Quantitative Methods in EconomicsUCT Commerce Families在经济学的定量方法进行商务家庭.doc

Section 1 –Revision (Exponents, Logarithms, Solving Systems of Equations) PAGE PAGE 15 Quantitative Methods in Economics Quick revision of basic concepts and definitions Variable: something whose magnitude can change e.g. price, profit, investment, consumption. Endogenous variables: the value of these variables originates from within the model. In other words, we need to solve the model to find out what the value of these variables are. Exogenous variables – the value of these variables is determined outside of the model. Often, exogenous variables are denoted by the use of the subscript zero. For example, in the national income model, where investment and government expenditure are exogenous (or given), we often denote them as: (exogenous) Constant – a value that does not change Equation – and expression that relates variables to each other. There are three main types of equations: Definitional equation: this sets up an identity between two different expressions that have the identical meaning. For example: We read this as: profit is identically equal to TR minus TC An identity will always hold true in every situation, by definition. Behavioral equation – this specifies the way in which one variable behaves in response to changes in other variables. We use these kinds of equations to describe the general setting of the model we are working with. For example: C = 80 +3Q Here, we show that as Q changes, C will change too. Equilibrium condition – this equation tells us the conditions that need to be met if equilibrium is to occur. The one you are most familiar with comes from the model of a demand and supply, where . What is a function? A function is a set of ordered pairs (e.g. (x,y)) with the property that any x uniquely determines a y value. In other words, for every x value, there is one unique y value. We write this as: , where the notation f represents a particular rule by which the set of x values is transformed or “mapped” into the set of y v