8
FUNCTIONS & APPLICATIONS
CONTENTS
Functions 70
Identities 70
Types of Functions 70
Economic Functions 71
Supply & Demand Analysis 74
IS-LM Analysis 74
Income Determination Models 75
F U NC T IO N S
A function explains the systematic relationship between two or more variables.
For example, 𝑦 = 𝑓(𝑥), if y is a function of x. The function is a rule telling us how
to obtain y values from x values. x is the independent variable while y is the
dependent variable1. For example, according to economic theory, demand D
for a product depends on its price P which can be expressed as a functional
relationship 𝑫 = 𝒇(𝑷). In a graphical plot, the independent variable is plotted on
the horizontal axis, the dependent variable on the vertical axis.
In a multivariate function, the dependent variable, y, is a function of more than
one independent variable. For example, 𝑦 = 𝑓(𝑥, 𝑧), if y is a function of the two
variables x and z. To find the value of the function y, we substitute values for x
and z. In comparative statics analysis, we can hold one variable constant and
examine the effect on y of changing the other.
IDENTITIES
An identity explains an enduring relationship between two variables, which
are equal by definition. It can show a definitional condition or an equilibrium
condition. For example, total profit is the excess of a firm’s total revenue, TR,
over its total cost, TC:
𝜋 = 𝑇𝑅 − 𝑇𝐶
Likewise, saving, S, is the difference between income, Y, and consumption, C:
𝑆 = 𝑌−𝐶
T Y PE S OF F U NC T I O NS
Linear function: 𝑦 = 𝑎 + 𝑏𝑥
Here, b is the slope of the function, and a is the vertical intercept.
Example: 𝑦 = 10 + 3𝑥
1 In statistical analysis, a dependent variable is a variable that is being studied and
measured in response to changes in another variable, known as the independent variable.
The independent variable is the variable that is being manipulated or changed to see its
effect on the dependent variable.
Chapter 8| Functions & Applications 71
Quadratic function: 𝑦 = 𝑎𝑥 2 + 𝑏𝑥 + 𝑐
where a, b and c are constants and 𝑎 ≠ 0.
Example: 𝑦 = −𝑥 2 + 6𝑥 − 1
Figure 8.1 Graphs of Functions
Linear function Quadratic function
Polynomial function of degree 3 Rational function
Logarithmic function Exponential function
Polynomial function: 𝑦= 𝑎0 𝑥 𝑛 + 𝑎1 𝑥 𝑛−1 + ⋯ + 𝑎𝑛−1 𝑥 + 𝑎𝑛 where 𝑎0 ≠ 0
and ai are constants, n is a non-negative integer and x is a variable.
Example: 𝑦 = 2𝑥 4 + 𝑥 3 − 4𝑥 2 − 𝑥 + 1, of degree 𝑛 = 4.
Logarithmic function: 𝑥 = 𝑙𝑜𝑔𝑎 𝑁
Where x is the logarithm of N to the base of a such that 𝑎 𝑥 = 𝑁.
Example: log 2 8 = 3.
Exponential function: 𝑦 = 𝑒 𝑝
where e = 2.71828 and p is a polynomial of degree n.
Example: 𝑦 = 𝑒 2𝑥−7 .
Logarithmic functions are the inverse of exponential functions: 𝑥 = 𝑎 𝑦 is the
inverse of 𝑦 = log 𝑎 𝑥.
Rational function: 𝑦 = 𝑔(𝑥)/ℎ(𝑥) where 𝑔(𝑥) and ℎ(𝑥) are polynomial
𝑥−2
functions. Example: 𝑦 =
𝑥+4
E C O N O M IC F U NC T I O N S
For a firm, total revenue, TR, is the price, P, that is paid multiplied by the
quantity, Q, sold:
𝑇𝑅 = 𝑃 ∙ 𝑄
72 Olaniyi Evans | University Mathematics
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