tailieunhanh - Basic Mathematics for Economists - Rosser - Chapter 1

1 Introduction Learning objective Economics is a social science. It does not just describe what goes on in the economy. It attempts to explain how the economy operates and to make predictions about what may happen to specified economic variables if certain changes take place | 1 Introduction Learning objective After completing this chapter students should be able to Understand why mathematics is useful to economists. Why study mathematics Economics is a social science. It does not just describe what goes on in the economy. It attempts to explain how the economy operates and to make predictions about what may happen to specified economic variables if certain changes take place . what effect a crop failure will have on crop prices what effect a given increase in sales tax will have on the price of finished goods what will happen to unemployment if government expenditure is increased. It also suggests some guidelines that firms governments or other economic agents might follow if they wished to allocate resources efficiently. Mathematics is fundamental to any serious application of economics to these areas. Quantification In introductory economic analysis predictions are often explained with the aid of sketch diagrams. For example supply and demand analysis predicts that in a competitive market if supply is restricted then the price of a good will rise. However this is really only common sense as any market trader will tell you. An economist also needs to be able to say by how much price is expected to rise if supply contracts by a specified amount. This quantification of economic predictions requires the use of mathematics. Although non-mathematical economic analysis may sometimes be useful for making qualitative predictions . predicting the direction of any expected changes it cannot by itself provide the quantification that users of economic predictions require. A firm needs to know how much quantity sold is expected to change in response to a price increase. The government wants to know how much consumer demand will change if it increases a sales tax. Simplification Sometimes students believe that mathematics makes economics more complicated. Algebraic notation which is essentially a form of shorthand can however make certain