Mathematics In Economics And Its Uses

Some say that mathematics is used in economics to either mystify or confer a modicum of dignity on economics. In fact, few believe that is the deliberate attempt of economists to provide value to their findings.

Certainly, the first few times one studies economics they don’t ever come across any calculations or equations. There’s just so much of theory and concepts abound that initial study of economics does not require mathematical equations. Concepts such as supply, cost, price, demand and more are pure theoretical ideas but the further you dive into this subject you realize that there is more than mere theory or talk. In fact, to explain quantity of goods sold, concepts of pricing and costs mathematical expressions are perfect.

In short, understanding of basic algebra and calculus is integral to mastering economics and its various branches or ideologies.

Take for instance the study of supply and demand. Why is it that suppliers sell at a specific price and buyers buy at a particular price point? What is the relationship between the two? First you start off by describing what demand on an individual level is and then supply as a whole. Then you tabulate the quantity demanded for each price point of a product. Likewise, you tabulate the quantity supplied at each price point. In any real world situation, you will observe that as price drops the demand grows but the supply drops too. In mathematical terms it means there exists an inverse relationship between demand and price point whereas a direct relation between price and supply. This lets us plot a demand curve and a supply curve. The point where these two curves meet is referred to as Point of Equilibrium and it is the point or price where demand and supply are exactly the same.

From this simple example above it is evident that simple mathematics, the use of graph, relations helps quantitate theories or ideas. Bringing in equations then allows us to solve more complex situations of these simpler ideas.

A demand curve or supply curve being a straight line can automatically be referred to a straight line equation and thus a mathematical equation for demand curve is formed that lets us figure out the demand at any given price point or vice versa. Same applies to the supply curve.

As you can realize, having a strong grasp over mathematics is integral to the study of economics beyond an enthusiast level.

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