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AMA 273, Lecture 1: James Huang
AMA 273, Lecture 1: James Huang
James Huang
January 7, 2010
James Huang
Outline of Lecture 1
James Huang
Section 1.1. Introduction Section 1.2. A Model of the Market Section 1.3. Market Equilibrium Section 1.4. Excise Tax
James Huang
Language of mathematics to describe situations in economics. Motivation: mathematical arguments are logical and exact. Motivation: mathematical arguments enables us to work out in precise detail the consequences of economic hypothesis. Mathematical modeling has become an indispensable tool in economics, nance, business and management.
James Huang AMA 273, Lecture 1
How to describe the demand in such diagram? Idea: considering those pairs (q, p) in such a way (Refer Textbook, P 1): if p were the selling price, q would be the demand. The demand is just the quantity which would be sold to consumers at the price p. Find and depict all such pairs (q, p), we will get some gure like Figure 1.1 (see Textbook, P 2).
James Huang
Example, P 2. Demand set D: the straight line 6q + 8p = 125. Demand function q D (p) =
1258p . 6
James Huang
James Huang
James Huang
For example, supply set S: the straight line 2q 5p = 12. Supply function q S (p) =
5p12 . 2 2q+12 . 5
James Huang
Therefore, we can solve the simultaneous equations. Example. P 4. The demand set D: q + 5p = 40. The supply set S: 2q 15p = 20. Then a point (q , p ) which is in the equilibrium set E = S D should satises the following simultaneous equations: q + 5p = 40,
James Huang
2q 15p = 20.
AMA 273, Lecture 1
Only one solution (q , p )=(20, 4). In other words, the equilibrium set E is of a single point (20, 4). Remark: here D and S are both straight lines, thus E is of single point. More complex situation: the equilibrium set E maybe of multiple points.
James Huang AMA 273, Lecture 1
Question: how the selling price changes when an excise tax is imposed. To answer this question, consider the example in P 5. Market setup: D, q + 5p = 40; S, 2q 15p = 20. Policy: the government imposes an excise tax $T per unit. Now consider the change of the selling price.
James Huang
Equilibrium price: 15 p 10 = p = 4. 2 Suppose the selling price after the tax is p. q D (p) = q S (p) = 40 5p = Then from the viewpoint of the supplier, it is as if the price is p T . Why?
James Huang AMA 273, Lecture 1
The reason is the suppliers revenue per unit is no longer p, but p T . As a result, the revenue function should be changed as follows. When the tex is T per unit, the new supply function q ST is given by q ST (p) = q S (p T ) = 15 (p T ) 10. 2
James Huang
Textbook, P 5-6, using the symbols p T , q T to emphasize their dependence on the tax.
James Huang AMA 273, Lecture 1
Note that the selling price rises from 4 to 4.6. And the quantity sold falls from 20 to 17. Remark: the tax is T per unit but the selling price has risen not by the full amount T , but some fraction 3 T . 5 In other words, not all the tax is passed on the consumers.
James Huang AMA 273, Lecture 1
Section 2.1. Sets Section 2.2. Functions Section 2.3. Composite Functions Section 2.4. Graphs and Equations
James Huang
Ordered pairs of real numbers. Quadrant, rst quadrant (nonnegative ordered pairs). Example: supply and demand diagram.
James Huang
Composite function: function and its inverse function. Identity function, see P 16.
James Huang
Linear equation, see P 17. Quadratic equation, see P 17. Solutions of quadratic equation: three cases (see P 18). Intersection points: Example, Figure 2.4, P 19.
James Huang
Section 3.1. Sequences Section 3.2. First-order Recurrence Section 3.3. Limits Section 3.4. Special Cases
James Huang
Sequence: y0 , y1 , y2 , . We can think of the sequence as a description of how a variable quantity evolves with respect to time. Recurrence equation: also named dierence equation, see P 25. Example, P 25.
James Huang
The rst-order recurrence: yt = ayt1 + b. Linear, constant coecients. Example, P 25-27. Initial condition, general solution.
James Huang
James Huang