Partial differentiation

(part 1)
Learning objectives
At the end of this lecture, you should be
able to:
• Perform mathematical operations to
find partial differentiations.
• Apply partial differentiations to find
partial elasticities and marginal
functions with two independent
variables.
Function of several
variables
A function of multiple variables
• Most relationships in economics involve more than two variables.
• A function, f, of two variables is a rule that assigns to each incoming
pair of numbers, (), a uniquely defined outgoing number, .
• To evaluate a function two variables, we need to specify the
numerical values of both and .
• Example:

• Evaluate the function whenandgives:

Function of one vs. two independent
variables
Partial derivative

Given the function of two independent variables

The partial derivative of with The partial derivative of with

respect to is written as: respect to is written as:
• or or (read ‘partial df by dx’) • or or

• is found by differentiating with • is found by differentiating with

respect to x, with y held respect to y, with x held
constant. constant.
Exercise
Find expressions for the
first-order partial
derivatives for the function
Second-order partial derivatives

SECOND-ORDER PARTIAL DERIVATIVES HOW WE WRITE

Differentiating twice with respect to or or

Differentiating twice with respect to y or or

Differentiating first with respect to x and or or

then with respect to y
Differentiating first with respect to y and or or
then with respect to x
 Exercise
Find expressions for the second-order partial derivatives of the
function:
Young’s theorem

• If the second partial derivatives of a function are continuous,

differentiating with respect to x then y gives the same expressions
as differentiating with respect to y then x.

• The theorem can also be applied to functions with more than two
independent variables.
Small increments formulas
DESCRIPTIONS FORMULAS

changes by a small amount and is held

fixed
changes by a small amount y and is held
fixed

changes by a small amount and changes

by a small amount y simultaneously
and both change simultaneously and
and y tend to zero and are called differentials,
representing the limit ofand
Exercises
Given
Evaluate and
a. Use the small increments formula to
estimate the change in as decreases from 2
to 1.9 and increases from 6 to 6.1.
b. Confirm your estimate of part (a) by
evaluating at (2, 6) and (1.9, 6.1)
Implicit differentiation

If then

• Example: Find of the function

• and
Exercises

Use implicit differentiation to

find expressions for given
that:
Review 1
Descriptions Formulas
changes by a small amount and is held fixed

changes by a small amount y and is held fixed

and both change simultaneously

and both change simultaneously and and y

tend to zero
Implicit differentiation If then
Partial elasticity
and marginal
functions
Elasticity of demand

Suppose that the demand, , for a certain good depends on its price,
, the price of an alternative good, , and the income of consumers :

for some demand function

• Our interest is the responsiveness of demand to changes in any
one of these three variables. This can be measured using
elasticity.
Elasticities formulas
Descriptions Formulas
The demand function
The price elasticity of demand (assuming
and are held constant)
The cross-price elasticity demand
complementary good
substitutable good

Income elasticity of demand

: Inferior good
: Normal good
: Superior good
Exercises
Given the demand function:
Where , find:
a. The price elasticity of demand
b. The cross-price elasticity of demand
c. The income elasticity of demand
d. If income rises by 5%, calculate the
corresponding percentage change in demand.
Would this good be classified as inferior, normal
of superior?
 Utility

• Utility: the satisfaction gained from consuming a basket of goods

• Suppose that there are two goods, G1 and G2, and that the
consumer buy items of G1 and items of G2.

• Example:
• If and
• It means the the consumer derives greater satisfaction from
buying four items of G1 and five items of G2 than from buying
three items of G1 and seven items of G2.
Marginal utility

Marginal utility: The extra satisfaction gained by

consuming 1 extra unit of a good.

The law of diminishing marginal utility:

The increase in utility due to the
consumption of an additional good will
eventually decline.
 Marginal utility and Small increments formulas
Descriptions Formulas
The rate of change of with respect to or the marginal
utility of
If changes by a small amount , and other variables are
held fixed, the change in utility is estimated:
The rate of change of with respect to or the marginal
utility of
If changes by a small amount , and other variables are
held fixed, the change in utility is estimated:
If and both change then the net change in is estimated:
 Exercises

An individual’s utility function is given by:

Where is the amount of leisure measured in hours per week and is

earned income measured in dollars per week.
a. Determine the value of the marginal utilities:
and when and
b. Estimate the change in if the individual works for an extra hour, which
increases earned income by $15 per week.
c. Does the law of diminishing marginal utility hold for this function?
Explain.
Indifference curves
•An indifference curves is defined by:

•for some fixed value of

• Point A and B have the same level of
utility (satisfaction level)
• Point C and D have higher level of
utility compared to point A and B
Marginal rate of
commodity substitution

•Marginal rate of commodity

substitution: The increase in
necessary to maintain a constant
value of utility when decreases by 1
unit.
Exercises
Given the utility function:
a. Calculate the value of MRCS at the
point (138, 500)
b. Estimate the increase earned in income
required to maintain the current level of
utility if leisure time falls by 2 hours per
week.
 Marginal production and Small increments formulas

Descriptions Formulas
Output , depends on capital, , and labor, :

The marginal product of capital: the rate of change of

output with respect to capital is estimated:
If changes by a small amount , and other variables are
held fixed, the change in is estimated:
The marginal product of labor: The rate of change of
output with respect to labor
If and both change simultaneously, the net change in is
estimated:
Isoquants and Marginal rate
of technical substitution
• Points on an isoquant represents all possible
combinations of inputs that produce a
constant level of output.
• As capital is reduced, it is necessary to increase
labor to compensate for maintaining the same
production level and vice versa.
• We quantify this exchange of inputs by defining
the marginal rate of technical substitution:
Exercises
Given the production function:
a. Write down expressions for the
marginal products and
b. Show that
c. Show that
Review 2

The marginal utility of : The rate of change of with respect

to
If changes by a small amount , and other variables are held
fixed, the change in utility is estimated:
If and both change, then the net change in is estimated:

The marginal product of capital: the rate of change of output

with respect to capital is estimated:
The marginal product of labor: The rate of change of output
with respect to labor
If and both change simultaneously, the net change in is
estimated:
Student
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