Addis Ababa University

College of business and economics

Department of economics

Calculus for Economists

Course Contents
Prepared by:Kidane Alemu(Asst.Prof.,PhD Candidate)

ADDIS ABABA, ETHIOPIA

FEBRUARY, 2024
Table of Contents
CHAPTER ONE:PRELIMINARY CALCULUS ............................................................................. 1

INTRODUCTION .................................................................................................................................... 1
1.1. The concept and importance of mathematical economics .................................................................. 1
1.2. Review of Economic Model and Analysis ........................................................................................ 2
1.3. The Concept and Type of Functions .................................................................................................. 3
1.4 Some Economic Functions ................................................................................................................. 8
1.5. Limits and continuity ....................................................................................................................... 14
CHAPTER TWO: TECHNIQUES OF DIFFERENTIAL CALCULUS ........................................................ 21
2.1. Introduction to Differential Calculus .......................................................................................... 21
2.2. The Concept of the Derivative ......................................................................................................... 26
2.3 The Rules or Theorems of Derivates ................................................................................................ 28
2.3.1 The constant rule ........................................................................................................................ 28
2.3.2 The Simple Power rule ............................................................................................................... 28
2 .3.3. The coefficient rule ................................................................................................................. 29
2.3.4. The sum or difference rule .................................................................................................. 29
2.3.5. The product rule ........................................................................................................................ 30
2.3.6 The quotient rule ........................................................................................................................ 31
2.3.7 .Derivatives of implicit functions ............................................................................................... 32
2.3.8 Derivatives of logarithmic and exponential functions ............................................................... 34
2.4. Differentials and Higher Order Derivatives .................................................................................... 39
2.4.1 Differentials ............................................................................................................................... 39
2.4.2 Second and higher order derivatives .......................................................................................... 40
2.5. Partial derivatives and total derivatives ........................................................................................... 42
2.5.1 Partial derivatives....................................................................................................................... 43
2.5.2 Total derivatives (differentials) .................................................................................................. 44
2.6. Some Applications of Differential Calculus ............................................................................... 45
L Hôpital’s Rule .................................................................................................................................. 47
Chapter Three: Application of differential calculus................................................................................ 52
Aims and Objectives ............................................................................................................................... 52
Introduction ............................................................................................................................................ 52
3.1. Curvature Nature of the function ................................................................................................ 53
3.1.1. Increasing and decreasing Functions ....................................................................................... 53
3.1.2. Testing for concavity and convexity ....................................................................................... 54

3.2. Unconstrained/Free optimization of functions ..................................................................................... 60

3.2.1. Unconstrained/Free optimization of functions of one variable .................................................... 60

3.2.1.1. The concept of optimum (extreme) value ............................................................................... 61
3.2.1.2. Relative Maximum and Minimum: First derivative test .................................................... 61

3.2.1.3. Relative Maximum and Minimum: Second derivative test............................................... 64

3.2.2. Unconstrained optimization of functions of several variables ................................... 66

3.2.2.1. Unconstrained Optimization of functions of two variables .................................... 66
3.2.2.2. Unconstrained Optimization of functions of morethan two variables .................... 72
3.3. Constrained Optimization .............................................................................................. 78
Chapter Four: Integral Calculus ...................................................................................................... 83
Introduction: .................................................................................................................................................... 83
Objective: ........................................................................................................................................................... 83
4.1. The Concept of Integration ........................................................................................................ 83
4.2. The basic Rules of Integration .................................................................................................. 84
4.3. Definite integrals ........................................................................................................................... 91
4.3.1. Some Properties of Indefinite Integral ............................................................................................ 91
4.3.2. Definite Integral and Area under a Curve ....................................................................................... 92
4.4. Improper Integrals ....................................................................................................................... 95
4.5. Economic Applications of Integrals........................................................................................ 97
4.5.1. Economic Application of indefinite Integral.................................................................................. 97
4.5.2. Economic Application of Definite Integral ................................................................................... 101
Chapter Summary ....................................................................................................................................... 105
Chapter Five: Linear Difference and Differential Equations ............................................ 107
Introduction: ................................................................................................................................................. 107
Objective: ........................................................................................................................................................ 107
5.1. Definitions and Concepts ............................................................................................................. 107
5.1.1. First-Order Linear Difference Equations ...................................................................................... 107
5.1.2. First- Order Linear Differential Equations ................................................................................... 109
5.2. Economic applications of Difference and Differential Equation .................................. 112
5.2.1. Uses of Difference Equation in Economics ................................................................................... 112
5.2.2. Uses of Differential Equations in Economics............................................................................... 115
Chapter Summary: ........................................................................................................................ 122
Biblography ............................................................................................................................ 123

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Course Description:
It covers the concepts of functions, relations, Limit, differentiability and continuity. Techniques
of differential calculus like derivatives, rules of derivatives, partial derivatives, differential and
total differentials, total derivative and implicit differentiation and application of differential
calculus .Unconstrained Optimization (one and several variables), constrained optimization
(equality constraint) and the Lagrange method .Integral calculus, indefinite integrals, improper
integrals, definite integrals. Economic applications of definite integral: Consumers and
produce’s surplus. First order difference and differential calculus

Course Objective:
The objective of this course is to introduce some of the important concepts and methods found in
calculus and to indicate how these concepts can be used in constructing mathematical models in
economics. The course specifically aims at acquainting students with the techniques of
differential and integral calculus with their application to economic analysis and differential
equations will be covered.
BIBLOGRAPHY
Chiang, A. C., & Weinwright, K. (2005). Fundamental Methods of Mathematical Economics (4th
ed.). New York: McGraw-Hill/Irwin.

Jacques, I. (2006). Mathematics for Economics and Business (5th ed.). Eidenburgh Gate, Harlow:
Pearson Education Limited.

Rosser, M. (2003). Basic Mathematics for Economists (2nd ed.). London: Routledge.

Binges B.R. and Elizabeth Hoffman, Microeconomics with Calculus

Barnett, R.A. and Ziegler, M.R. Applied Calculus: For Business, Economics. Life Sciences,

And Social Science, and Social Sciences, Fourth Edition, Macmillan, Inc., 1991

Holden, K. and Pearson, A.W. Introductory Mathematics for Economics and Business.

Second Edition, Macmillan, 1992.

Henderson, J.M. and Quandt, R.E, Microeconomic Theory: a Mathematical Approach,

Third Edition, McGraw-Hill, 1980.

Louis Leithold, Essentials of Calculus, Harper & Row,1984