Mathematics for Economics and Finance

1. Introduction

Functions

  • Linear, consumption
  • Quadratic, consumption
  • Cubic, costs
  • Exponential, growth
  • Logarithmic, production

 Simultaneous equations

  • Demand is Pd = a + bq
  • Supply is Ps = j + kq
When demand is equal to supply it is
Product and quotient rule

2. Application

Contingent valuation is a method of valuing resources for which there is no marker, and therefore no observational unit price. This can be used in cost-benefit analysis to connect intangible benefits and costs to tangible figures capable of controlling the final balance sheet.

Economic input analysis is used to analyse and examine the economy. This can be used to determine the dependency of the economic activity of an industry sector or a firm. However, there are several assumptions in the analysis: firms are producing homogenous analysis. The firms have to buy from other industries to survive. Part of the output goes to other sectors and part goes to the final demand. The analysis determines what is needed to satisfy the final demand (C+I+G+E).

To find profit maximisation, you need to set total revenue equal to the total cost, differentiate the equation to find the roots q, and then substitute them back into the original equation.

Summation by integration

You can use this formula to find the present value of current and future income
Where T2 is the end date, T1 is the start date, R is the revenue and d is the discount rate

Keynesian multiplier

E = C (consumer expenditure) + I (investments) + G (government spending) + (X (exports) – M (imports))