ESSENTIAL MATHEMATICS FOR

ECONOMIC
ANALYSIS
KNUT SYDS/ETER
AND

PETER HAMMOND

An imprint oi Pearson Education

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CONTENTS

Preface ix 3.3 Double Sums 64

3.4 A Few Aspects of Logic 66
Introductory Topics, I: Algebra 1 3.5 Mathematical Proofs 72
. 1 The Real Numbers 1 3.6 Essentials of Set Theory 74
.2 Integer Powers 4 3.7 Mathematical Induction 79
.3 Rules of Algebra 10 Review Problems for Chapter 3 81
.4 Fractions 16
.5 Fractional Powers 21 4 Functions of One Variable 83
.6 Inequalities 26 4.1 Introduction 83
.7 Intervals and Absolute Values 32 4.2 Basic Definitions 84
Review Problems for Chapter 1 35 4.3 Graphs of Functions 90
4.4 Linear Functions 94
2 Introductory Topics, II: 4.5 Linear Models 101
Equations 37 4.6 Quadratic Functions 104
2.1 How to Solve Simple Equations 37 4.7 Polynomials 112
2.2 Equations with Parameters 40 4.8 Power Functions 119
2.3 Quadratic Equations 43 4.9 Exponential Functions 121
2.4 Linear Equations in Two Unknowns 49 4.10 Logarithmic Functions 127
2.5 Nonlinear Equations 52 Review Problems for Chapter 4 132
Review Problems for Chapter 2 54
5 Properties of Functions 135
3 Introductory Topics, III: 5.1 Shifting Graphs 135
Miscellaneous 55 5.2 New Functions from Old 140
3.1 Summation Notation 55 5.3 Inverse Functions 144
3.2 Rules for Sums. Newton's Binomial 5.4 Graphs of Equations 151
Formula 59 5.5 Distance in the Plane. Circles 154
VI CONTENTS

5.6 General Functions 158 9 Integration 305

Review Problems for Chapter 5 161 9.1 Indefinite Integrals 305
9.2 Area and Definite Integrals 311
6 Differentiation 163 9.3 Properties of Definite Integrals 317
6.1 Slopes of Curves 163 9.4 Economic Applications 321
6.2 The Derivative. Tangents 165 9.5 Integration by Parts 328
6.3 Increasing and Decreasing Functions 171 9.6 Integration by Substitution 332
6.4 Rates of Change 173 9.7 Infinite Intervals of Integration 335
6.5 A Dash of Limits 177 9.8 A Glimpse at Differential Equations 341
6.6 Simple Rules for Differentiation 182 Review Problems for Chapter 9 347
6.7 Sums, Products, and Quotients 186
6.8 Chain Rule 193 10 Financial Topics: Interest
6.9 Higher-Order Derivatives 198 Rates and Present Value 349
6.10 Exponential Functions 203 10.1 Interest Periods and Effective Rates 349
6.11 Logarithmic Functions 207 10.2 Continuous Compounding 353
Review Problems for Chapter 6 213 10.3 Present Value 355
10.4 Geometric Series 357
7 Derivatives in Use 215 10.5 Total Present Value 362
10.6 Mortgage Repayments 367
7.1 Implicit Differentiation 215 10.7 Investment Projects 372
7.2 Differentiating the Inverse 223 Review Problems for Chapter 10 374
7.3 Linear Approximations 225
7.4 Polynomial Approximations 230
11 Functions of Several
7.5 Taylor's Formula 234 Variables 377
7.6 Why Economists Use Elasticities 238
1 . I Functions of Two Variables 377
7.7 Continuity 242
1 .2 Partial Derivatives with Two Variables 381
7.8 More on Limits 247
I .3 Geometric Representation 387
7.9 Intermediate Value Theorem.
.4 Surfaces and Distance 394
Newton's Method 255
.5 Functions of More Variables 397
7.10 Infinite Sequences 258 .6 Partial Derivatives with More Variables 402
7.11 Indeterminate Forms and .7 Economic Applications 406
L'Hopital's Rule 261 .8 Partial Elasticities 408
Review Problems for Chapter 7 266 Review Problems for Chapter 11 410

8 Single-Variable 12 Tools for Comparative

Optimization 269 Statics 413
8.1 Introduction 269 12.1 A Simple Chain Rule 413
8.2 Simple Tests for Extreme Points 272 12.2 Chain Rules for n Variables 418
8.3 Economic Examples 276 12.3 Implicit Differentiation 422
8.4 The Extreme-Value Theorem 281 12.4 Elasticity of Substitution 429
8.5 Further Economic Examples 287 12.5 Homogeneous Functions of
8.6 Local Extreme Points 291 Two Variables 432
8.7 Inflection Points , 297 12.6 General Homogeneous and Homothetic
Review Problems for Chapter 8 302 Functions 437
 CONTENTS VII

12.7 Linear Approximations 442 15 Matrix and Vector Algebra 547

12:8 Differentials 446 15.1 Systems of Linear Equations 547
12.9 Systems of Equations 450 15.2 Matrices and Matrix Operations 551
12.10 Differentiating Systems of Equations 454 15.3 Matrix Multiplication 555
Review Problems for Chapter 12 460 15.4 Rules for Matrix Multiplication 559
15.5 The Transpose 566
13 Multivariable Optimization 463 15.6 Gaussian Elimination 568
13.1 Two Variables 463 15.7 Vectors 574
13.2 Local Extreme Points 471 15.8 Geometric Interpretations of Vectors 578
13.3 Linear Models with 15.9 Lines and Planes 583
Quadratic Objectives 477 Review Problems for Chapter 15 587
13.4 The Extreme-Value Theorem 485
13.5 More Variables 491 16 Determinants and
13.6 Comparative Statics and Inverse Matrices 589
the Envelope Theorem 495 16.1 Determinants of Order 2 589
Review Problems for Chapter 13 499 16.2 Determinants of Order 3 593
16.3 Determinants of Order n 597
14 Constrained Optimization 501 16.4 Basic Rules for Determinants 600
14.1 The Lagrange Multiplier Method 501 16.5 Expansion by Cofactors 605
14.2 Economic Interpretations of 16.6 The Inverse of a Matrix 608
the Lagrange Multiplier 507 16.7 A General Formula for the Inverse 614
14.3 Why the Lagrange Multiplier 16.8 Cramer's Rule 618
Method Works 510 16.9 The Leontief Model 621
14.4 Sufficient Conditions 515 Review Problems for Chapter 16 625
14.5 More Variables and More Constraints 518
14.6 Comparative Statics 525 Appendix: Geometry 627
14.7 Nonlinear Programming: A Simple Case 530
14.8 More on Nonlinear Programming 536 The Greek Alphabet 629
Review Problems for Chapter 14 544
Answers. Odd-Numbered
Problems 630
Index 679