This chapter explains why mathematics is required for economics and introduces the main mathematical methods used by economists: functions and linear equations, matrices and determinants (Cramer's rule), differential calculus (marginal concepts and elasticity), integral calculus (consumer's and producer's surplus) and Information and Communication Technology (ICT) – MS Word, MS Excel and PowerPoint.
"The master economist must possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher to some degree" – J.M. Keynes
1. Introduction – Why Study Mathematics?
Economic analysis is a systematic approach to (a) determine the optimum use of scarce resources and (b) choose available alternatives and select the best alternative to achieve a particular objective. Mathematical methods are helpful for achieving these objectives.
- Economics deals with many quantitative variables and functions in consumption, production, distribution and policy making. Mathematical methods help economists use these variables in a better way and obtain accurate results.
- Lengthy, descriptive economic content can be set in simple notation in mathematical models. Example: the demand for pens in a school is 200 when price is zero and falls by 10 for every one rupee rise in price – written as Q = 200 - 10P (Q = quantity demanded, P = price).