## Notes | Economics

Application of Mathematics in Economics

For: Management (Commerce) Class : 11

The use of mathematics in economics puts the literary form of economics theory into mathematical language. It provides concrete form to economics laws and relations and make it more logical and practical. Beside this, mathematics helps in the systematic understanding of the relations involved and in derivation of the results which would be very difficult through verbal logic.

The following are the applications of mathematics in the field of economics.

**1) To compute marginal economic values**

Marginal analysis of economics variables is closely related to differential calculus. All marginal economics concepts like marginal cost, marginal revenue, marginal product, multiplier, marginal propensity to consume etc. can be expressed as derivatives or ratios. Different orders of derivative are also used to determine the slop or the rate of change of economics functions.

**2) To compute economic values**

All economics functions in aggregate form can also be computed with the help of integration has also application on the theories of consumer’s and producer’s surplus, capital budgeting and many other fields of economics where the techniques of differential equations are needed.

**3) To solve problems of optimization**

All economics units have optimization problems like cost minimization, output/profit maximization, sales maximization, etc. These problems can be solved with the help of equations, inequalities, liner programming, maxima – minima of the functions.

**4) To determine equilibrium price**

The equilibrium price is said to occur at the price at which the market demand is equal to the market supply. This refers to the solution of simultaneous equations with two variables, i.e. price and quantity and matrix algebra or determination in different orders.

**5) To determining economics function**

Function, which can be represented by an equation or graph, is a mathematical concept and it plays an important role in deriving different economic functions, such as demand function, supply function, cost function, production function, consumption function, investment function, etc.