Comparative Static Analysis of
General- Function Models
CHAPTER - 8
1 Differentials
Topics Covered 2 Total Differentials
3 Rules of Differentials
8.1
DIFFERENTIALS
y = f(x). But it also suggests that we can, by ignoring the discrepaney term use the
f'(x) Ar term as an approximation to the true Δy value, where the approximation gets progressively better as Ax
gets progressively smalier.
In Fig. 8.1a, when x changes from X0 to X0+ Δx, a movement from point A to point B
occurs on the graph of y = f (x). The true y is measured by the distance CB. and the ratio
of the two distances CB/AC = Δy/Δx can be read from the slope of line segment AB. But
if we draw a tangent line AD through point A, and use AD in place of AB to approximate the value of Δy, we
obtain distance CD, which leaves distance DB as the discrepancy or error of approximation. Since the slope of AD
is f'(xo), distance CD is equal to f'(X0) Δx and, by (8.3), distance DB is equal to & Δx. Obviously, as Ar decreases,
point B would slide along the curve toward point A, thereby reducing the discrepancy and making f'(x) or dy/dx a
better approximation to Δy/Δx.
Focusing on the tangent line AD, and taking the distance CD as an approximation to CB, let us relabel the
distances AC and CD by dx and dy, respectively, as in Fig. 8.1b. Then
dy/dx = slope of tangent AD = f’(x)
and, after multiplying through by dx, we get
dy = f’(x)dx. (8.4)
DIFFERENTIALS
AND
POINT
ELASTICITY
To illustrate the economic application of differentials, let us consider
the notion of the elasticity of a function. Given a demand function
Q = f(P), for instance, its elasticity is
defined as (ΔQ/Q)/(ΔP/P). Using the idca of approximation
explained in Fig. 8.1, we can replace the independent change ΔP and
the dependent change ΔQ with the differentials dP and dQ
,respectively, to get an approximation elasticity measure known as
the point elasticity of demand and denoted by ed (the Greck letter
epsilon, for "elasticity"):
8.2 Total
Differentials
The two partial derivatives Sy and Si, again play the role of "converters" that serve to
convert the changes dY and di, respectively, into a corresponding change dS. The
expression dS, being the sum of the approximate changes from both sources, is called
the total differential of the saving function. And the process of finding such a total
differential is called total differentiation. In contrast, the two additive components to
the right of the equals sign in (8.8) are referred to as the partial differentials of the
saving function. It is possible, of course, that Y may change while i remain constant. In
that case, di = 0 and the total differential will reduce to dS = (əS/əY)dY . Dividing
both sides by dY, we get
əS/əY = ( dS/dY) i constant
Thus it is clear that the partial derivative dS/8Y can also be interpreted, in the spirit of
Fig. 8.1b, as the ratio of two differentials dS and dY, with the proviso that i, the other
independent variable in the function, is held constant. Analogously, we can interpret
the partial derivative aS /di as the ratio of the differential dS (with Y held constant) to
the differential di. Note that although dS and di can now each stand alone as a
differential, the expression aS/ai remains as a single entity.
A straightforward way of finding the total differential dy, given a function
y= f(x1,x2)
is to find the partial derivatives f and / and substitute these into the equation
8.3 Rules of dy = f1dx1 + f2dx2
But sometimes it may be more convenient to apply certain rules of
Differentials differentials which, ni view of their striking resemblance ot the derivative
formulas studied before, are very easy ot remember.
Let k be a constant and i and u be two functions of the variables x, and 2i.
Then the folowing rules are valid:*
PRESENTED BY:
ALKA 23501314
KAREENA 23501091
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