1

CHAPTER I – V

According to New Syllabus

&
For Exams of All Universities of Pakistan

Dogar Unique
Mathematical Economics (Part-I)
Paper-III
(Subject + Objective)
For M.A Economics

DIA

By
Prof. Muhammad Khurshid (Principal)
National College of Economics (Lahore)

Dogar Publisher 36 Urdu Bazar Lahore (Pakistan)

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Introductory Note
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CONTENTS
1. Nature of Mathematical Economics
2. Slope of Straight Line / Set Theory
3. Equilibrium Analysis
4. Matrices and Determinants
5. Input-Output Analysis
6. Limit of Function & Continuity
7. Derivatives
8. Partial Derivatives
9. Maxima and Minima
10. Constrained Optimization
11. Linear Programming
12. Miscellaneous
13. MCQ’s
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Chapter No. 1
Nature of Mathematical Economics
Introduction:
As mathematics plays a vital role in every field of life that is why its application is being made in
economics by economists mostly to handle economic problems and check up their authenticity at a glance
to arrive at the conclusions. In mathematical economics we use mathematical symbols, equations,
formulas, geometric figures etc. for the clarification of economic problems.
In 20th century, mathematical economics took a new route when economists presented
equilibrium models mathematically under perfect competition situations and they also tried to convert
Keynesian general theory of income/employment in Mathematical form. Now-a-day mathematical
approach is widely applied in all fields of economics which gives accurate, authentic and patent results.
Due to this reason mathematical approach is raid to be more powerful than that of other ones. Besides,
this has upgraded the significance of modern economics.
Eco-Model VS Mathematical Model:
An Economic Model is theoretical structure or frame work. As economic models are presented
mathematically now-a-days, so it is composed of a set of equations designed to describe the structure of
model. In equation there are various variables related to each other in one way or the other. Thus, Eco.
Model contains two or more variables narrating the relationship which is found between variables. Where
as mathematical model consists of the following ingredients:
(i) Variables/Equation (PU. 2009)
(ii) Constants
(iii) Parameters

Q. Describe basic mathematical terms used in economic analysis.

Ans: There are given below:
Equation:
When both sides of an algebraic expression are equal to each other that is called equation such as:
(i) 2x – 3 = x + 6
(ii) 3x – 9 = 0
or
L.H.S = R.H.S
Note: It should be noted that either (R.H.S) or (L.H.S) may be zero.
Un-known:
These are the quantities which are not known to us. These are denoted with the symbols x, y, z. It
should be noted to know their values we have to solve it equation such as:
2x + 3y = 6
In this equation x, y are unknow. By solving this equation we may pick up values of x and y.
Constant:
These are also called known quantities. An these do not change their magnitude during discussion
that is why there are called constant. Such as:
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(i) 3x + 2y = 7
(ii) ax2 + bx + c = 0
In this equation 3, 2 and 7 are constant.
Note: These are also denoted with the symbols: a, b, c, etc.
Co-efficient:
It means the figure/digit which lies to left side to any unknown is called co-efficient such as:
3x2 – 7x + 2 = 0
In this equation 3 and 7 are co-efficient.
Power:
It means that figure/digit which lies on top to right side of any unknown in called power such as:
x3 or xc
In both listed above (3) and (c) are powers.
Parameters:
Naturally these are variables but sometimes in an analysis there are assumed as constant at that
time these are called parameters such as:
D = f(P, Y, T, Pr)
But in law of demand D and P are taken into consideration while Y, T, Pr are considered as
constant, so there three are parameters. Parameters are also called as “PARA METRIC CONSTANT.”

Q. Define variable. Illustrate its kinds with examples.

Ans: Variable is a quantity which changes its size of magnitude during discussion or inquiry or
investigation. These are widely used in economics such as consumption (C), National Income (Y),
Investment (I), Saving (S), Price (P) and Profit () etc. and a set of prescribed values which a variable can
adopt is called domain of variable and boundaries of domain is called Range of variable e.g., temperature
may vary between (0 – 100). This is ranges its lower value i.e., zero is called lower limit and upper value
i.e., (100) is called upper limit. Similarly Pakistan is domain and its East and West and North to South is
range.
Kinds of Variables
There are many kinds of variables as given below:
(i) Continuous Variable: That variable which leaves no gap/interval and may adopt all values within its
range is called continuous variable e.g., hands of clock touch all the points. So this is precedent of
continuous variable.
(ii) Dis-Continuous Variable: That variable which leaves the gap/interval at the time of assuming values
is called dis-continuous variable e.g., production of wheat, production of sugar, price export, import etc.
As they do not change regularly but irregularly. So these are dis-continuous variables. These are also
called discrete variables as they adopt values with jump and break.
(iii) Independent Variable: The variable which changes independently is called independent variable
e.g., price of wheat changes automatically. Similarly price of oil changes independently. So price is an
independent variable.
(iv) Dependent Variable: The variable whose value is affected by other variable is called dependent
variable e.g., Demand for wheat depends on its price such as:
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D = f(P)
When (P) changes then (D will go to change so in this example (P) is independent variable
whereas (D) is dependent variable.
Economic Example:
As we know demand equation is as under:
qd = a – b (P)
or
qd = 9 – 2 P
By assuming different values of (P) such as 1, 2, 3, 4 etc we may pick up relevant values for (D)
such as:
Table
P 1 2 3 4
D 7 5 3 1
Solution:
qd = 9 – (2)1 = 7
qd = 9 – 2(2) = 5
qd = 9 – 2(3) = 3
qd = 9 – 2(4) = 1
(v) Endogenous Variable: These are those variables whose values is traced/discovered with the help of
model e.g., if Y = C + I. In this model as values of (Y) will be traced by solving equation. So (Y) is an

Endogenous variable. Similarly if .

In this as value of (P) will be traced by solving equation so (P) is an endogenous variable.
(vi) Exogenous Variable: These are those variables whose values already given in model are called
exogenous variables. Such as:
(i) Y=C+I

(ii)
In both (I) M, V, and T are exogenous variables.
Problem:
If C w = 40
Ia = 40
(MPC)C = 0.8
(i) Y=C+I
or
Y = Ca + Cy + Ia
or
Y(1 – C) = Ca + Ia
or
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Y=
or

Problem:
If M = 100
V = 10
T = 50

(iii) P=
Note: (Y, P) endogenous while I, M, V, T are exogenous variables.
(vii) Flow & Stock Variables: Distinction is made between flow and stock variable with an example
such as there are ups and downs in the speed of car but it weight remains fixed on all levels. So speed of a
car is flow variable where as it weight is stock variable.

Q. What is function? Explain its various kinds and also differentiate between function &
relation.
Ans: Function:
As we know there are various quantities which depend upon each other such as Y may depend on
x. Mathematically may be expressed as:
Y = f(x)
It means if value of x changes than value of Y will also change. Similarly in economics:
D = f(P)
C = f(Y)
I = f(i)
It means of values of P, Y, I, change then values of D, C, I will also go to change. So this
relationship between them is called function or functional relation.
Forms of Function:
There are many kinds of function which are given below:
Explicit Function:
In this type of function one quantity visibly depends upon other such as in economics saving
explicitly expends upon income. This may be denoted as below:
S = f(Y)
Whenever Y changes S will go to change. In mathematics explicit function may be expressed as:
(i) Y = 2x + 1
(ii) qd = 12 – 3P
(iii) c = 40 + 8 y
By taking different values of x, P, Y we may pick up values of Y, qd, C etc.
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Implicit Function:
In this type of function both quantities having mutual dependence such as in economics in case of
multiplier income depends on investment. Mathematically may be expressed as:
Y = f(I)
But in case of acceleration investment depends on Income. Mathematically may be expressed as:
I = f(Y)
In mathematics implicit function may be denoted as:
xy = 8
Inverse Function:
When we pick up explicit function from implicit function that is called inverse function such as:
xy = 10  Implicit function
or

(i) Y=  Explicit function

or

(ii) x=  Explicit function

These both these are inverse function.
Increasing function:
In this type of function when on quantity changes positively other will also change positively and
vice versa such as in economics relation between price and supply is increasing function. Similarly
relation between income and consumption is increasing function.
P S P  S
Y C Y C
Decreasing Function:
In this type of function when one variable change positively then other changes negatively and
vice versa such as in economics relation between price and demand. Similarly relation between utility and
consumed quantity are the precedents of decreasing function.
P D P  D
q U q U
Single Valued Function:
In this type of function when independent variable changes resulting dependent variable also
changes but if that takes only one value that is called single valued function. Such as:
(i) q = 10 – 2P
(ii) Y = 5x - 1
In both these equation (q, Y) will take only one value that may be either (+) or (-) . It tends to
function single valued function  function.
Multi-Valued Function:
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In this type of function due to change in independent variable dependent variable may adopt both
minus (-) and plus (+) values such as:
q2 = 5 + P
In this equation if P takes the values:
4, 11, 20
Then q may take values (5, 4, 3) etc.
So this is mlti-values function. It tends to relation e.g.,
Multi-values function  Relation.
Function VS Relation:
Both concepts seem to be singular but actually they are different. Diffference between function
and relation is clarified with the help of following diagram.

DIA (Page No. 9)

Note:
(i) In above diagram against one value of “x”, “y” takes various values as shown by point A, B, C.
So this is relation but not function.
(ii) Simple valued function  function.
(iii) Multi-valued function  relation.
(iv) Increase of function there is one to one correspondence
(v) In case of relation there is no one to one correspondence.
(vi) Technically may be stated that every function may be relation but for every relation not necessary
to be function.
Note: Difference between Algebraic expression, Equation and Function:
1. You do not solve algebraic expression for variable.
2. You can solve equation for variable.
3. Increase function you can graphite.

Q. Explain the following concepts with examples, graphically:

(i) Drawing of Graph
(ii) Linear Function
(iii) Quadratic Function
(iv) Cubic Function
(v) Relation Function
(vi) Exponential Function
(vii) Logarithmic Function
Ans: Rules of Drawing Graph:
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Presentation of data with the help of geometrical curves is called drawing of graph. In this regard
some rules are given below:
(i) First of all two curves one horizontal and other vertical are drawn an plan paper.
(ii) Both these curves intersect each other at (O) point which is called origin.
(iii) Both these points divide graph paper into four parts and each part is called QUADRANT.
(iv) If there are two variables i.e., x and y while x is independent and y is dependent variable then by
assuming different values of x we may pick up different values of y.
(v) By the help of collected values of both variables we may prepare a schedule table.
(vi) With the help of table we may easily locate the points for x and y.
(vii) Lastly by joining these points we may pick up a curve which is called graphic representation.
(viii) Specimen is given below.
(Cartesian Plane)

DIA (Page No. 11)

Note:
(i) In Quadrant (I) of Cartesian plane we have located point (A) with the help of values of both
variables. This is called “CO-ORDINATE.”

(ii) In the light of this point on x-axis we have called point ( ). This is called “ABSCISSA.”

(iii) In the list of point (A) on y-axis we have collected point ( ). This is called “ORDINATE.”
Linear Function:
This is just like 1st degree equation/simple equation. Its standard form is as under:
ax + b = 0
It should be noted that in case of function we can make graph.
y = 3x + 2
Problem:
By assuming different values of x we may pick up relevant values of y which are given below for
graph:
(Straight Line)
Table
x Y Solution
-3 -7 y = 2(-3) + 2 = -7
-2 -4 y = 3(-2) + 2 = -4
-1 -1 y = 3(-1) + 2 = -1
0 2 y = 3(0) + 2 = 2
1 5 y = 3(1) + 2 = 5
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2 8 y = 3(2) + 2 = 8
3 11 y = 3(3) + 2 = 11

DIA (Page No. 12)

Note: In above noted graph results are as under:

(i) y-intercept (o – d)

(ii) Slope between (e – f) is

(iii) Straight-line curve having positive slope = 3.
(iv) This shows increasing function.
(v) On Straight line slope remains same.
Economic Examples:
(a) In economics supply function such as:
q = f(P)
qs = a + b(P)
(b) Consumption function such as:
C = f(y)
C = Ca + Cy
(c) Saving function such as:
S = f(y)
S = Sa + Sy
It should be noted that all there concepts are related to increasing function precedents and having
positive slope curves.
Quadratic Function:
It is just like and degree equation. Its standard is as under.
ax2 + bx + c = 0
As functional relations like may be presented by graph. So if:
Problem:
Y = x2 + 2x – 1
By assuming different values of x we may pick up relevant values of y is shown below:
Table
x Y Solution
2
3 14 Y = (3) + 2(3) – 1 = 14
2 17 Y = (2)2 + 2(2) – 1 = 7
1 2 Y = (1)2 + 2(1) – 1 = 2
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0 -1 Y = (0)2 + 2(0) – 1 = -1
-1 -2 Y = (-1) + 2(-1) – 1 = -2
-2 -1 Y = (-2)2 + 2(-1) – 1 = -1
-3 2 Y = (-3)2 + 2 (-3) – 1 = 2
Graphic Representation is given below:

DIA (Page No. 13)

In above diagram we have obtained parabola / u-shaped curve.

Economic Examples:
In economics demand & supply model given below:
(i) qd = 7 – 3P2
(ii) qs = 3 + P
By balancing both we get as:
qd = qs
or
3 + P = 7 – 3P2
By transposition we get as:
3P2 – 7 + 3 + P = 0
3P2 + P – 4 = 0 (Standard form)
With the help of this equation we may get parabola curve.
Cubic Function:
It is just like 3 degree equation its standard form is as under:
ax3 + bx2 + cx + d = 0
Problem:
If y = x3 + 2x2 + x – 2
By assuming different values of x we may pick up relevant values of y, as shown below:
Table
x Y Solution
3 28 Y = (3) (2)2 + 3 – 2 = 28
3

2 16 Y = (2)3 + 2(2)2 + 2 – 2 = 16
1 2 Y = (1)3 + 2(1)2 + 1 – 2 = 2
0 -2 Y = (0)3 + 2(0)2 + 0 – 2 = -2
-1 -2 Y = (-1)3 + 2(-1)2 + (-1)-2) = -2
-2 -4 Y = (-2)3 + 2(-2)2 + (-2) -2 = -4
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-3 -14 Y = (-3)2 + 2(-3)2 + (-3)-2 = -14

DIA (Page No. 15)

In above we have obtained hyperbola curve having kink/bend at two places.

Economic Example:
In economics as cost of form are consisting of
[c = b0 + b1q]
i.e., fixed cost + variable cost mathematically may be expressed as:
C = f(q)
or
TC = AC.q
Or
C = b0 + b1q
In the form of cubic function may be denoted as under:
C = q3 + 2q2 + q + 2
By assuming different values of (q) we may pick up relevant values o (C) or graphic
representation.
Table
q C Solution
3
-2 -12 C = (-2) + 2(-2) + (-2)+2 = -12
-1 -2 C = (-1)3 + 2(-1) + (-1)+2 = -2
0 2 C = (0)3 + 2(0)2 + (0) + 2 = 2
1 6 C = (1)3 + 2(1)2 + (1)+2 = 6
2 20 C = (2)2 + 2(2)2 + 2 + 2 = 20

DIA (Page No. 16)

Rational Function:
In this type of function dependent variable appears as a ratio of two algebraic expressions etc
such as:
xy = a
This is an implicit function and its explicit function is as under:
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Problem:
xy = 9
or

By assuming different values of x we may pick up relevant values of y as shown below:

Table
x Y Solution
3 3 y = 9/3 = 3
2 4.5 y = 9/2 = 4.5
1 9 y = 9/1 = 9
0 0 y = 9/0 = 0
-1 -9
=9
-2 -5
= -4.5
-3 -3
= -3
Graphic Representation is given below:

DIA (Page No. 17)

Note: In cost theory (AFC) curve is just like this precedents having this type of slope.

DIA (Page No. 18)

Logarithmic Function:
Logarithmic function is reciprocal of exponential function. In this function dependent variable
“y” appears in the log of independent variable “x”. Such as:
y = log ax
where = a  base
Problem:
y = log2x  log function
Its inverse function is as under:
x = 2y  exponential function
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In this case assuming different values of y, we may pick up relevant values of x as shown below:
Table
x Y Solution
3 8 x = (2)3 = 8
2 4 x = (2)2 = 4
1 2 x = (2)1 = 4
0 1 x = (2)0 = 1
-1 0.5 x = (2)0 = ½
-2 0.25 x = (2)-2 = ¼
-3 0.12 x (2)-3 = 1/8
Note: When y takes power (0), then it is = I.

DIA (Page No. 20)

Note: For graphic purpose logarithmic function is converted into exponential function.

Q. Define the following and give examples. (PU. 2010)

(i) Definitional Equation
(ii) Behavioural Equation
(iii) Equilibrium Equation
Ans: Now we clarify all these concepts taking one by one.
Definitional Equation:
This type of equation maintains identity between two algebraic expressions showing the same
meaning. In such type of equations we use identity symbol such as () e.g.,  (a + b2) = a2 + b2 + 2ab
In economic analysis is:
(i) y = c + I  Agg. Demand
(ii) y = c + s  Ass. Supply
or
Y–C=I
Y–C=S
Thus,
SI
Intended Saving  Intended Investment
Behavioural Equation:
This type of equation shows a change in one variable and resulting change in other variable
subject to adopting definite assumptions regarding behavior/pattern of said variable. Mathematically may
be expressed as:
C = F(y)
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Or
C = Ca + Cy
It means when (y) changes (C) will go to change subject to the following conditions.
0<C<I ycyc
If this condition is fulfilled then Keynesian fundamental of consumption will be satisfied and
result will be Ok. While (C = MPC)
Equilibrium Equation:
This type of equations maintain equilibrium in partial as well as in general e.g., in Marshaling
scope consumes will be in equilibrium when following condition is satisfied such as:

In Keynesian scope economy will be in equilibrium position when following conditions are
satisfied such as:
Agg Demand = Ass. Supp
or
C+I=C+S
or
I=S

Q. Solve the following equations and verify your answers.

Ans: Linear Equations:
Solve the foowing equation and also confirm.
Problem:
2x – 3 = x + 6
This is linear or simple equation as unknown (x) hears the power I. Its standard form is as under:
Solution:
As 2x – 3 = x + 6
By transposition it may be written as:
2x – x = 6 + 3
or
x=9
Let us verify by putting 9 in above equation such as:
2(9) – 9 = 6 + 3
18 – 9 = 9
9=9
L.H.S = R.S.H
Solve the following and also confirm.
Problem:
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Solution:
By cross multiplication we get us:
24x2 – 24x + 9x – 9 = 24x2 + 6x – 24 x – 6
By transposition we get as:
24x2 – 24x2 – 24x + 24x + 9x – 6x = -6 + 9
By simplifying we get as:
3x = 3
or

x=1
By putting 1 in above equation we get as:
3x = 3
or
3(1) = 3
or
3=3
L.H.S = R.H.S
Economic Examples:
Problem:
qd = 9 – 2P
This is demand equation its standard form is as under:
Qd = a – b (P)
Solution:
By assuming different values of (P) we can get relevant values for (q) such as:
Table
P q Solution
1 7 q = 9 – 2(1) = 7
2 5 q = 9 – 2(2) = 5
3 3 q = 9 – 2(2) = 3
Problem:
C = 40 + 0.8 Y
This is consumption equation its standard form is as under:
C = Ca + C y
Solution:
By assuming different values of (y) we can get relevant values for (C) such as:
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Table
Y C Solution
100 120 C = 40 + 8 (100) = 120
200 200 C = 40 + 0.8 (200) = 20
300 280 C = 40 + 0.8(300) = 280

Quadratic Equations:
Problem:
8x2 – 14x + 6 = 0
This is 2nd degree equation as unknown (x) hours the power 2. It standard form is as under:
ax2 + bx + c = 0
Solution:
By factorization Method:
In above equation:
a = 8, b = -14, c = 6
Let us multiply a and c then result is as:
(i) a  c or 8  6 = 48
(ii) 6 = -14. Then may be divided as:
(-8) and (-6)
By adding both = -14
By multiplying both = 48
Now equation be written as under:
8x2 – 14x + 6 = 0
8x2 – 8x – 6x + 6 = 0
By taking out common functions i.e., 8x, 6 then
8x(x – 1) – 6(x – 1) = 0
x – 1 = 0, x = 1
Similarly
8x – 6 = 0
or
8x = 6

Now we verify the results such as:

8x2 – 14x + 6 = 0
By putting first value i.e., (1) then:

8(1)2 – 14(1) + 6 = 0
8 – 14 + 6 = 0
 19

14 – 14 = 0
0=0
L.H.S = R.H.S

By putting 2nd value i.e., then

72 – 168 + 96 = 0
0=0
L.H.S = R.H.S
Problem:
8x2 + 24x = 14
By bringing it into standard form as:
ax2 + bx + c = 0
or
2
8x + 24x – 14 = 0
Solution:
By formulae method

As in above equation:
a = 8, b = 24, c = -14
By putting these values in formulae then we get as:

or

or
 20

Similarly

Let us verify the result by putting these values in above equation such as:

8x2 + 24 x – 14 = 0
or
8(.5)2 + 24(.5) – 14 = 0
or
2 + 12 – 14 = 0
or
14 – 14 = 0
0=0
L.H.S. = R. H.S
Economic Example
On economic model is given below to clarify quadratic equation process.
Problem:
qd = 10 – 3P2
Qs = 6 + P
Solution:
In equilibrium position
qd = qs
10 – 3P2 = 6 + P
or
6 + P = 10 – 3P2
By transposition we get as:
3P2 – 10 + 6 + P = 0
or
2
3P + P – 4 = 0 (Standard Form)
Now we apply formulae method such as:

Where: a = 3, b = 1, c = -4
By putting these values in formulae as above:

or
 21

or

or

P = 1 (First value)

Similarly
P = -1.3 (2nd value)
Verification:
Since price is never minus so we take up positive price i.e., (1). By putting this in both equation
we confirm our result such as:
(i) qd = 10 – 3P2
(ii) qd = 6 + P
By putting price ( ) in demand equation then:
qd = 10 – 3 (1)2 = 7
By putting price ( ) in supply equation then:
qs = 6 + 1 = 17
thus:
qd = qs
or
7=7
or
L.H.S. = R.H.S
Simultaneous Equations
It should be noted that simultaneous equations may be 1st degree or 2nd degree as given below.
Simultaneous Equations of 1st Degree:
Such type of equations may be solved by two method as given below:
(i) Method of substitution
(ii) Method of elimination
Problem:
(i) 3x + 2y = 6
(ii) 2x + y = 4
By Method of Substitution:
Solution:
 22

Let us take up equation No (ii) as:

2x + y = 4
or
Y = 4 – 2x
Now by putting this value of y in equation No. (i) as:
3x + 2 (4 – 2x) = 6
or
3x + 8 – 4x = 6
By transposition we get as:
3x – 4x = 6 – 8
or
–x = –2

Now we put value of x in equation No. (ii) as:

2x + y = 4
or
2(2) + y = 4
or
4+y=4
or
y=4–4=0

Verification:
Now we confirm our results by putting values of x and y in both equations such as:
(i) 3x + 2y = 6
By putting values then:
3(2) + 2(0) = 6
or
6+0=6
or
6=6
L.H.S. = R.H.S
Similarly:
(ii) 2x + y = 4
By putting values then:
2(2) + (0) = 4
or
4+0=4
or
 23

4=4
L.H.S. = R.H.S.
Problem:
2x + 3y = 5
x–y=0
Solution: (By Method of Elimination)
Let us multiply equation No. (ii) with (3) to equalize co-efficient then we get as:
2x + 3y = 5
3x – 3y = 0
By adding both:
2x + 3y = 5
3x – 3y = 0
5x =5
or

Now by putting value of (x = 1) in equation (ii) as:

x–y=0
or
1–y=0
or
–y = –1
y=1
Verification:
Now we confirm our results by putting these value in above equations such as:
(i) 2x + 3y = 5
(ii) x–y=0
By putting value in equation No. (i) then:
2(1) + 3(1) = 5
or
2+3=5
or
5=5
L.H.S. = R.H.S
Similarly:
x–y=0
or
1–1=0
0=0
 24

L.H.S. = R.H.S.
Economic Example:
(i) qd = 9 – 2P
(ii) qs = 3 + P
(By solution elimination method)
By subtracting equation (ii) from (i) then

(i) qd = 9 – 2P
(ii) qs = 3 + P
- - +
0=6–3P
3P = 6

By putting this value in both then we get as:

(i) qd = 9 – 2(2) = 5
(ii) qs = 3 + 2 = 5

L.H.S. = R.H.S
Simultaneous Equations when one is 1st degree & other 2nd degree:
Problem:
(i) 3x – y = 5
(ii) x2 + 3y2 = 57
Solution:
3x – y = 5
or
3x = 5 + y
or

Now by putting this value of (x) in equation No. (ii) as:

Let us multiply both sides with (9) then:

25 + 10 y + y2 + 27y2 = 513
28y2 + 10y + 25 – 513 = 0 (2nd degree standard form)
28y2 + 10 y – 488 = 0 (where a = 28, b = 10, c = 488)
Now we solve this with formulae method such as:
 25

By putting values then we get as:

(First value of Y)
Now we calculate its 2nd value such as:

Now by putting both these values of Y in equation No. (i) then we get as:
3x – Y = 5
By putting 1st value of Y i.e., (4) then:
3x – 4 = 5
3x = 5 + 4

3x = 9 =

Now we put 2nd value of Y i.e., (-4.35) in equation No. (I) as:
3x – Y = 5
3x –(-4.35) = 5
3x + 4.35 = 5
3x = 5 – 4.35
3x = 0.65

*********************
 26

Chapter No. 2
Slope of Straight Line and Set Theory

Q. What is straight line? Measure its slope mathematically under different possibilities along
with formulae.
Ans: Definition:
Geometrical presentation of linear equation is called straight line such as:
ax + by + c = 0 (Standard form)
Hence in this equation there are two variables i.e., x, y. Consequently we have to calculate two
intercepts i.e., (x – Intercept) and (y – intercept).
Intercepts:
Intercepts means points of intersection at both arises where the straight line passes through. To
calculate intercepts points the following methods are used such as:
(i) For (x – intercept)  y = 0 (To be considered)
(ii) For (y – intercept)  x =0 (To be considered)
Mathematical Analysis:
To clarify the problem let us take the following equation i.e.,:
Problem:
6x + 4y – 24 = 0
Let us solve for (x – intercept, fist when y = 0)
By putting this value in above numerical equation then:
6x + 4(0) – 24 = 0
6x +(0) – 24 = 0

6x = 24 or

(A) Thus x-intercept will be written as:

(4, 0)
Now let solve for y-(intercept) when x = 0.
By putting this value in above numerical example then:
6x + 4y – 24 = 0
6(0) + 4y – 24 = 0
0 + 4y = 24
4y = 24

(B) Thus y-Intercept will be written as under:

(0, 6)
 27

Geometrically presentation of both these intercepts with a curve passing though these points will
be straight line as shown below:

DIA (Page No. 37)

Different Possibilities of (Slope of St.L)

This is important topic in this chapter. Let us clarify this with mathematical device.
“The steepness of straight line relative to x-axis is called slope or gradient of (S.L).” This is
denoted with the symbol as given below.
Slope  (m)
Graphically may be expressed as:

DIA (Page No. 38)

Formulae:

(i) Thus distance between (A – B) points on (S.T) is called its slope.

(ii) Ratio of is also called its slope.

(iii) It should be noted on any one point on (S.L) then slope will be as .
(iv) Similarly it on (S.L) there are two points i.e., (x, y) and (x2, y2) then slope will be as:

Possibilities:
There are various possibilities for slope of (St.L). There are given below:
(i) Positive Slope:
When curve moves from left to right upward having positive slope. In this possibility as (x)
variable increases (y) also increases and vice versa as shown in above noted diagram.
(ii) Zero Slope:
When curve remains parallel is x – axis having zero slope. In this possibility (y) variable remains
constant as (x) changes.
(iii) Negative Slope:
When curve falls from left to right downward having negative slope. In this case when (x)
increases then (y) decreases and vice versa.
(iv) Un-defined Slope:
 28

In this possibility curve is vertical shaped having un-definined slope. In this case (x) variable
remains constant then y variable remains un-observed.
Derivation of Equation of Straight Line:
Equation of straight line/formulae may be derived under the following possibilities.
(i) Two Points Form Formulae:
It should be noted that on straight line between any two points use may pick up its slope which is
identical. Moreover we can pick up its equation with the help of both these points. Exercise is given
below which will be related to its standard form such as:
ax + by + c = 0

DIA (Page No. 40)

Note:
(i) (S-T) = straight line.

(ii) Its slope between (A – B) i.e.,

(iii) Its slope between (B – C) i.e.,

(A – B) slope = (B – C) slope
Thus above results may be written as:

By cross multiplication we get as:

(y – y1)(x2 – x1) = (y2 – y1) (x – x1)
By transposition we get equation/formulae of (St.L) as:
Formulae:

(y – y1) =
Problem:
If
x1 = 2, x2 = -3
y1 = 4, y2 = 3
Solution:
By putting these values in formulae such as:
 29

By taking L.C.M then we get as below:

5(y – 4) = x – 2
5y – 20 = x – 2
By transposition we get as:
x – 5y – 2 + 20 = 0
x – 5y + 18 = 0 (Numerical equation of St.L)
Verification:
Let us confirm above result by putting values i.e., (2, 4) then as:
x – 5y + 18 = 0
2 – 4(5) + 18 = 0
2 – 20 + 18 = 0
18 – 18 = 0
0=0
L.H.S = R.H.S
Similarly by putting value i.e., (-3, 3) then we get as:
x – 5y + 18 = 0
-3 -5(3) + 18 = 0
-3-15 + 18 = 0
18 – 18 = 0
0=0
L.H.S = R.H.S
(ii) Intercept Form Formulae:
As we know in two points form the equation/formulae of straight line is as under:
Gen. Equation:

y – y-1
x – intercept points  (a = x2, o = x1)
y – intercept points  (o = y2, b = y1)
 30

By putting these values in above formulae then we get as below:

By transposition we get as:

By taking L.C.M, then we get as:

ay = -bx + ab
By taking out common factor i.e., (b)
Then:
ay = - b (x – a)

By transposition we get as below:

By simplifying we get as:

(St.L equation in intercept form)

Problem:
If,
As (x-Intercept)  (a – 0)
(y Intercept)  0, - b)
Similarly by:
(a, 0)  (5, 0)
(0, b)  (0, - 3)
By putting these values in above formulae then we get as under such as:

By putting values then:

 31

Let us multiply both sides of equation with (15)

-5y + 3x = 15
3x – 5y – 15 = 0
Verification:
By putting values in this equation i.e.,:
(5, 0) and (0 -3) respectively then we get as:
For x – Intercept  (y  0)
As
3x – 5y – 5 = 0
3(5) – 5(0) – 15 = 0
0=0
L.H.S = R.H.S
Similarly for y-intercept  (x  0)
As
3x – 5y – 15 = 0
3(0) – 5(-3) -15 = 0
0=0
L.H.S = R.H.S
(iii) One Point Form Formulae:
As we know on straight line on any one point its slope may be measured as below:

Mathematically may be expressed as under:

This formulae may be developed further as:

 m(x – x1) = y – y1  (one point form equation)
Problem:
[If (slope m = -2 and x1, y1 = (-2, 2)]
As,
y – y1 = (x – x1)
By putting values then we get as:
y – 2 = -2{x – (x)}
y – 2 = -2{x + 2}
 32

y – 2 = -2x – 4
By transposition:
y – 2 + 2x + 4 = 0
2x + y + 2 = 0 (Numerical equation)
Verification:
As x1, y1 = -2, 2 respectively
By putting these values in numerical equation then:
2(-2) + 2 + 2 = 0
-4 + 4 = 0
0=0
L.H.S = R.H.S
(iv) Slope Interception Form Formulae:
As we known two points form formulae is as under:

y – y1 =

Thus this may be rewritten as:

y – y1 = m(x – x1)
By transposition we get as:
Formulae:
y = m (x – x1) + y1
Alternative Method:
Let us assume:
(i) x – x1  x
(ii) y1  b
By putting these values in above we get as:
y = m(x) + b
y = mx + b (Slope interception equation)
Problem:
If
(i) y – interception = 0, 4  b
(ii) (Slope) m = 2
By putting these values in above formulae as:
y = mx + b
y = 2(x) +4
y = 2x + 4
2x + 4 – y = 0 (Numerical equation)
Verification:
 33

By putting the values (0, 4) in above equation then we get as:

2x + 4 – y = 0
2(0) + 4 – 4 = 0
0+4–4=0
0=0
L.H.S = R.H.S
Problem: (V. Imp)
Calculate formulae for linear function while their graph pecks the following trend.
(a) Having slope (m) = 3 and y – intercept (0, 3)

As slope
By putting values we get as below:

3(x – 0) = y – 3
3x – 0 = y – 3
3x – y + 3 = 0 (equation)
Verification:
As, 3x – y + 3 = 0
3(0) – 3 + 3 = 0
0–3+3=0
0=0
L.H.S = R.H.S
(b) Having slope (m) = -2 and goes though the points (1, -1)
Let us solve as below:

As per formulae (slope)

By putting values then we get as:

By transposition we get as:

-2(x – 1) = y + 1
-2x + 2 = y + 1
-2x + 2 –y – 1 = 0
-2x – y + 1 = 0 (Numerical equation)
Verification:
-2x – 4 + 1 = 0
-2(1) – (-1) + 1 = 0
 34

-2 + 1 + 1 = 0
-2 + 2 = 0
0=0
L.H.S = R.H.S
(c) Line goes through the points (2, 3) and (5, 6)
Let us solve as per formulae:

Slope
As

Hence slope m = 1
Now we proceed further such as:

m = I  It will remain some ne (S.L)

So
I (x – 2) = y – 3
x–2=y–3
By transposition
x–2–y+3=0
x – y + 1 = 0 (Equation)
Verification:
x–y+1=0
2–3+1=0
-1 + 1 = 0
0=0
L.H.S = R.H.S
ECONOMIC EXAMPLES
First of the take up demand function case. As demand curve is just like straight line so we may
pick up demand equation with the help of these formulae exercise is given below.
(i) Demand Function Two points Form Formulae:
As we are concerned with quantity and price in this case so formulae will be as under:
 35

Problem:
Table
P q
10 40
8 50
By putting these values in above formulae then:

q – 40 =

q – 40 =
q – 40 = -5 (P – 10)
q – 40 = -5P + 50
q = -5P + 50 + 40
q = -5P + 90
By transposition we get as:
q + 5P – 90 = 0 (Standard form of demand function)
If we assume P  0 then
q + 5P – 90 = 0
q + 5(0) – 90 = 0
q + 0 – 90 = 0
q = 90
Thus this point will be (0, 90)
Now we assume q  0 then
q + 5P – 90 = 0 or q = 90 – 5P
0 + 5P – 90 = 0
5P = 90
P = 18
This point will vary between (18, 0)
Graphic representation is as under:

DIA (Page No. 51)

(ii) Derivation Through Intercept Method:

 36

As we know intercept formulae is as under.

Formulae:
Where x  P, y  q
a = 18, b = 90
By putting these intercept in above formulae we get as:

As we are processing to derive demand function so we multiply both sides of equation by (90),
ratio will remains the same such as:

q + 5P = 90
q = 90 – 5P (Demand equation)
(iii) Derivation of Demand Function Through one Point Form formulae or Point Slope Form
Formulae:
In this case formulae is as under.
q – q1 = m(P – P1)
where,
qy
q1  y1
p1  x
p2  x2
qd = 90 – 5P
Taking derivative then:

Problem:
Table
P q
10 40
8 50
By putting values in formulae then we get as:
q – 40 = -5(P – 10)
q – 40 = -5P + 50
q = - 5P + 50 + 40
q = 90 – 5P (Demand equation)
(iv) Derivation of Demand Function Through Slope Intercept Form Formulae:
 37

In this case formulae is as under:

(i) Formulae:
y = m(x – x1) + y1
q = m(P – P1) + q1
Where,
P – P 1 = x – x1
m = Slope
q1 = y1
q=y
Problem:
Table
P q
10 40
8 50
By putting these values in above formulae we get as:
q = -5(P – 10) + 40
q = -5P + 50 + 40
q = 90 – 5P (Demand function)
Note: By all methods same demand function is derived as given above.
Consumption Function:
Straight line formulae may also be applied on consumption function of consumer/nation etc. As
two points formulae is as under:

By putting these values in above formulae we get:

Table
y C
100 120
200 200

C –120 = .8(y – 100)

C – 120 = .8y – 80.0
C = .8y – 80 + 120
C = 0.8y + 140
C = 40 + 0.8y (Consumption equation)
 38

if C = Ca + Cy
y = 100 then
C = 40 + 0.8(100) = 120
If y = 200 then
C = 40 + 0.8(200) = 200
If y = 300 then
C = 40 + 0.8(300) = 280
Saving Function:
Straight line analysis may also be applied to saving function such as between two points:

So saving equation will be as under:

S – S1 = m (y – y1
Problem:
Solve the following IS model when two points are given such as:
Table
i Y
4% 399.50
8% 399.0%
In this model two points formulae will be applicable to calculate IS equation such as:

By putting values in above formulae then:

y – 399.50 = -11.50 (i - .04)

y – 399.50 = -12i - .48
By transposition we get as between:
 39

y = -12i + .48 + 399.50

IS equation y = 400 – 12i
Problem:
Solve the following Lm model when two points are given below such as:
Table
i Y
4% 1540
8% 1580

By putting values in above formulae then:

y – 399.50 = 11.50 (i - .04)

y – 399.5 = 12i - .48
By transposition we get as below:
y = -12i + .48 + 399.50
IS equation y = 400 – 12.i
Problem:
Solve the following Lm model when two points are given below such as:
Table
i Y
4% 1540
8% 1580
 40

y – 1540 = 1000i – 40
y = 1540 – 40 + 1000i
Lm equation y = 1500 + 1000 i

Q. What is set? Explain its methods of writing and kinds with examples.
Ans: DEFINITION OF SET
Introduction:
A well-defined collection of distinct objects is called set e.g., a set of foot-ball team players, set
of English alphabets, set of professors of eco. of college, set of natural numbers etc. thus:
1. A set is the name of collection of objects are things.
2. Objects things on which set consisting of are called its members or elements.
3. Usually sets are denoted with capital letters A, B, C, such as:
A = {x, y, z}
4. Sets are written in brackets such as:
{ }
5. Symbol “” shows relationship/membership such as in above example:
X  A, Y  A, Z  A
It means x, y, z are member of A or elements of A or belong to A.
6. Symbol shows non-relationship such as:
X  A, Y  A, Z  A
Ways of Writing a Set:
There are three ways to describe a set as given below:
(i) Tabulation/Enumeration Method:
In this method each and every element is writing separately such as, if set “M” is consisting of 2,
3, 4, digits then it may be written as:
M = {2, 3, 4}
It means set M is consisting of integer 2, 3, 4.
(ii) Description Method:
When these are a large number of elements in a set then it is difficult to describe them in tabular
form. Then description method is adopted e.g., the set of all vowel s of English alphabets as:
A = {a, e, i, o, u}
This may be described as under:
A = (x | x is a vowel of all the English alphabets}
It means set A is composing of all “x” such that “x” is a vowel of all English alphabets.
Similarly “Real Numbers” which are greater than 2 and less than 5 may be written as:
R = {x | 2 < x < 5}
 41

Similarly “even numbers” may be described as:

E ={x | x is an even integer}
Main Points To Remember:
1. N = Set of all Natural Number = {1, 2, 3, …….}
2. W = Set of all Whole Number = {0, 1, 2, 3, …….}
3. Z = Set of all Integers = {0, 1, 2, 3, ……}
4. Z = Set of all Negative Integers = {0, -1, -2, -3, …..}
5. O = Set of all Odd numbers = {1, 3, 5, ……}
6. E = Set of all Even numbers = {0, 2, 4, 6, …….}

7. Q = Set of All Rational Numbers =

(These give results in ratios)

8. Q = Set of all irrational numbers =

These given results in decimal e.g.,

9. R = Set of All Real Numbers = Q  Q
Kinds of Set or Relationship Between Sets:
When we make comparison between different sets then we observe some relations among them.
They are expressed as under:
(i) Equal Set:
If these are two sets namely A and B. They said to be equal if they have same elements e.g.,
A = {1, 2, 3}
B = {3, 2, 1}
Thus, A=B
Equivalent Set:
The two sets A and B are said to be equivalent if they have same number of elements. E.g.,
A = {1, 2, 3}
B = {a, b, c}
Hence A and B are equivalent sets.
(iii) Finite Set:
Set “A” is said to be finite set if it has finite number of elements e.g.,
A = {1, 2, 3, ………….. 100}
Hence A is a finite set.
(iv) Infinite Set:
Set “A” is said to be in-finite if it has infinite numbers of elements e.g.,
A = {1, 2, 3 ……………}
Hence A is an infinite set.
 42

(v) Sub Set:

Set “A” is said to be sub set of set “B” if all elements of A are also elements of “B”. It is denoted
as:
AB
It means A is contained in B or A is sub set of B. Such as:
A = {3, 7}
B = {1, 3, 5, 7}
(vi) Proper Sub Set:
If A is sub set of B and “B” contains at least one element which is not an element of A, then A is
said to be a proper sub set of B. In such a case we write:
AB
It means A is a proper sub set of B e.g.,
A = {1, 2, 3}
B = {1, 2, 3, 4, 5}
If A  B but A  B, then A is said to be a proper sub set of B.
(vii) Improper Sub set:
If A is sub set of B and A = B, then we say that A is an improper sub-set of B e.g.,
A = {1, 2, 3}
B = {1, 2, 3}
Note: When two set are equal to each other then they are both improper subset to each others.
(viii) Dis-joint Set:
If set “A” and set “B” do not contain common elements, then they are called disjoint set e.g.,
A = {1, 2, 3}
B = {4, 6, 7}
(ix) Universal Set:
If all sets which are under consideration are such sets of a single set then single set is called
universal set e.g., “Set of all hair on head” is called universal set. It is denoted with symbol “”.
(x) Complementary Set:
If we minus some elements from universal set both over elements in “” (universal set) constitute
complementary set. Such as:
 = {1, 2, 3, 4, 5, 6, 7}
After minus i.e., 1, 2, 3, then
A = {1, 2, 3}
Remaining elements in  i.e.,
A = {4, 5, 6, 7} (complementary set)
(xi) Overlapping Set:
When two set A and B are having at least one common element and remaining separate elements
and both are not subset of each other, then these are called over lapping sets e.g.,
A = {1, 3, 5, 7, 9}
B = {9, 11, 13, 15, 17}
 43

A  B and B  A. Hence both are overlapping sets.

Q. Explain union, Intersection and difference of sets with examples.

Ans: As in mathematical exercise we go through the process of plus/minus/division/multiplication to
arrive at some conclusion. Similarly e may apply some devices i.e., union, intersection and difference to
set theory. These devices are given below:
(i) Union of Two Sets:
The union of two sets denoted by:
AB
Is the set of all elements which belong to A or B. Symbolically may be expressed as below:
A  B = {x | x  A or x  B}
Thus if A = {2, 4, 6}, B = {6, 8, 10, 12, 14}
Then A  B = {2, 4, 6, 8, 10, 12, 14}
Note: Common element is taken once in union.
(Venn Diagram):
Now we clarify A and B union with Venn Diagram which is as under:
AB

DIA (Page NO. 63)

If there is no common element in A and B, thus their union will be as:

AB

DIA (Page No. 63)

(ii) Intersection of Two Sets:

The intersection of two sets A and B as denoted by:
AB
Is the set of all elements, which belong to A and B e.g., if:
A = {2, 4, 6}, B = {6,8, 10, 12, 14}
So the intersection of both sets will be as:
A  B = {6}
This may be expressed as under symbolically:
A  B = {x | x  A and x  B}
Note: In intersection common element from both is taken into consideration.
Venn Diagram
Intersection of A and B sets may be clarified by Venn Diagram as given below:

DIA (Page NO. 64)

 44

AB
If Set A = {2, 4, 6, 8}, B = {1, 3, 5, 7}
Then A  B = { } (Empty Set}
Venn Diagram

A  B =  (empty set)
Difference of Two Set:
The difference of two sets A and B denoted by:
A-B
Consist of all elements which belong to “A” but do not belong to “B” e.g.,
If A = {2, 3, 4, 5, 7}, B = {1, 2, 3, 4}
Then A – B = {5, 7} and B – A = {1}
Symbolically may be expressed as:
A – B = {x | x  A and x  B}
and
B – a = {x | x  B and x  A}
Note: A – B is sub set of set A. Symbolically may be expressed as:
A–BA
Venn Diagram

DIA (Page No. 65)

Q. Illustrate laws of set operations with examples.

Ans: In this regard the following laws are taken into consideration.
Cumulative Law:
Cumulative law of union of sets and intersection of sets is as:
AB=BA
Similarly in case of Intersection of sets it is as:
AB=BA
Algebraically may be expressed as:

Cumulative law:
Venn Diagram
 45

DIA (Page No. 66)

Thus if, A = {2, 4, 6}, B = {6, 8,10, 12}

Thus A  B = {2, 4, 6, 8, 10, 12}
B  A = {6, 8, 10, 12, 2, 4}
AB=BA
Similarly in case of intersection if:
A = {5, 6, 7}, B = {7, 8, 9}
Then A  B = {7}, B  A = {7}
AB=BA
Associative Law:
If we want to make union of set, A B, C etc., then we can make union of any two sets first. After
this with this union remaining set is associated to formulate further union. It should be noted that same
technique in applied in case of intersection also. Sequences is not needed in this regard.
Symbolically may be expressed as:
A  (B  C) = (A  B)  C
And
A  (A  C) = (A  B)  C
Algebraically may be expressed as under:

Associative law:
e., A = {2, 3, 4}, B = {4, 5, 6, 7}, C = {7, 8, 9, 10}
A  (B  C) = (A  B)  C
{2, 3, 4,}  {5, 6, 7, 8, 9, 10} = {2, 3, 4, 5, 6, 7}  {8, 9, 10}
(Venn Diagram)
(A  B)  C = A  (B  C)

DIA (Page No. 67)

Similarly intersection case may be solved which is given below:

A  (B  C) = (A  B)  C
As in our precedent these are three sets namely A, B, C etc. these are expressed as under:
A = {2, 3, 4}, B = {4, 5, 6, 8}, C = {7, 8, 9, 10}
B  C = {8}
More over as in A  (B  C), thus is no common element so this may be expressed as:
A  (B  C) =  (empty)
 46

A  B and C contains no common factor so,

(A  B)  C =  (empty)
Thus
A  (B  C) = (A  C)  C
Nil = Nil
Distributive Law:
When we apply collective action of union and intersection to some sets, the law which exists is
called distributive law. This is as under:
(i) A  (B  C) = (A  B)  C (A  C)
(ii) A  (B  C) = (A  B)  (A  C)
Algebraically may be expressed as below:
a  (b + c) = (a  b) + (a  c)
Numerically exercise is given below.

Q. Explain De-Morgan laws with examples.

Ans: De-Morgan’s Laws:
If “A” and “B” are two sets then:
(i) (A  B) = A  B
(ii) (A  B)  = A  B
Now we show this law with Venn Diagrams. Such as,
A  U, B  U

DIA (Page No. 70)

Note: (A  B) represents white part of diagram.

Then (A  B) = U – (A  B) represents shaded part of diagram as given below:

DIA (Page No. 70)

Problem:
Prove De-Morgan’s laws from following:
B = {6, 8, 9}, A = {4, 6}, U = {4, 6, 8, 9, 10}
Solution:
First we express De-Morgan’s Laws:
For sub sets A and B are given below
(i) (A  B)c = Ac  Bc
(ii) (A  B)c = Ac  Bc
u = {4, 6, 8, 9, 10} (i)
A = {4, 6} (ii)
B = {6, 8, 9} (iii)
 47

(A  B)c = Ac  Bc (First law)

A  B = {4, 6}  {6, 8, 9} (from left side)
= {4, 6, 8,9} (iv)
(A  B) = u – (A  B)
c
Now
= {4, 6, 8, 9, 10} – {4, 6, 8, 9} [from (i) & (ii)]
= {10} (v)
c
A = u – A (from right side)
= {4, 6, 8, 9, 10} – {4, 6} [from (i) & (ii)]
= {8, 9, 10} (iv)
c
B =u–B
= {4, 6, 8, 9, 10} – {6, 8, 9}[from (i) & (ii)]
c
B = {4, 10} (vii)
A  B = {8, 9, 10}  {4, 10}
c c

= {10} (viii)
Note: Result from (v) & (viii)
(A  B)2 = Ac  Bc (2nd law)
(A  B)c = Ac  Bc
A = {4, 6} (from left side)
B = {6, 8, 9}
A  B = {4, 6}  {6,8, 9}
= {6} (ix)
(A  B) = u – (A  B)
c
(Now)
= {4, 6, 8,9, 10} – {6} [from (i) & (ii)]
= {4, 8, 9, 10} (N)
c
A = u – A (From right side)
= {4, 6, 8, 9, 10} – {4, 6}
= {8, 9, 10} (x)
c
B =u–B and
= {4, 6, 8, 9, 10} – (6, 8,9}
= {4, 10} (xi)
A  B = {8, 9, 10}  {4, 10}
c c

= {4, 8, 9, 10} (xii) (P)

Note: results from P & N proved.
(A  B)c = Ac  Bc
A = {2, 3, 6, 9}, U = {1, 2, 3, 4, 5, 6, 7, 8,9} (ii)
(A  B)c = Ac  Bc The prove B = {1, 3, 6, 7, 8}
First we take left side:
A  B = (2, 3, 6, 9}  (1, 3, 6, 7, 8}
= {1, 2, 3, 6, 7, 8, 9}
 48

(A  B)c = u – (A  B)
= {1, 2, 3, 4, 5, 6, 7, 8, 9} – {1, 2, 3, 6, 7, 8, 9} (iv I from)
= {4, 5}
c
A =u-A
= {1, 2, 3, 4, 5, 6, 7, 8,9} – {2, 3, 6, 9}
= {1, 4, 5, 7, 8}
c
B =u-B
= {1, 2, 3, 4, 5, 6, 7,8, 9} – {1, 3, 6, 7, 8}
c
B = {2, 4, 5, 9} (vi)
A  B = {1, 4, 5, 7, 8}  {2, 4, 5, 9}
c c

= {4, 5} (S)
(A  B)c = Ac  Bc (proved)
MAIN POINTS
1. Cumulative Property of Union:
AB=BA
2. Cumulative Property of Intersection:
AB=BA
3. Associative Property of Union:
A  (B  C) = (A  B)  C
4. Associative Property of Intersection:
A  (B  C) = (A  B)  C
5. Distributivity of Union Over Intersection:
A  (B  C) = (A  B)  (A  C)
6. Distributivity of Intersection Over Union:
A  (B  C) = (A  C)  (A  C)
7. De-Moran’s First Law:
(A  B) = A  B
8. De-Morgan’s Second Law:
(A  B) = A  B

Q. Explain the concepts of Domain and Range with examples.

Ans: Let us clarify both these concepts turn by turn to proceed further.
Domain / Range:
Domain is related to independent variable i.e., (x). So the set of all permissible values which “x”
can take in a given context is know as domain of function.
On the other hand Range is related to dependent variable i.e., y. So the set of all imaged values /
mapped values which “y” variable will take is called Range of function.
Now we clarify domain and range concept with example such as:
Pakistan is like domain but its provinces are like Range.
 49

Problem:
If: y = 6 + 3x (Domain)
Let us assume x takes values 1, 2, 3, 4, 5
We can write this through description method as:
Domain = {x ! I < x < 5}
It means x may take values 1 to 5 this is domain of x.
Now we take up case of y variable such as:
y = 6 + 3x
y = 6 + 3(1) = 9
y = 6 + 3(2) = 12
y = 6 + 3(3) = 15
y = 6 + 3(4) = 18
y = 6 + 3(5) = 21
It means y may take values from (9 – 21). This is range. Which may be expressed through
description method as below.
Range = {y ! 9 < y < 21}
Problem:
Cost function of firm is as under:
C = f(q) or (b0 + b1q)
Or
C = 100 + 5q
We further assume production capacity of firm is as:
(0 – 75 units per day).
Now question crises what will be domain and range of firm?
As firm’s production varies between (0 – 75) per day so her domain will be expressed as:
Domain = {q ! 0 < q < 75}
Now we calculate Range of cost function such as by putting value i.e., (0) and (75)
(i) C = 100 + 5(0) = 100
(ii) C = 100 + 5(75) = 525
So y variable or dependent variable will take values between (100 – 525). Which may be
expressed as:
Range = {C ! 100 < C < 525}
 50

CHAPTER NO. 3
Equilibrium Analysis
Q. What do you mean by equilibrium? Illustrate its different kinds with examples.
Ans: Equilibrium:
Equilibrium means state of balance as state of frets/stop e.g., In weighing scale if we put weight
on one side and quantity on other side and both sides are equally bending then this is called state of
balance/state of equilibrium/state of rets. It should be noted as variables having no tendency to move that
is why such type of analysis is also called static analysis.
Kinds:
There are many kinds of equilibrium which are given below:
(i) Partial Equilibrium:
In partial equilibrium we take into consideration the equilibrium position of an individual sector
of economy e.g., market equilibrium in which demand and supply forces determine the price of any
article etc. such as price of wheat will be determined where its demand and supply are equal as:
qd = qs
Thus in this model three variable are inclusive such as:
qd = qs  P
There is negative/inverse relation between P & qd as:
P  D P D
On the other hand there is positive relation between P  qs as:
P q P q
Thus market will be in equilibrium where:
qd = qs
or
qd – qs = 0
This is market clearing situation or state of equilibrium as both sides of equation are equal.
Linear Model Analysis:
Linear Model is that model in which variables of 1 st degree are taken into consideration
mathematical exercise is given below.
As demand function is as:
D = f (P)
Where as equation of demand function is:
q = a – b(P)
Problem:
If = q = 10 – 2 P
By assuming different price of P we may pick up relevant quantity demanded such:
Table
P D Solution
 51

1 8 q = 10 – 2(1) = 8
2 6 q = 10 – 2(2) = 6
3 4 q = 10 – 2(3) = 4
4 2 q = 10 – 2(4) = 2
It is clear there is inverse relation between P & D.
Now we pick up demand equation with help of following formulae as:

From above table we take any two points such as:

P – 1, P2, q1 = 8, q2 = 6 etc.
Thus we get as:

q – 8 = -2(P – 1)
q – 8 = -2P + 2
q = -2P + 2 + 8
q = 10 – 2P
Now we take up case of supply function as:
qs = f (P)
Its mathematical equation is as under:
qs = a + b(P)
Problem:
If q = 5 + 2P
Let us assume P = 1, 2, 3, 4, then we may pick up quantity supplied as:
Table
P D Solution
1 7 q = 5 + 2(1) = 7
2 9 q = 5 + 2(2) = 9
3 11 q = 5 + 2(3) = 11
4 13 q = 5 + 2(4) = 13
There is positive relation between P & S.
Now we pick up supply equation with the help of following formulae.

Let us take first two points of table i.e.,

P1 = 1, P2 = 2, q1 = 7, q2 = 9
 52

Then

q – 7 = 2(P – 1)
q – 7 = 2P – 2
q = 2P – 2 + 7
qs = 5 + 2 P
Market Equilibrium (Analysis):
Market equilibrium means the situation in which demand and supply forces are in action.
Consequently equilibrium price/clearing price exists which clears the market and maintains equilibrium.
Mathematical exercise in given below.
As demand function/supply function are:
(i) qd = 21 – 2P
(ii) qs = 5 + 2 P
In equilibrium:
qd = qs
21 – 2P = 5 + 2 P
-2P – 2P = 5 – 21
-4P = -16
4P = 16

By putting this price in demand function i.e.,

qd = 21 – 2P
qd = 21 – 2(4) = 13
Now by putting this price in supply function i.e.,
qs = 5 + 2P
qs = 5 + 2(4) = 13

Equilibrium price = 4, Equilibrium Qty = 13} Market equilibrium.

Graphic representation is appended below:

DIA (Page NO. 78)

Problem:
Solve the following demand and supply function i.e.,
 53

(i) qd = 196 – 5P
(ii) qs = 20 + 3P
(a) Calculate equilibrium price/equilibrium qty.
(b) It govt. impure tax Rs. 8 per unit then calculate new equilibrium price and equilibrium.
(c) What will be the effect of tax on producer and consumer.
(d) Give mathematical analysis for calculation of (P & q) with example.
As we known for equilibrium position:
qd = qs  (qd – qs = 0)
196 – 5P = 20 + 3P
-5P – 3P = 20 – 196
-8P = -176
8P = 176

P = 22 (First equilibrium price)

By putting this price either in demand function or in supply function we may pick up equilibrium
qty. As:
qd = 196 – 5P
qd = 196 – 5 (22)
q = 86 (First equilibrium)
When Govt. Imposes Tax Rs. 8 (PU) on Produces:
It should be noted this tax will be deducted from produces price as be will have to pay i.e.,:
(P – 8)
Now his supply function will go to change i.e.,:
qs = 20 + 3(P – 8)
qs = 20 + 3P – 24
qs = 3P – 4 (Now supply equation)
qd = 196 – 5P (same)
Now
qd = qs
196 – 5P = 3P - 4
-5P – 3P = -4 – 196
-8P = -200
8P = 200

Hence P = 25 (New equilibrium Price)

By putting this price either in old demand function or in new supply function we may pick up
new equilibrium qty. such as:
 54

qs = 3P – 4
qs = 3(25) – 4
qs = 75 -4
qs = 71 (New equilibrium qty)
Note: This tax on producer has increased price but decreased qty.
When Govt. Imposes Tax Rs. 8 (PU) on Consumer:
It should be noted this tax will be added in consumer’s price as he will have to pay i.e.,
(P + 8)
Now his demand function will go to change such as:
qd = 196 – 5(P + 8)
qd = 196 – 5P – 40
qd = 156 – 5P (New demand equation)
As qs = 20 + 3P (Same)
Thus for equilibrium:
qd = qs
156 – 5P = 20 + 3P
156 – 20 = 3P + 5 P
136 = 8P
8P = 136

P = 17 (New Price)
By putting price either in old supply or in new demand function we may pick up new equilibrium
Qty. as:
qd = 156 – 5P
qd = 156 – 5(17)
qd = 15 – 85 = 71
qd = 71 (New equilibrium Qty)
Note: When tax is imposed on consumer demand/purchase goes to fall.
Mathematical Analysis For Deriving “P” and “q”:
As
qd = a – bP ]  Demand Function

In equilibrium we may express as:

qd = qs
a – b = -c + dP
 55

a + c = dP + bP
By transposition we may write as:
bP + dP = a + c
By taking out common factor i.e., P then:
P(b + d) = a + c

a, b, c d, shows constant positive quantities.

So P  Positive (+).

By putting this equation i.e., in demand function we may pick up equation for Qty.
such as:
qd = a – bP

qd = a – b

qd =
By dividing then we get as:

By simplifying we get as:

Non-Linear Model (Analysis):

In non-linear model we deal with 2nd degree function / 2nd degree equation or Quadratic function /
quadratic equation and the curve which we get will be of parabola nature.
Problem:
Solve the following if:
(i) qd = 10 – 3P2
(ii) qd = 6 + P
As for equilibrium:
qd = qs
10 – 3P2 = 6 + P
6 + P = 10 – 3P2
3P2 – 10 + 6 + P = 0
3P2 + P – 4 = 0 (Standard form)
To solve this equation we use formulae method as given below:
 56

In standard form equation i.e, 3P2 + P – 4 = 0 where: a = 3, b = 1, c = -4

By putting these values in formulae we get as:

Similarly:

Note: Hence price is never minus. So plus price i.e., 1 is to be taken into consideration for both
equations i.e.,:
qd = 10 – 3P2 and qs = 6 + P
Table
P qd qs Solution Solution
2
0.50 9.25 6.50 qd = 10 – 3(.50) = qs = 6 + (.5) =
2
1.00 7.00 7.00 qd = 10 – 3(1) = qs = 6 + (1.00) =
2
1.50 3.25 7.50 qd = 10 – 3(1.5) = qs = 6 + (1.50) =
Thus when price = 1, then quantity demanded = quantity supplied. i.e., 7 = 7. So market is in
equilibrium position.
Graphic Representation:
Now we discuss parabola analysis in the light of above noted clarifications.
Let us assume different prices of (P) such as:
P = -2, 1, 0, 1, 2
By putting these values in both equations we get the following:
Table
P qd qs Solution Solution
-2 -2 4 qd = 10 + 3(-2)2 = -2 qs = 6 + (-2) = 4
-1 7 5 qd = 10 – 3(-1)2 = 7 qs = 6 + (-1) = 5
 57

0 10 6 qd = 10 – 3(0)2 = 10 qs = 6 + (0) = 6
2
1 7 7 qd = 10 – 3(1) = 7 qs = 6 + (1) = 7
2
2 4 8 qd = 10 – 3(2) = 4 qs = 6 + (2) = 8
In above table when P = 1 then qd/qs = 7So market is in equilibrium position. Graphic
representation is given below:
Graph

PIC (Page No. 85)

Note:
(i) Only quadrant No. I is relevant for drawing in economics as P an q never be minus.
(ii) As supply equation is 1st degree so its graph is straight line.
(iii) A demand equation is 2nd degree so its graph is of parabola nature.
(iv) P is independent factor which in constitutes Domain. So Domain = {P ! 0 < P < 2}.
(v) q is dependent for will constitute Range = {q ! 4 < q < 10}.

Q. Explain two commodity market model with examples.

Ans: TWO COMMODITY MARKET MODEL
When one commodity model is extended upto two commodities then that is called two
commodity market model where demand and supply are equal to each other equilibrium price and
equilibrium quantity is determined in this model also.
Problem:
Solve the following demand & supply functions of two commodity market model to find P & q.
(a) qd1 = 18 – 3P1 + P2
(b) qd2 = 10 – P1 + 2P2
(c) qs1 = -1 + 4P1
(d) qs2 = -3 + 4P2
Solution:
Let us take up case of qd1 and qs1 list. In equilibrium:
qd1 = qs1
18 – 3P1 + P2 = -1 + 4P1
By transposition:
18 – 3P1 + P2 + 1 – 4P1 = 0
(i) 19 – 7P1 + P2 (Standard form)
Now we take up case of qd2 and qs2 such as in equilibrium:
qd2 = qs2
 58

10 – P1 + 2P2 = -3 + 4P2
By transposition:
10 – P1 + 2P2 + 3 – 4P2 = 0
(ii) 13 – P1 – 2P2 = 0 (Standard form)
Let us multiply equation(ii) with 7 such as
(iii) 91 – 7P1 – 14P2 = 0
By deducting equation (i) from equation (iii) then:

-15P2 = -72

By putting P2 = 4.8 in equation No. (i) then:

19 – 7 P + 4.8 = 0
23.8 – 7P1 = 0
-7 = 23.8

Equilibrium in Market (A):

By putting P1 = 3.4 and P2 = 4.8 in equation a, c.
Then we get as below:
a  qd = 18 – 3P1 + P2 or 18 – 3(3.4) + 4.8 = 12.6
qd = 2.6
c  qs = -1 + 4P1 or -1 + 4 (3.4) = 12.6
qs = 12.6
Equilibrium in Market (B):
By putting P1 = 3.4 and P2 = 4.8 in equation b,d.
Then we get as:
b  qd2 = 10 – P1 + 2P2 or 10 – 3.4 + 2(4.8) = 16.2
qd2 = 16.2
d  qi3 = -3 + 4P2 or –3 + 4 (4.8) = 16.2
qs = 16.2
Note: Thus it is proved that when P1 = 3.4 and P2 = 4.8. Then results are we under:
Market (A) = qd1 = qs1
= 12.6 = 12.6
Market (B) = qd2 = qs2
= 16.2 = 16.2
 59

So both markets are in equilibrium as:

Demand = Supply
Problem:
Give solution when demand and supply functions of two commodity market model are as under:
Where:
qd1 = q0 + a1P1 + a2P2
qd2 = a0 + a1P1 + a2P2
qs1 = b0 + b1P1 + b2P2,
qs2 = 0 + 1P1 + 2P2
Solve in the light of above & kind the equilibrium solution from data given below.
Solution:
ad1 = 20 – 4P1 + 2P2
qs1 = -4 + 6P1
qd2 = 30 + 2P1 – 2P2
qs2 = -2 + 4P2
Where as in ad1 and qs1
a0 – b0 = c0 = 20 – (-2) = 24
a1 – b1 = c1 = -4 – (+6) = -10
a2 – b2 = c2 = 2 – 0 = 2
Similarly in qd2 and qs2
a0 = 0 = d0 = 30 – (-2) = 32
a 1 -  1 = d1 = 2 – 0 = 2
a2 - 2 = d2 = -2 -4 = -6
By putting there values for calculation of P1 in formulae as given below such as:

For P1 =

P1 =

Thus P1 =
Now by putting values for calculation of P2 in formulae as given bellows such as:

For P2 =
By putting values then we get as:

P2 =
 60

P2 =
Verification:
Now we put P1 = 3.8, and P2 = 6.5 in the equations i.e., ad1, qs1, qd2, qs2 respectively such as:
Market A:
qd1 = 20 – 4P1 + 2P2
qd1 = 20 – 4(3.8) + 2(6.5)
qd1 = 20 – 15.2 + 13 = 18.8
Similarly:
qs1 = -4 + 6P1
qs1 = -4 + 6(3.8) = 18.8
Market B:
Now for qd2 we take up case such as:
qd2 = 30 + 2P1 – 2P2
qd2 = 30 + 2(3.8) -2 (6.5)
qd2 = 30 + 7.6 – 13
qd2 = 24.6
Similarly:
qs2 = -2 + 4P2
qs2 = -2 + 4(6.5)
qs2 = -2 + 26.0
qs2 = 24 (Approx)
Note: Both markets are in equilibrium at P1 = 3.8, P2 = 6.5.

Q. What is Walras’s General Equilibrium? Illustrate your answer with examples.

Ans: COMMODITY MODEL ANALYSIS
When two commodity model is upgraded upto many commodities and the equilibrium which is
maintained is called WALRAS’S general equilibrium. Consequently there will be more variables and
more equations. So demand and supply functions may be expressed as:
qd1 = qd1 (P1, P2, P3, ….. Pn)
qs1 = qs1 (P1, P2, P3, …... Pn)
In equilibrium:
qd1 = qs1
qd1 = qs1 = 0
qd1 (P1, P2, P3 ….. Pn) – qs1 (P1, P2, P3 …….. Pn) = 0
It should be noted it is also called Walras’s general equilibrium. More over in ( commodity
Model) simultaneous equations technique is applied.
Problem:
 61

Calculate equilibrium price and equilibrium quantity for the following three goods which are
substitutes to each other:

A.

B.

C.
Solution:
(i) Market “A” is as Under:
qd1 = 46 – 10P1 + 2P2 + 2P3
as1 = -16 + 12P1
In equilibrium:
qd1 = qs1
46-10P1 + 2P2 + 2P3 = -16 + 12P1
By Transposition:
46 – 10P1 + 2P2 + 2P3 + 16 – 12P1 = 0
22P1 + 2P2 + 2P3 + 62 = 0 (i)
(ii) Market “B” is as Under:
qd2 = 30 + 2P1 – 6P2 + 4P3
qs2 = -22 + 6P2
In equilibrium:
qd2 = qs2
30 + 2P1 – 6P2 + 4P3 + 22 – 6P2 = 0
2P1 – 12P2 + 4P3 + 52 = 0 (ii)
Market “C” is as Under:
qd3 = 38 + 2P1 + 4P2 – 8P3
qs3 = -10 + 6P3
In equilibrium:
3q3 = qs3
38 + 2P1 + 4P2 – 8P3 = -10 + 6P3
By transposition:
38 + 2P1 + 4P2 – 8P3 + 10 – 6P3 = 0
2P1 + 4P2 – 14P3 + 48 = 0 (iii)
Let us multiply equation No. (i) with (ii) then we get us:
-44P1 + 4P2 + 4P3 + 124 = 0 (iv)
By deducting (iv) from equation (iii) then we get us:
 62

-4

Q. Describe basic mathematical terms used in economic analysis.

Ans: There are given below: