ECO1005 Mathematics for Economics

Lecture 1: Partial Differentiation

Aliaksandr Zaretski

University of Surrey

February 2024

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Readings

Jacques (2023), chapters 5.1–5.2

Chiang and Wainwright (2005), chapter 7.4
Renshaw (2021), chapter 14
Simon and Blume (1994), chapter 14

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Contents

1 Reminder: univariate functions

2 Multivariate functions

3 Partial derivative

4 Second-order partial derivatives

5 Exercises

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Reminder: univariate functions
In ECO1015, you have studied univariate functions f : X → Y , where X ⊂ R is
the domain of f and Y ⊂ R is the codomain of f . We write
y = f (x).
The graph of a univariate function may look like this

Figure 1: Graph of a univariate function (Source: Jacques (2023), Figure 5.2)

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Reminder: derivative of a univariate function

The derivative of a univariate function f : X → Y at a point x ∈ X is

dy f (x + ∆x) − f (x)
f ′ (x) = = lim . (1)
dx ∆x→0 ∆x

dy
▶
dx
is Leibniz’s notation, invented by Gottfried Wilhelm Leibniz (1646–1716).
▶ f ′ (x) is Lagrange’s notation, invented by Leonhard Euler (1707–1783) and
popularised by his student Joseph-Louis Lagrange (1736–1813).
The derivative f ′ (x) in (1) is a function f ′ : X → Y which gives the slope of
the tangent line to the graph of f at a point x ∈ X .
When we evaluate the derivative at a point a ∈ X , we write

dy f (a + ∆x) − f (a)
f ′ (a) = = lim .
dx x=a ∆x→0 ∆x

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Reminder: higher-order derivatives of a univariate function

The second derivative of f at a point a ∈ X is the derivative of f ′ at a:

d2 y f ′ (a + ∆x) − f ′ (a)
f ′′ (a) = = lim .
dx 2 x=a ∆x→0 ∆x

Similarly, we can define the third derivative f ′′′ (the derivative of f ′′ ), the
fourth derivative, and so on.
In general, the n-th derivative of f , denoted f (n) , at a point a ∈ X is defined
recursively as the derivative of f (n−1) at a, that is,

dn y f (n−1) (a + ∆x) − f (n−1) (a)

f (n) (a) = = lim .
dx n x=a ∆x→0 ∆x

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Contents

1 Reminder: univariate functions

2 Multivariate functions

3 Partial derivative

4 Second-order partial derivatives

5 Exercises

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Multivariate functions
We now consider functions f : X → Y , where X ⊂ Rn and Y ⊂ R.
▶ Reminder: Rn = R × R × · · · × R, where the Cartesian product × is applied
n − 1 times.
The argument of f is a vector of real numbers x = (x1 , x2 , . . . , xn ) ∈ X , also
called an n-tuple.
We call x1 , x2 , . . . , xn —the components of x—the variables.
The output of the function is still a single real number y ∈ R (a scalar).
We write y = f (x), where x = (x1 , x2 , . . . , xn ). Equivalently, we write

y = f (x1 , x2 , . . . , xn ).

In the bivariate case of n = 2, we will often use a different notation

f : X × Y → Z , where X ⊂ R, Y ⊂ R, and Z ⊂ R. In this case, we write

z = f (x, y ). (2)

▶ If f is continuous, (2) defines a surface in a 3-dimensional Euclidean space

(i.e., roughly the physical space we live in). Figure 2 provides an example.
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Surface in a 3D space

Figure 2: Graph of a bivariate function (Source: Jacques (2023), Figure 5.3)

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Economic examples
Multivariate functions are routinely encountered in economics.
Consider a household’s utility function u : R++ × R++ × R+ → R defined as

c 1−σ − 1 h1+ϕ
u(c, m, h) = + ψ ln(m) − χ , (3)
1−σ 1+ϕ
where c is consumption, m denotes real money balances, h denotes hours of
work, and σ > 1, ψ > 0, χ > 0, and ϕ ≥ 0 are fixed parameters.
▶ Hence, the household prefers to consume more and have more money but
dislikes to work.
▶ Reminder: R+ = [0, ∞) and R++ = (0, ∞), so R++ = R+ \ {0}.
Consider a firm’s production function F : R2+ → R+ defined as

F (K , L) = K α L1−α , (4)

where K is the capital stock (i.e., machines, equipment, etc.), L is labor (e.g.,
a sum of hours worked by all workers), and α ∈ (0, 1) is a fixed parameter.
▶ Hence, the firm can produce more by increasing capital or labor (or both).
▶ Reminder: R2+ = R+ × R+ .
▶ Note: F is an example of a Cobb—Douglas production function.
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Contents

1 Reminder: univariate functions

2 Multivariate functions

3 Partial derivative

4 Second-order partial derivatives

5 Exercises

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Partial derivative
Consider a function f : X → Y , where X ⊂ Rn and Y ⊂ R.
The partial derivative of f with respect to the variable x1 at a point
x = (x1 , x2 , . . . , xn ) ∈ Rn is defined as

∂y f (x1 + ∆x1 , x2 , . . . , xn ) − f (x1 , x2 , . . . , xn )

f1 (x) = = lim .
∂x1 ∆x1 →0 ∆x1
The partial derivative f1 : X → Y measures the rate of change of f in the
direction of a change in x1 with x2 , x3 , . . . , xn being fixed.
Now, for a fixed x2 , x3 , . . . , xn , define a univariate function

g (x1 ) = f (x1 , x2 , . . . , xn ).

It follows that
g (x1 + ∆x1 ) − g (x1 )
f1 (x) = lim = g ′ (x1 ).
∆x1 →0 ∆x1
Hence, a partial derivative is essentially a derivative of a univariate function.
▶ All univariate differentiation rules apply without change!
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More on partial derivative
These are alternative ways to denote the same partial derivative:
∂y ∂ ∂f ∂
f1 , fx1 , , y, , f.
∂x1 ∂x1 ∂x1 ∂x1
The partial derivative of f with respect to the variable x1 evaluated at a
point a = (a1 , a2 , . . . , an ) ∈ Rn is

∂y f (a1 + ∆x1 , a2 , . . . , an ) − f (a1 , a2 , . . . , an )

f1 (a) = = lim .
∂x1 x=a ∆x1 →0 ∆x1

The partial derivative of f with respect to the variable x2 evaluated at a

point a = (a1 , a2 , . . . , an ) ∈ Rn is

∂y f (a1 , a2 + ∆x2 , a3 , . . . , an ) − f (a1 , a2 , a3 , . . . , an )

f2 (a) = = lim .
∂x2 x=a ∆x2 →0 ∆x2

The partial derivatives of f with respect to the variables x3 , x4 , . . . , xn are

defined analogously.
▶ They measure the rate of change of f in the direction of a change in the
respective variable with all the remaining variables being fixed.
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Partial derivative: an illustration
∂y ∂y
Figure 3 illustrates the partial derivatives ∂x 1
(left panel) and ∂x2 (right panel) of
a function y = f (x1 , x2 ) at a point a = (a1 , a2 ) ∈ R2 .

Figure 3: Geometry of partial derivatives (Source: Hoy et al. (2022), Figure 11.3)

∂y ∂y
The partial derivative ∂x1
( ∂x 2
) at a point a is the slope of the tangent line to the
graph of f at that point, where the tangent line is parallel to the x1 -axis (x2 -axis).
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Computing partial derivatives
Consider a function 2 4 6
y = f (x1 , x2 , x3 ) = e 5x1 x2 x3 .
The partial derivative with respect to x1 is
∂y ∂ 5x1 2 x24 x36 2 4 6
= e (let g (x1 ) = e 5x1 x2 x3
and compute g ′ (x1 ))
∂x1 ∂x1
2 4 6 ∂
 
= e 5x1 x2 x3 5x1 2 x24 x36 (univariate chain rule)
∂x1
2 4 6
= e 5x1 x2 x3 · 5x24 x36 · 2x1 (x2 , x3 are fixed, so 5x24 x36 is a constant)
2 4 6
= 10x1 x24 x36 e 5x1 x2 x3 .
Similarly,
∂y ∂ 5x12 x2 4 x36 2 4 6 ∂
  2 4 6
= e = e 5x1 x2 x3 5x12 x2 4 x36 = 20x12 x23 x36 e 5x1 x2 x3 ,
∂x2 ∂x2 ∂x2
∂y ∂ 5x12 x24 x3 6 2 4 6 ∂
  2 4 6
= e = e 5x1 x2 x3 5x12 x24 x3 6 = 30x12 x24 x35 e 5x1 x2 x3 .
∂x3 ∂x3 ∂x3
Evaluating the partial derivatives at a point a = (1, 1, 1), we obtain
∂y ∂y ∂y
= 10e 5 , = 20e 5 , = 30e 5 .
∂x1 x=a ∂x2 x=a ∂x3 x=a

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Example: marginal utilities
Consider the utility function u : R++ × R++ × R+ → R defined in (3):
c 1−σ − 1 h1+ϕ
u(c, m, h) = + ψ ln(m) − χ , σ > 1, ψ, χ > 0, ϕ ≥ 0.
1−σ 1+ϕ
The marginal utility of consumption is
1
uc (c, m, h) = (1 − σ)c −σ = c −σ > 0.
1−σ
The marginal utility of real money balances is
ψ
um (c, m, h) = > 0.
m
The marginal utility of hours of work is
1
uh (c, m, h) = −χ (1 + ϕ)hϕ = −χhϕ ≤ 0 (< 0 if h > 0 or ϕ = 0).
1+ϕ
Hence, the household can increase utility by increasing consumption (c) or money
holdings (m) and by decreasing hours of work (h).
For example, if (c, m, h) = (1, 1, 1), the marginal utilities are
uc (1, 1, 1) = 1, um (1, 1, 1) = ψ, uh (1, 1, 1) = −χ.
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Example: marginal products
Consider the Cobb—Douglas production function F : R2+ → R+ defined in (4):

F (K , L) = K α L1−α , α ∈ (0, 1).

The marginal product of capital at a point (K , L) ∈ R2++ is

 α−1
α−1 1−α K
FK (K , L) = αK L =α > 0.
L

The marginal product of labor at a point (K , L) ∈ R2++ is

 α
K
FL (K , L) = K α (1 − α)L−α = (1 − α) > 0.
L

Hence, the firm can increase production by increasing capital (K ) or labor (L).
For example, if (K , L) = (1, 1), the marginal products are

FK (1, 1) = α, FL (1, 1) = 1 − α.

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Example: demand elasticities
Consider a 2-good economy. The consumer’s quantity demanded for good 1 (q1 )
depends on the prices of good 1 (p1 ) and good 2 (p2 ) and income (y ) according
to a demand function f : (0, 20) × R++ × R++ → R++ defined as

q1 = f (p1 , p2 , y ) = 60 − 3p1 + 2p2 + y .

The price elasticities of demand are

∂q1 p1 p1 ∂q1 p2 p2
E1 = = −3 < 0, E2 = = 2 > 0.
∂p1 q1 q1 ∂p2 q1 q1
The income elasticity of demand is
∂q1 y y
Ey = = > 0.
∂y q1 q1
Hence, good 1 is ordinary (E1 < 0) and normal (Ey > 0), and goods 1 and 2 are
substitutes (E2 > 0).
For example, if (p1 , p2 , y ) = (1, 1, 1), so that q1 = 60, the elasticities are
1 1 1
E1 = − , E2 = , Ey = .
20 30 60
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Contents

1 Reminder: univariate functions

2 Multivariate functions

3 Partial derivative

4 Second-order partial derivatives

5 Exercises

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Second-order partial derivatives
Consider a function f : X → Y , where X ⊂ Rn and Y ⊂ R.
The second-order partial derivative of f with respect to the variables xi , xj ,
where i, j ∈ {1, 2, . . . , n}, is the partial derivative of fi with respect to xj :

∂2y ∂2y
 
∂ ∂y ∂y
fij = fi = , also denoted as fxi xj or , or if i = j.
∂xj ∂xj ∂xi ∂xj ∂xi ∂xi2

For example, the second-order partial derivative of f with respect to xi , x1 at

a point x ∈ Rn is

∂2y fi (x1 + ∆x1 , x2 , . . . , xn ) − fi (x1 , x2 , . . . , xn )

fi1 (x) = = lim .
∂x1 ∂xi ∆x1 →0 ∆x1
When we evaluate fij at a point a ∈ Rn , we write

∂2y
fij (a) or .
∂xj ∂xi x=a

The second-order partial derivative fij : X → Y measures the rate of change

of fi in the direction of a change in xj with all other variables being fixed.
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Symmetry of second-order partial derivatives

Let f : X → R, where X ⊂ Rn . If fij : X → R is continuous for all

i, j ∈ {1, 2, . . . , n}, we have

fij = fji for all i, j ∈ {1, 2, . . . , n}.

This result is known as Schwarz’s theorem or Young’s theorem.

We call fij a mixed partial derivative if i ̸= j. (If i = j, the symmetry is
obvious since fii = fii .)
In most economic applications, the second-order partial derivatives (if they
exist) are continuous, so the symmetry property holds.

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Example: marginal utilities (continued)
We have shown that the marginal utilities for the utility function (3) are

ψ
uc (c, m, h) = c −σ , um (c, m, h) = , uh (c, m, h) = −χhϕ .
m
Differentiating these expressions with respect to c, m, and h, we obtain the
second-order partial derivatives at a point x = (c, m, h):

ψ
ucc (x) = −σc −σ−1 < 0, umm (x) = − < 0, uhh (x) = −χϕhϕ−1 ≤ 0,
m2
ucm (x) = umc (x) = uch (x) = uhc (x) = umh (x) = uhm (x) = 0.

All mixed partial derivatives are symmetric, being equal to zero at any point
in the domain.
▶ This is because u defined in (3) is separable—all its arguments affect the value
of u in separate expressions.
The law of diminishing marginal utility holds: ucc (x) < 0, umm (x) < 0, and
uhh (x) ≤ 0, which is illustrated in Figure 4. For example, if x = (1, 1, 1),
ucc (x) = −σ, umm (x) = −ψ, and uhh (x) = −χϕ.
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Example: marginal utility plots
1 1

0.8
0.8

0.6
0.6
0.4
0.4
0.2

0.2
1 2 3 4 5 1 2 3 4 5

-1

-2

-3

-4

-5
1 2 3 4 5

Figure 4: Marginal utilities for a utility function u(c, m, h) = 1 − 1

c
+ ln(m) − 12 h2

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Example: marginal products (continued)
We have shown that the marginal products for the production function (4) are

FK (K , L) = αK α−1 L1−α , FL (K , L) = (1 − α)K α L−α .

Differentiating these expressions with respect to K and L, we obtain the

second-order partial derivatives at a point (K , L):

FKK (K , L) = −α(1 − α)K α−2 L1−α < 0, FKL (K , L) = α(1 − α)K α−1 L−α > 0,
FLL (K , L) = −α(1 − α)K α L−α−1 < 0, FLK (K , L) = α(1 − α)K α−1 L−α > 0.

Recall that α ∈ (0, 1).

The mixed partial derivatives are symmetric: FKL = FLK .
An increase in the quantity of one factor leads to an increase in the marginal
product of the other factor: FKL (K , L) = FLK (K , L) > 0.
The law of diminishing marginal returns holds: FKK (K , L) < 0 and
FLL (K , L) < 0. For example, if (K , L) = (1, 1),
FKK (1, 1) = FLL (1, 1) = −α(1 − α) and FKL (1, 1) = FLK (1, 1) = α(1 − α).
Figures 5 and 6 illustrate the marginal product surfaces.
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Example: marginal product of capital surface

Figure 5: Marginal product of capital for a production function F (K , L) = K 0.4 L0.6

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Example: marginal product of labor surface

Figure 6: Marginal product of labor for a production function F (K , L) = K 0.4 L0.6

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Contents

1 Reminder: univariate functions

2 Multivariate functions

3 Partial derivative

4 Second-order partial derivatives

5 Exercises

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Exercises

Exercise 1
Find all first-order and second-order partial derivatives of the production function
1 1
f (x1 , x2 ) = 10x12 x22

and verify the symmetry of mixed partial derivatives. Then evaluate all derivatives
at a point (x1 , x2 ) = (1, 4). Answer

Exercise 2
Find all first-order and second-order partial derivatives of the production function

f (x1 , x2 , x3 ) = Ax1α x2β x3γ ,

where A > 0 and α, β, γ ∈ (0, 1), and verify the symmetry of mixed partial
derivatives. Then evaluate all derivatives at a point (x1 , x2 , x3 ) = (1, 1, 1). Answer

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Exercises
Exercise 3
Find all first-order and second-order partial derivatives and verify the symmetry of
mixed partial derivatives for the following functions:
1
1 f (x, y ) = 13 x 3 + y 2 + 1
xy ,
1
2 f (x, y ) = (x 3 + y 2 ) 2 ,
x 3 +y 2
3 f (x, y ) = x−y .
Answer

Exercise 4
Find all first-order and second-order partial derivatives of the function

2x23
f (x1 , x2 , x3 ) = x12 e 3x2 +x1 x3 +
x1
and verify the symmetry of mixed partial derivatives. Then evaluate all derivatives
at a point (x1 , x2 , x3 ) = (1, 1, 1). Answer
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Exercises
Exercise 5
Compute the partial derivatives:
∂y
1
∂x1 of the function y = (x1 + 2)2 (x2 + 3)3 ,
∂2z 1 1
∂x 2 of the function z = x y − 10,
2 2 2

∂2z 3 3
∂y ∂x of the function z = x y .
3

Answer

Exercise 6
Consider a 2-good economy. Let q1 be the quantity demanded of good 1, and let
p1 and p2 be the prices of goods 1 and 2, respectively. Suppose the demand
function for good 1 is

q1 = f (p1 , p2 ) = 150 − 2p1 − 3p2 .

Find the demand elasticities for good 1 with respect to the prices for goods 1 and
2 at a point (p1 , p2 ) = (10, 10). Answer
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Exercises

Exercise 7
Consider a demand function for a certain good:

y4
q = f (p, y ) = 10y 2 + 2 − 3p 3 ,
p2
where q is the quantity demanded, p is the price, and y is income. Find all
first-order and second-order partial derivatives of f and verify the symmetry of
mixed partial derivatives. Provide economic interpretation for each partial
derivative. Answer

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Bibliography

Chiang, Alpha C. and Kevin Wainwright, Fundamental Methods of

Mathematical Economics, 4th ed., McGraw Hill, 2005.
Hoy, Michael, John Livernois, Chris McKenna, Ray Rees, and Thanasis
Stengos, Mathematics for Economics, 4th ed., The MIT Press, 2022.
Jacques, Ian, Mathematics for Economics and Business, 10th ed., Pearson, 2023.
Renshaw, Geoff, Maths for Economics, 5th ed., Oxford University Press, 2021.
Simon, Carl P. and Lawrence Blume, Mathematics for Economists, W. W.
Norton & Company, 1994.

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Exercise 1
The first-order partial derivatives at a point x = (x1 , x2 ) are
−1 1 1
−1
f1 (x) = 5x1 2 x22 , f2 (x) = 5x12 x2 2 .

The second-order partial derivatives at a point x = (x1 , x2 ) are

5 −3 1 5 − 21 − 12
f11 (x) = − x1 2 x22 , f12 (x) = x x ,
2 2 1 2
5 − 12 − 21 5 1 −3
f21 (x) = x1 x2 , f22 (x) = − x12 x2 2 .
2 2
Observe the symmetry: f12 = f21 . Evaluating at a point a = (1, 4):

5
f1 (a) = 10, f2 (a) = ,
2
5 5
f11 (a) = −5, f22 (a) = − , f12 (a) = f21 (a) = .
16 4
Go back

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Exercise 2
The first-order partial derivatives at a point x = (x1 , x2 , x3 ) are

f1 (x) = αAx1α−1 x2β x3γ , f2 (x) = βAx1α x2β−1 x3γ , f3 (x) = γAx1α x2β x3γ−1 .

The second-order partial derivatives at a point x = (x1 , x2 , x3 ) are

f11 (x) = α(α − 1)Ax1α−2 x2β x3γ , f12 (x) = αβAx1α−1 x2β−1 x3γ , f13 (x) = αγAx1α−1 x2β x3γ−1 ,
f21 (x) = αβAx1α−1 x2β−1 x3γ , f22 (x) = β(β − 1)Ax1α x2β−2 x3γ , f23 (x) = βγAx1α x2β−1 x3γ−1 ,
f31 (x) = αγAx1α−1 x2β x3γ−1 , f32 (x) = βγAx1α x2β−1 x3γ−1 , f33 (x) = γ(γ − 1)Ax1α x2β x3γ−2 .

Observe the symmetry: f12 = f21 , f13 = f31 , and f23 = f32 . Evaluating at a point
a = (1, 1, 1):

f1 (a) = αA, f2 (a) = βA, f3 (a) = γA,

f11 (a) = α(α − 1)A, f22 (a) = β(β − 1)A, f33 (a) = γ(γ − 1)A,
f12 (a) = f21 (a) = αβA, f13 (a) = f31 (a) = αγA, f23 (a) = f32 (a) = βγA.
Go back

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Exercise 3
1
1 f (x, y ) = 13 x 3 + y 2 + 1
xy :

∂f 1 ∂f 1 1 1
= x2 − 2 , = y−2 − 2 ,
∂x x y ∂y 2 xy
∂2f 2 ∂2f ∂2f 1 ∂2f 1 3 2
2
= 2x + 3 , = = 2 2, 2
= − y−2 + 3 .
∂x x y ∂y ∂x ∂x∂y x y ∂y 4 xy
1
2 f (x, y ) = (x 3 + y 2 ) 2 :

∂f 3x 2 3 1 ∂f 1
= (x + y 2 )− 2 , = y (x 3 + y 2 )− 2 ,
∂x 2 ∂y
∂2f 1 9x 4 3 3

2
= 3x(x 3 + y 2 )− 2 − (x + y 2 )− 2 ,
∂x 4
∂2f ∂2f 3x 2 y 3 3
= =− (x + y 2 )− 2 ,
∂y ∂x ∂x∂y 2
∂2f 1 3
= (x 3 + y 2 )− 2 − y 2 (x 3 + y 2 )− 2 .
∂y 2
Go back

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Exercise 3

x 3 +y 2
3 f (x, y ) = x−y :

∂f 2x 3 − 3x 2 y − y 2 ∂f x 3 + 2xy − y 2
= 2
, = ,
∂x (x − y ) ∂y (x − y )2
∂2f 2x 3 − 6x 2 y + 6xy 2 + 2y 2
= ,
∂x 2 (x − y )3
∂2f ∂2f x 3 − 2xy − 3x 2 y
= = ,
∂y ∂x ∂x∂y (x − y )3
∂2f 2x 3 + 2x 2
= .
∂y 2 (x − y )3
Go back

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Exercise 4
The first-order partial derivatives at a point x = (x1 , x2 , x3 ) are
2x23 6x22
f1 (x) = (2x1 + x12 x3 )e 3x2 +x1 x3 − , f2 (x) = 3x12 e 3x2 +x1 x3 + ,
x12 x1
f3 (x) = x13 e 3x2 +x1 x3 .
The second-order partial derivatives at a point x = (x1 , x2 , x3 ) are
4x23 12x2
f11 (x) = (2 + 4x1 x3 + x12 x32 )e 3x2 +x1 x3 + , f22 (x) = 9x12 e 3x2 +x1 x3 + ,
x13 x1
6x22
f33 (x) = x14 e 3x2 +x1 x3 , f12 (x) = f21 (x) = (6x1 + 3x12 x3 )e 3x2 +x1 x3 − ,
x12
f13 (x) = f31 (x) = (3x12 + x13 x3 )e 3x2 +x1 x3 , f23 (x) = f32 (x) = 3x13 e 3x2 +x1 x3 .
Evaluating at a point a = (1, 1, 1):
f1 (a) = 3e 4 − 2, f2 (a) = 3e 4 + 6, f3 (a) = e 4 ,
f11 (a) = 7e 4 + 4, f22 (a) = 9e 4 + 12, f33 (a) = e 4 ,
f12 (a) = f21 (a) = 9e 4 − 6, f13 (a) = f31 (a) = 4e 4 , f23 (a) = f32 (a) = 3e 4 .
Go back

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Exercise 5

1 y = (x1 + 2)2 (x2 + 3)3 :

∂y
= 2(x1 + 2)(x2 + 3)3 .
∂x1
1 1
2 z = x 2 y 2 − 10:

∂z 1 1 1 ∂2z 1 3 1
= x− 2 y 2 , 2
= − x− 2 y 2 .
∂x 2 ∂x 4
3 z = x 3y 3:
∂z ∂2z
= 3x 2 y 3 , = 9x 2 y 2 .
∂x ∂y ∂x
Go back

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Exercise 6

The price elasticities at a point (p1 , p2 ) are

∂q1 p1 p1 ∂q1 p2 p2
E1 = = −2 , E2 = = −3 .
∂p1 q1 q1 ∂p2 q1 q1

When (p1 , p2 ) = (10, 10), we have q1 = 100, so

1 3
E1 =− , E2 =− .
(p1 ,p2 )=(10,10) 5 (p1 ,p2 )=(10,10) 10

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Exercise 7
The first-order partial derivatives at a point (p, y ) are
∂q y4 ∂q y3
= −4 3 − 9p 2 < 0, = 20y + 8 2 > 0.
∂p p ∂y p
Note that the economically meaningful values are p, y > 0. Since an increase in the price
∂q
leads to a decrease in demand ( ∂p < 0), the good is ordinary. Also, an increase in
∂q
income leads to an increase in demand ( ∂y > 0), so the good is normal. The
second-order partial derivatives at a point (p, y ) are
∂2q y4 ∂2q y3
= 12 − 18p ≷ 0, = −16 3 < 0,
∂p 2 p4 ∂y ∂p p
∂2q y3 ∂2q y2
= −16 3 < 0, 2
= 20 + 24 2 > 0.
∂p∂y p ∂y p
∂2q ∂2q
Observe the symmetry: ∂y ∂p
= ∂p∂y
. We see that the responsiveness of demand to the
2
price as the price changes is ambiguous (i.e., ∂∂pq2 ≷ 0): it depends on the initial price p
and income y . As income increases, an increase in the price leads to a greater decrease
∂2q
in demand ( ∂y ∂p
< 0). Symmetrically, as the price increases, an increase in income leads
2
∂ q
to a smaller increase in demand ( ∂p∂y < 0). Finally, as income increases, there is a
2
∂ q
higher responsiveness of demand to income ( ∂y 2 > 0).
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