the formula for the point elasticity of
y with respect to x as
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𝑑𝑦/𝑑𝑥 𝑓𝑢𝑛𝑔𝑠𝑖 𝑚𝑎𝑟𝑗𝑖𝑛𝑎𝑙
The demand function will be:𝜀𝑦𝑥 = = 𝑓𝑢𝑛𝑔𝑠𝑖 𝑟𝑎𝑡𝑎 𝑟𝑎𝑡𝑎
𝑦/𝑥
Example:
Find the supply point εs of the supply function Q = P2 + 7P, and determine
whether supply will be elastic at P = 2. Since the marginal function and the
average function are respectively
𝑑𝑄 𝑄
= 2𝑃 + 7 𝑑𝑎𝑛 = 𝑃 + 7
𝑑𝑃 𝑃
2𝑃 + 7
𝜀𝑠 =
𝑃+7
If P = 2, this elasticity has the value 11/ 9 > 1; so supply is elastic at P=2.
B. Total Differential
The differential concept can easily be extended to functions consisting of two or more
independent variables. Pay attention to the following savings functions:
S = S(Y, i)
Where S is savings, Y is national income, and i is the interest rate. The partial derivative ∂S/∂Y
measures the marginal propensity to save. So for every change in Y, dY, change in S the result
can be approximated by the quantity (𝜕S/∂Y) dY. Likewise changes in i, di, we can use (∂S/∂i) di
as an approximation to determine the resulting change in S. Thus, the total change in S is
approximated by the differential
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𝜕𝑆 𝜕𝑆
𝑑𝑆 = 𝑑𝑌 + 𝑑𝑖
𝜕𝑌 𝜕𝑖
dS = SY dY + Si di
The dS statement, which is the sum of changes in the approximation results from both sources, is
called the total differential of the savings function. And the process of finding such a total
differential is called total differentiation. The more general case of a function with n independent
variables can be clarified by, for example, a utility function in general form
or
𝜕𝑆/𝜕𝑌 𝜕𝑆 𝑌 𝜕𝑆/𝜕𝑖 𝜕𝑆 𝑖
𝜀𝑠𝑦 = = = 𝑑𝑎𝑛 𝜀𝑠𝑖 = = =
𝑆/𝑌 𝜕𝑌 𝑆 𝑆/𝑖 𝜕𝑖 𝑆
For the utility function, the partial n elasticity can be written concisely as follows.
𝜕𝑈 𝑥𝑖
𝜀𝑢𝑥𝑖 = ( 𝑖 = 1,2, … , 𝑛)
𝜕𝑥𝑖 𝑈
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C. Differential Rules
A direct way to find the total differential dy, if the function is known:
y = f(x1,x2)
This is to find the partial derivatives of F1 and F2 and substitute them into the equation:
Apart from substituting directly, we also use Differential rules which are as follows:
Suppose k is a constant and u and v are functions of variables X1 and X2, then the following
rules apply:
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Rule II (compare with power function rule)
Example:
𝑑𝑦 𝑑
If y = 4𝑥 3 , then 𝑑𝑥 = 4𝑥 3 = 4(3𝑥 2 ) = 12𝑥 2
𝑑𝑥
𝑑 𝑑 𝑑
[𝑓(𝑥 ) ± 𝑔 (𝑥 )] = 𝑓 (𝑥 ) ± 𝑔(𝑥 ) = 𝑓 ′ (𝑥 ) ± 𝑔′(𝑥)
𝑑𝑥 𝑑𝑥 𝑑𝑥
Example :
𝑑𝑦
From function y = 14𝑥 3 , we get 𝑑𝑥 = 42𝑥 2
But 14𝑥 3 = 5𝑥 3 + 9𝑥 3 , so y can be thought of as the sum of two functions 𝑓(𝑥 ) = 5𝑥 2 and
𝑔(𝑥 ) = 9𝑥 3 . According to the addition rule we get
𝑑𝑦 𝑑 𝑑
= (5𝑥 3 + 9𝑥 3 = 15𝑥 2 + 27𝑥 2 = 42𝑥 2
𝑑𝑥 𝑑𝑥 𝑑𝑥
𝑑 𝑑 𝑑
[𝑓 (𝑥 )𝑔(𝑥 ) = 𝑓(𝑥) 𝑔(𝑥 ) + 𝑔(𝑥) 𝑓(𝑥)
𝑑𝑥 𝑑𝑥 𝑑𝑥
= 𝑓(𝑥 )𝑔′ (𝑥 ) + 𝑔(𝑥)𝑓′(𝑥)
Example:
Answer:
𝑑
[2𝑥 + 3)3𝑥 2 ] = (2𝑥 + 3)(6𝑥) + (3𝑥 2 )(2) = 12𝑥 2 + 18𝑥 + 6𝑥 2 = 18𝑥 2 + 18𝑥
𝑑𝑥
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In this discussion we will not prove it, but we will only look at examples of its use.
Example
Is known:
Finding the Marginal income function from the average income function
AR= 15-Q
The marginal revenue function (MR) can be found by first multiplying AR by Q to obtain the
total revenue function (R):
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𝑑𝑅
𝑀𝑅 ≡ = 15 – 2Q
𝑑𝑄
But if function 𝐴𝑅 known in general form 𝐴𝑅 = 𝑓 (𝑄), then the total income function will also
be in the general form:
𝑅 ≡ 𝐴𝑅 . 𝑄 = 𝑓 (𝑄). 𝑄
𝑑𝑅
𝑀𝑅 ≡ = 𝑓(𝑄). 1 + 𝑄. 𝑓 ′ (𝑄) + 𝑄𝑓 ′ (𝑄)
𝑑𝑄
Remerber 𝑓(𝑄) shows function 𝐴𝑅 then the above equation can be rearranged:
𝑀𝑅 − 𝐴𝑅 = 𝑀𝑅 − 𝑓 (𝑄) = 𝑄𝑓′(𝑄)
This gives us an important relationship between MR and AR, namely that they will always differ
by magnitude 𝑄𝑓′(𝑄).
D. Total Derivatives
To continue the discussion in a more general framework, consider the following functions: y =
f(x,w) where x = g(w) the two functions above can be combined in a composite function.
Figure 2, Variables y, d and w are related to each other. Two functions f and g can be combined
in a composite function.
y = f [g(w), w]
When the variables y, x and w are related to each other as seen in Figure 1. This image is called a
channel map. In the picture above it is clear that w-is the main source of change. w can influence
y through two channels, viz
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2. Directly: through the function f with a curved arrow, the direct effect can be represented
simply by the partial derivative fw. But the indirect effect can only be expressed by the product
of two derivatives
By combining both effects we will obtain the desired total derivative of y with respect to w
Apart from using the chain rule, we can also obtain it using another method, namely by first
differentiating the function x = f ( x, w) in total, to get the total differential:
and then dividing by dw, the process of finding the total derivative dy/dw is known as the total
differential of y with respect to w. dy/dw is a total derivative symbol and dy/dw is one of the
components of the first symbol.
Example
Completion
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Figure 3
3. Directly: via f
If we calculate the total differential dy, and then divide it by dw, then we can get the same result.
Example
answer:
Production can shift over time. Likewise, capital and labor change over time:
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E. Derivatives of Implicit Functions
If in a function the dependent variable is not explicitly isolated on both sides of the equation,
then the function becomes an implicit function. It's easy to solve if the equation takes the form y
= f(x). When a function is expressed in such a form, it represents an explicit function. However,
y can be expressed implicitly in the form f(x). In such cases we use the concept of implicit
functional differentiation.
The unit circle can be defined implicitly as the set of points (x,y) that satisfy the equation x 2
+ y 2 =1. To clarify, let's take some implicit functions and see how they are differentiated.
We begin our exploration of implicit differentiation with the circle example given by . How
𝑑𝑦
do you find the formula?𝑥 2 + 𝑦 2 = 16 𝑑𝑥
unknown, but which we can differentiate. Just as y represents an unknown formula, so does its
𝑑
derivative with respect to x,𝑑𝑥 , will be (at least temporarily) unknown. So we view y as an
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unknown differentiable function of x and differentiate both sides of the equation with respect to
x.
𝑑 𝑑
[= .𝑥 2 + 𝑦 2 ] [16]
𝑑𝑥 𝑑𝑥
On the right, the derivative of the constant 16 is 0, and on the left we can apply the addition
rule, so
𝑑 𝑑
[ [𝑥 2 ] + 𝑦 2] = 0
𝑑𝑥 𝑑𝑥
Pay close attention to the different roles played by x and y. Since x is the independent
variable, [. But y is the dependent variable and y is an implicit function of x. We find that We
𝑑
now have𝑑𝑥 𝑥 2 ] = 2𝑥
𝑑
2𝑥 + 2𝑦 =0
𝑑𝑥
𝑑𝑦
We solve this equation for by subtracting 2x from both sides and dividing by 2y. 𝑑𝑥
𝑑 2𝑥 𝑥
= ,− = −𝑦
𝑑𝑥 2𝑦
There are several important things to note about the result = . First, this derivative
expression involves both x and y. This makes sense because there are two corresponding points
on the circle for every value of x between −4 and 4, and the slope of the tangent line at each of
𝑑 𝑥
these points is different.𝑑𝑥 − 𝑦
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Second, this formula is completely consistent with our understanding of circles.The slope of
the radius from the origin to point (a, b) is mr = . The tangent to the circle at (a, b) is
perpendicular to its radius, so it has slope mt = . Specifically, the slope of the tangent line is zero
at (0,4) and (0,−4), and undefined at (−4,0) and (4,0). All these values correspond to the formula
𝑏 𝑎 𝑑 𝑥
=𝑎 − 𝑏 𝑑𝑥 − 𝑦
Answer :
For example, if the daily production cost is p (x), then the production cost will be minimum for
the value of x that satisfies the equation p’(x) = 0 and p” (x) > 0
X2 - 400x + 37.500 = 0
Therefore p"(x) = 6x-1,200 and p"(250) = 6(250) - 1,200= 300>0, then the number of goods that
must be produced each day for minimum costs is 250 units
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P* = P*(Y0)
D (P * ,Y0) – S(P *) = 0
[excess demand = 0 in equilibrium]
Simultaneous equations approach
Net exports. Let X represent exports, M represent imports, and E represent the exchange rate
(measured as the domestic price of foreign currency). Exports are an increasing function of the
exchange rate. X= X(E) where X'(E) > 0 . Imports are a decreasing function of the exchange rate
but an increasing function of income. M = K(r, rw) where My >0, Me <0.
Capital Flow. The net capital flow into a country is a function of the domestic interest rate r
and also of the world interest rate rw. Let K represent the net inflow so that K = K(r, rw) where
Kr > 0, Krw < 0
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Balance of payments (balance of payments). The inflow and outflow of foreign currency for
a country is generally separated into two accounts: the current account (net exports of goods and
services) and the capital account (purchases of foreign and domestic bonds). Together these two
balances form the balance of payments. NP = current account + capital account = [ X(E) –
M(Y,E)] + K(r,rw)
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CHAPTER III
CONCLUSION
Comparative Statistics is a very useful field of study, because in economics we are always
looking for how changes in imbalance in a parameter can affect the equilibrium conditions in
a model. The use of partial derivatives allows us to solve simple comparison problems, where
in such cases the equilibrium solution of the model can be expressed concisely. The concept
of a derivative chain is not limited to just two relationships (two derivatives being multiplied),
but the concept of a total derivative can be extended to situations where there are three or
more relationships in the composite function. In all the cases discussed, the total derivative,
including the partial total derivative, measures the rate of change in the final variable (primary
variable) in the chain or, in other words, in certain variables that are considered exogenous
and not as a function of some other variable. The essence of total derivatives and total
differential processes is to provide all the pathways, both direct and indirect, through which
the effects of changes in the final variable can be conveyed to the variable being studied. In
such situations, partial differentiation of solutions will provide the desired comparative static
information.
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BIBLIOGRAPHY
Iqbal, M. (2017, March 26). Differential (derivative) in Economics and Business - Perbanas
Lecturer. Perbanas Lecturer - A means of exchanging information and ideas for lecturers.
https://dosen.perbanas.id/differential-turunan-dalam-ilmu- Ekonomi-dan-bisnis/
Admin. (2023, January 10). Differentiation of implicit functions - theorem and examples.
BYJUS. https://byjus.com/maths/implicit-function-differentiation/
Libretexts. (2022, November 9). 2.7: Derivatives of functions given implicitly. Mathematics
LibreTexts.
https://math.libretexts.org/Bookshelves/Calculus/Book%3A_Active_Calculus_(Boelkins_e
t_al.)/02%3A_Computing_Derivatives/2.07%3A_Derivatives_of_Functions_Given_Implic
itely
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