EQT 231

Mathematics for Economists II

CAT I: 15% [116 marks]

Q1.
a. Explain/Discuss, using suitable illustration as applicable
i. the term ‘partial market equilibrium’ of a linear model (3 marks)
ii. conditions for equilibrium in (i) (3 marks)
iii. equilibrium price and equilibrium quantity (3 marks)
b. The demand and supply functions for a commodity are given as:

𝑄𝑑 = 6 − 𝑃2

𝑄𝑠 = 10𝑃 − 5

Determine the equilibrium price and quantity (4 marks)

c. Explain/discus the statement, ‘rarely will the demand for a product be a function of own

price alone’ (3 marks).

d. The demand and supply functions of 2 commodities are given as:

𝑄𝑑1 = 18 − 3𝑃1 + 𝑃2 𝑄𝑑2 = 12 − 𝑃1 − 2𝑃2

𝑄𝑠1 = −2 + 4𝑃1 𝑄𝑠2 = −2 + 3𝑃2

Determine the equilibrium prices and quantities (5 marks).

e. The model of national income for a closed economy is given as: -

𝑌 = 𝐶 + 𝐼0 + 𝐺0 , 𝐶 = 𝑎 + 𝑏𝑌 , 𝑎 >00<𝑏 < 1

i. List the endogenous variables (2 marks).

ii. List the exogenous variables (2 marks).

iii. Determine the expressions for the equilibrium national income and equilibrium

consumption (4 marks).

f. The national income model for a closed economy is given as: -

 𝑌 = 𝐶 + 𝐼0 + 𝐺0 𝑤ℎ𝑒𝑟𝑒 𝐶 = 40 + 0.8𝑌 𝐼0 = 50 𝐺0 = 100

Determine the equilibrium national income and equilibrium consumption (5 marks).

Q2.

a. Differentiate the following functions with respect to x (2 marks each): -

𝑖. 𝑦 = 𝐿𝑛𝑥 ii. 𝑦 = 𝐿𝑛(𝑎𝑥 ) iii. 𝑌 = 𝑙𝑜𝑔10 𝑋

iv. 𝑌 = 𝑙𝑜𝑔5 (2𝑋 3 + 3𝑋) v. 𝑦 = 𝑒 4𝑥

b. The variable Y as a function of time is given as: -
𝑌 = 𝑓(𝑡)
Where the function of time, f(t), is continuous and differentiable.
Determine the rate of growth, g, of Y with time (2 marks).
c. The population size in a country denoted as N is defined by the following function:
𝑁 = 𝑁0 𝑒 𝑎𝑡
Determine the rate of growth, g, in the population size (2 marks).

Q3

a. Get the total differential of the general function given as: -

𝑌 = 𝑓(𝑋1 , 𝑋2 , 𝑋3 , … … … … . . 𝑋𝑛 ) (3 marks)

b. Give a suitable example of economic application of the concept of partial differentiation

(3 marks).

𝜕𝑦 𝜕𝑦
c. Get the partial derivatives ( 𝜕𝑥 𝑎𝑛𝑑 𝜕𝑥 ) for the following functions (3 marks each): -
1 2

i. Y = 4X22 + 4X1 X2 + 5X12

8𝑋12 .𝑋2
ii. 𝑌 = 4𝑋 2
1 + 3𝑋2

iii. Y = (8X22 + 3X1 X2)4

d. Given a function, Y, as: -

 Y = 3X12 + 2X23 + 6X1 X2

i. Get the first and the second order partial derivatives with respect to X1 and X2 (4

marks).

ii. State the Young’s theorem (2 marks)

iii. Prove the Young’s theorem (3 marks).

e. A firm produces good A with a demand function given as: -

𝑄𝐴 = 𝑓(𝑃𝐴 , 𝑃𝐵 , 𝑌)

Where 𝑄𝐴 = 𝑞𝑢𝑎𝑛𝑡𝑖𝑡𝑦 𝑑𝑒𝑚𝑎𝑛𝑑𝑒𝑑 𝑜𝑓 𝑔𝑜𝑜𝑑 𝐴

𝑃𝐴 = 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑔𝑜𝑜𝑑 𝐴

𝑃𝐵 = 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑔𝑜𝑜𝑑 𝐵

𝑌 = 𝑐𝑜𝑛𝑠𝑢𝑚𝑒𝑟 𝑖𝑛𝑐𝑜𝑚𝑒

Determine the responsiveness of the quantity demanded of good A with respect to: -

i. Price of good A (2 marks)

ii. Price of good B (2 marks)

iii. The income (2 marks).

iv. Determine the nature relationship between good A and good B (3 marks).

Q4

a. A demand function is given as: -

𝑄𝐴 = 90 − 2𝑃𝐴 + 0.4𝑃𝐵 + 0.1𝑌

i. Find the price, income and cross price elasticities of demand when:

𝑃𝐴 = 6 𝑃𝐵 = 10 𝑌 = 100 (6 marks)

ii. Interpret results in each case (3 marks).

b. A production function is given as: -

𝑄 = 80𝐾 0.2 𝐿0.5

i. Determine the marginal product of labour, marginal product of capital, the slope of

the production function (6 marks).

ii. Determine whether the marginal products are increasing or decreasing (3 marks).

c. Explain/discuss the following terms: -

i. ‘A linearly homogenous function’ (2 marks).

ii. ‘Returns to scale’ (6 marks).

iii. ‘Euler’s theorem’ (3 marks).

d. A farmer has been using 3 employees and 1 tractor and the resultant output produced is

2000 bags of maize. If the farmer doubles the factor inputs, discuss the possible scenarios

of this action (6 marks).

EQT 231
Mathematics for Economists II
CAT II: 15% [132 Marks]

Q1

a. A consumer wants to maximize the utility (U) derived from consuming two goods (𝑥1 , 𝑥2 )

subject to the available income (m).

i. Formulate the optimization problem facing the consumer (2 marks).

ii. Form the augmented function (the Langragian function/multiplier) (2 marks).

iii. Get the first order conditions/derivatives for utility maximization (6 marks).

iv. State the condition for utility maximization (2 marks).

b. A firm want to minimize the cost (C) of production from employing labour (L) and capital

(K) inputs subject to the output (Q) level that is to be produced.

i. Formulate the optimization problem facing the firm (2 marks).

ii. Form the augmented function (the Langragian function/multiplier) (2 marks).

iii. Get the first order conditions/derivatives for cost minimization (6 marks).

c. A firm want to minimize the cost (C) of production subject to a given output (Q) level while

employing capital and labour inputs. Given that r and w, are input prices of capital and

labour, respectively, and k and l are the units of capital and labour used respectively,

required to: -

i. Formulate the cost minimization problem facing the firm (2 marks).

ii. Form the Langragian function (2 marks)

iii. Get the first order conditions/derivatives for cost minimization (6 marks).

iv. Derive the condition for cost minimization (3 marks).

 d. The production function for a firm is given as 𝑄 = 12𝐿0.5 𝐾 0.5 . If the firm wants to produce

an output of 240 units, find the optimal values of labour and capital that will minimize the

total cost of production given that labour cost per unit is 25 dollars and capital cost per unit

is 50 dollars (5 marks).

e. The production function for garages which services cars and trucks is given as:

𝑄 = 15𝐿2/3 𝐾 1/3

If each unit of labour used costs $5 while each unit of capital cost $3, find the units of

labour and capital to be used to maximize the production given that the garage has only

$450 dollars at its disposal (6 marks).

Q2
a. Compute the following: -

i. Determinant of matrix B: (3 marks)

8 2 2
𝐵 = [6 5 10]
1 9 3
ii. The sum of matrices A and B (3 marks)
𝐴+𝐵 =𝐶

4 9 10 1 15 4
𝐴=5 2 0 𝐵=3 2 7
6 1 6 8 3 5

iii. The product of matrices A and B (3 marks)

4 5
4 3 7
𝐴𝐵 = 𝐶 𝐴=[ ] 𝐵 = [6 2]
1 2 5
8 9

iv. The minor of the matrix C (3marks)

 5 0 7
𝐶 = [2 9 3]
8 10 4
v. The adjoint of matric D (3 marks)

5 2 6 𝐶11 𝐶12 𝐶13

𝐷 = [8 5 4] = [𝐶21 𝐶22 𝐶23 ]
1 1 7 𝐶31 𝐶32 𝐶33

vi. The inverse of matrix E (3 marks)

6 2 1
𝐸 = [4 5 2]
1 3 1

b. Given a system of two simultaneous equations as: -

𝑋 + 2𝑌 = 10
5𝑋 + 8𝑌 = 40
Determine the values of X and Y using the Cramer’s rule (4 marks).

Q3

a. The input-output ratio coefficients for a three sector economy are given as: -
𝑎11 𝑎12 𝑎13 0.2 0.3 0.2
𝐴 = [𝑎21 𝑎22 𝑎23 ] = [0.4 0.1 0.2]while the final demand matrix is given as:
𝑎23 𝑎32 𝑎33 0.1 0.3 0.2
10
𝐵=[5]
6
Determine the total output required in each of the three sectors to meet the inter-industry input
requirements and the final demand (6 marks).
b. The equilibrium prices and quantities for a market with 3 commodities can be determined
using the matrix method. If 3-product market model, i.e., the demand and supply functions
for the three commodities, is given as: -
𝑄𝑑1 = 50 − 2𝑃1 + 5𝑃2 − 3𝑃3 𝑄𝑠1 = 8𝑃1 − 5
𝑄𝑑2 = 22 + 7𝑃1 − 2𝑃2 + 5𝑃3 𝑄𝑠2 = 12𝑃2 − 5
𝑄𝑑3 = 17 + 𝑃1 + 5𝑃2 − 3𝑃3 𝑄𝑠3 = 4𝑃3 − 1
Determine the equilibrium prices and quantities for the three products (8 marks).
 c. A Simple national income model is given as: -

𝑌 = 𝐶 + 𝐼0 + 𝐺0

𝐶 = 𝑐0 + 𝑐1 (𝑌 𝑑 )

𝑌𝑑 = 𝑌 − 𝑇

𝐶 = 𝑐0 + 𝑐1 (𝑌 − 𝑇)

𝑇 = 𝑡0 + 𝑡1 𝑌

𝑌 = 𝑛𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝑖𝑛𝑐𝑜𝑚𝑒, 𝐶 = 𝑐𝑜𝑛𝑠𝑢𝑚𝑝𝑡𝑖𝑜𝑛 𝑒𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒,

𝑌 𝑑 = 𝑑𝑖𝑠𝑝𝑜𝑠𝑎𝑏𝑙𝑒 𝑖𝑛𝑐𝑜𝑚𝑒, 𝑇 = 𝑡𝑎𝑥

𝑤ℎ𝑒𝑟𝑒 𝑐0 > 0 0 < 𝑐1 < 1

𝑡0 > 0 0 < 𝑡1 < 1

i. Write this model in three simultaneous equations representing the three

endogenous variables (6 marks).

ii. Use Cramer’s rule to determine the expressions for the equilibrium values

of the endogenous variables (𝑌, 𝐶 and 𝑇) (9 marks).

Q4

a. Integrate the following algebraic functions (3 marks each): -

∫(20𝑥 + 3𝑥 2 ) 𝑑𝑥

∫(2𝑥 + 10)3 𝑑𝑥

∫ 𝑒 𝑥 𝑑𝑥
 3
∫ 4𝑋 2 𝑑𝑥
1

2
∫ (2𝑥 2 − 1)2 (4𝑥)𝑑𝑥
1

b. Using suitable illustration explain the terms ‘consumer surplus’ and ‘producer surplus’ (5
marks).
c. Assume that a demand and supply functions for fruits is given as: -

Demand: 𝑃 = 40 − 2𝑄

Supply: 𝑃 = −10 + 𝑄

i. Determine the consumer surplus when market price = 10 (3 marks).

ii. Determine the producer surplus when the market price = 30 (3 marks).

d. Given the marginal cost function for a firm as: -

𝑀𝐶 = 40𝑄 − 6

Determine the total cost function for the firm (3 marks).

e. The marginal revenue function for a firm is given as: -

𝑀𝑅 = 20 − 5𝑄

Determine the total revenue function for the firm (3 marks).

f. Assume that the marginal propensity to consume (𝑀𝑃𝐶) = 0.8

i. Determine the consumption function (3 marks).

ii. Get the value of the autonomous consumption when Y = 5 billion, and C = 4.2

billion (3 marks).