ECON1003 Quantitative Methods in Economics

Tutorial 2 (Wk3): Nonlinear Functions

Carlton Li

School of Economics
The University of Sydney

Carlton Li ECON1003 Qnt. Methods Economics 1 / 20

Tutorial Outline

1 Elasticity
Question 1; 3 (4c)

2 Quadratic Equations & Functions

Question 2; 4 (1)

3 Exponentiation & Exponential Functions

Question 4 - 3a(ii), 5a(ii), 6a

Carlton Li ECON1003 Qnt. Methods Economics 2 / 20

Elasticity
Elasticity measures the responsiveness of one variable to a change in
another:
∆y /y ∆y x
Elasticityx,y = =
∆x/x ∆x y

In economics, we are usually interested in how the quantity responds to

price change: ∆Q/Q
∆P/P - So the quantity at the numerator and price at the
denominator.
Two methods of calculating elasticity:
1 Point method calculates the elasticity at the point of interest. Given
the point of interest (x0 , y0 ) and the slope at the point,
Elasticityx,y = ∆y x0
∆x y0 .
2 Arc/Midpoint method calculates the elasticity when moving from
one point to another. Given two points (x1 , y1 ), (x2 , y2 ),
(x1 +x2 )
Elasticityx,y = ∆y xm
∆x ym , where xm = 2 , ym = (y1 +y
2
2)
.

Carlton Li ECON1003 Qnt. Methods Economics 3 / 20

 ∆Q d /Q d ∆Q d P
Price elasticity of demand: ϵd = ∆P/P = ∆P Q d
Elastic: ϵd < −1
Unit-elastic: ϵd = −1
Inelastic: −1 < ϵd < 0
Some textbooks prefer the absolute value form - but here we stick with the
negative sign for PED.

Carlton Li ECON1003 Qnt. Methods Economics 4 / 20

Question 1
The demand function is given by P = 12 − 0.5Q. (a) Find the elasticity
when P = 4 and when P = 8. (b) For which values of P is the demand
elastic? (c) For which values of P is the demand unit-elastic?

Carlton Li ECON1003 Qnt. Methods Economics 5 / 20

Question 1
The demand function is given by P = 12 − 0.5Q. (a) Find the elasticity
when P = 4 and when P = 8. (b) For which values of P is the demand
elastic? (c) For which values of P is the demand unit-elastic?

∆Q d /Q d ∆Q d P 1 P
ϵd = = =
∆P/P ∆P Q d b Qd
(a)

Carlton Li ECON1003 Qnt. Methods Economics 5 / 20

The demand function is given by P = 12 − 0.5Q ... (b) For which values
of P is the demand elastic? (c) For which values of P is the demand
unit-elastic?

Carlton Li ECON1003 Qnt. Methods Economics 6 / 20

The demand function is given by P = 12 − 0.5Q ... (b) For which values
of P is the demand elastic? (c) For which values of P is the demand
unit-elastic?

1 P
< −1
b Qd
P
−2 × < −1
(24 − 2P)
P
>1
12 − P
P
−1>0
12 − P
P − (12 − P
>0
(12 − P)
2P − 12 > 0
P>6

When ϵd = 1(unit elastic), P = 6.

Carlton Li ECON1003 Qnt. Methods Economics 6 / 20
Question 3

Carlton Li ECON1003 Qnt. Methods Economics 7 / 20

Question 3

Carlton Li ECON1003 Qnt. Methods Economics 7 / 20

Carlton Li ECON1003 Qnt. Methods Economics 8 / 20
Tutorial Outline

1 Elasticity
Question 1; 3 (4c)

2 Quadratic Equations & Functions

Question 2; 4 (1)

3 Exponentiation & Exponential Functions

Question 4 - 3a(ii), 5a(ii), 6a

Carlton Li ECON1003 Qnt. Methods Economics 9 / 20

Quadratic Equation

The general form of a quadratic equation:

ax 2 + bx + c = 0 (a ̸= 0)

Methods of solving quadratic equations:

√
2
1 The general formula: x = −b± 2ab −4ac
, where b 2 − 4ac is the
discriminant that shows the number of real roots/solutions of the
quadratic equation.
▶ If b 2 − 4ac > 0, there are two real and different roots.
▶ If b 2 − 4ac = 0, there are two identical roots (so one solution).
▶ If b 2 − 4ac < 0, there is no real root (but complex roots always exist).
2 Completing the square
3 Factorisation
4 Cross multiplication

Carlton Li ECON1003 Qnt. Methods Economics 10 / 20

Quadratic Function: y = f (x) = ax 2 + bx + c, (a ̸= 0)

When sketching quadratic functions, first consider the simplest type:

y = ax 2
▶ a > 0 - open upward; a < 0 - open downward
▶ |a| determines the “width” or “steepness” of the parabola
Then consider a slightly more complex type: y = a2 + c
▶ c is about the vertical movement of the parabola
▶ c > 0: moving upward; c < 0: moving downward (U+D-)
Next consider the “standard form”: y = a(x + h)2
▶ h is about the horizontal movement of the parabola
▶ h > 0: moving left; h < 0: moving right (L+R-)
“Turning point form”: y = a(x − x0 )2 + y0 , where (x0 , y0 ) is the
turning point/vertex
▶ So it also tells the translations of the parabola comparing to y = ax 2 .
b b2
The turning point/vertex: (− 2a ,c − 4a )

Carlton Li ECON1003 Qnt. Methods Economics 11 / 20

Question 2

The demand is given by P = 160 − 8Q. (a) Write down the equation of
the total revenue function; (b) Graph the total revenue function; (c) Find
the quantity that maximises total revenue; also, find the maximum
revenue; (d) Calculate the quantity sold if the total revenue is 400.

Carlton Li ECON1003 Qnt. Methods Economics 12 / 20

Question 2

The demand is given by P = 160 − 8Q. (a) Write down the equation of
the total revenue function; (b) Graph the total revenue function; (c) Find
the quantity that maximises total revenue; also, find the maximum
revenue; (d) Calculate the quantity sold if the total revenue is 400.

(a)

Rev = P × Q = (160 − 8Q) × Q

= 160Q − 8Q 2

(b) & (c)

We need to know the vertex and the zeros.
b b2
Vertex: (− 2a ,c − 4a ) → (10, 800)
Zeros: set −8Q 2 + 160Q = 0

Carlton Li ECON1003 Qnt. Methods Economics 12 / 20

The demand is given by P = 160 − 8Q ... (d) Calculate the quantity sold
if the total revenue is 400.

Carlton Li ECON1003 Qnt. Methods Economics 13 / 20

The demand is given by P = 160 − 8Q ... (d) Calculate the quantity sold
if the total revenue is 400.

Carlton Li ECON1003 Qnt. Methods Economics 13 / 20

Question 4-(1)

Solve the following equations:

(a) x 2 − 25 = 0 (b) x 2 + 20x = 0 (c) x 2 − 40x + 14 = 0

Carlton Li ECON1003 Qnt. Methods Economics 14 / 20

Question 4-(1)

Solve the following equations:

(a) x 2 − 25 = 0 (b) x 2 + 20x = 0 (c) x 2 − 40x + 14 = 0

a Factorisation: a2 − b 2 = (a + b)(a − b).

(x + 5)(x − 5) = 0 =⇒ x = 5, −5.
b Factorisation: x(x + 20) = 0 =⇒ x = 0, −20.
√ √
−b± b 2 −4ac 40± 1544
c Use the general formula: x = 2a =⇒ x = 2 .

Carlton Li ECON1003 Qnt. Methods Economics 14 / 20

Tutorial Outline

1 Elasticity
Question 1; 3 (4c)

2 Quadratic Equations & Functions

Question 2; 4 (1)

3 Exponentiation & Exponential Functions

Question 4 - 3a(ii), 5a(ii), 6a

Carlton Li ECON1003 Qnt. Methods Economics 15 / 20

Exponential Rules

Definition: an = a| × a ×
{z... × a}
n times

Power rule: x a x b = x a+b

xa
Quotient: xb
= x a−b
Power of power: (x a )b = x ab
Power of a product: (xy )a = x a y a
Power of one: x 1 = x
Power of zero: x 0 = 1
Change sign of exponents: x −a = x1a
√ √
Fractional exponents: x m/n = n x m = ( n x)m

Carlton Li ECON1003 Qnt. Methods Economics 16 / 20

Exponential Functions: y = f (x) = ax , (a > 0)

Must go through (0, 1) for any base a > 0 because x 0 = 1.

Carlton Li ECON1003 Qnt. Methods Economics 17 / 20

Question 4

Simplify the following:

e 5x e −x e 5−x (1)
√
a2 a
−2
(2)
2a√
x
a ax
(3)
3a1−x

Carlton Li ECON1003 Qnt. Methods Economics 18 / 20

Question 4

e 5x e −x e 5−x = e 5x−x+5−x = e 3x+5 (1)

√
a2 a 1 1 1 9
−2
= a2 a 2 a2 = a 2 (2)
2a√ 2 2
ax ax 1 1 1 1 1 5
1−x
= ax (ax ) 2 ax−1 = ax+ 2 x+x−1 = a 2 x−1 (3)
3a 3 3 3

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Next time...

Logarithm Function
Sequences and Series
Concepts in Financial Economics

Carlton Li ECON1003 Qnt. Methods Economics 20 / 20