Algebra in Economics and Business

Foreign Trade University

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Chapter 3: When lines meet: linear systems
3.1 Systems of Linear Equations

• A system is a set of two or more equations or graphs involving the

same variables. A system is called linear if all its equations are linear, and
nonlinear otherwise.
• A solution of a system is a set of values of the variables that make all
equations of the system true at the same time. On the graph of a
system, a solution is a point at which all the graphs intersect.
• Solve a system:
• By algebraic methods
• By using a graphing calculator or a computer (an approximation)

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Ha Thi Thu Hien FTU
Ha Thi Thu Hien FTU
Chapter 3: When lines meet: linear systems
3.2 Finding Solutions to Systems of Linear Equations

• A system of m linear equations in the n variables is



 a11 x1 + · · · + a1n xn = b1

a x + · · · + a x = b
21 1 2n n 2


 · · · · · · · · · · · · · · · · · · · · · · · ·
am1 x1 + · · · + amn xn = bm


where x1 , x2 , . . . , xn are variables, aij , bi ∈ R for all

i = 1, . . . , m, j = 1, . . . , n
Set    

a11 . . . a1n
 b1 x1
 a21 · · · a2n   b2   x2 
A := . . . . . . . . . . . . . . . , B :=  .  , X :=  .. 
    
 ..   . 
am1 · · · amn bm xn

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• They are called by matrices. We get the matrix form of the above
system AX = B.
• The elimination method to solve a system of linear equations AX = B.
We use three elementary operations on equations:
1. Interchange two equations
2. Multiply both sides of an equation by a nonzero constant.
3. Multiply both sides of an equation by a nonzero constant and add
the result to another equation

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• Three elementary matrix (row) operations
M1. Interchange two rows ri ↔ rj
M2. Multiply each element in a row by a non-zero number sri → ri .
M3. Multiply a row by a non-zero number and add the result to
another row sri + rj → rj
Set  
a11 . . . a1n b1
 a21 · · · a2n b2 
Aaug := 
 ... ...

... ... 
am1 · · · amn bm
and call it by augmented matrix
• Remark: An elementary operation on equations of the system AX = B
gives an elementary matrix operation on rows of the matrix Aaug and
vice versa

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• Algorithm:
• Step 1: Interchange rows, if necessary, to bring a nonzero element
to the top of the first nonzero column. This nonzero element is called a
pivot, the row (and column) containing it is called a pivot row (and a
pivot column).
• Step 2: Create zero elsewhere in the pivot column (except the
pivot element) by adding suitable multiples of the pivot row to all other
rows of the matrix
• Step 3: Cover the pivot row and all rows above it. Repeat Steps 1
and 2 for the remaining submatrix. Continue until all elements below the
principal diagonal are zero

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• Example: Solve the system

x1 + 3x2 + x3 = 9

x1 + x2 − x3 = 1

3x1 + 11x2 + 6x3 = 35


Solution:
   
1 3 1 9 1 3 1 9
Aaug :=  1 1 −1 1 ⇒ 0 −2 −2 −8 
3 11 6 35 0 2 3 8
   
1 3 1 9 1 3 1 9
⇒ 0 −2 −2 −8  ⇒  0 1 1 4 
0 0 1 0 0 0 1 0
so x3 = 0, x2 = · · · , x1 = · · ·

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• Practice: Solve following systems
 
 x1 − x2 + 2x3 = 1
 4x1 + x2 + 2x3 = 1

1 3x1 − 2x2 + 5x3 = 2 4 x1 + x3 = 2
 
−x1 + x2 − x3 = 2 6x1 + x2 + 4x3 = 3
 

 x1
 − 2x3 = −3
5
−2x1 + x2 + 6x3 = 11
2

 5x1 − x2 + 2x3 + x4 = 7

−x1 + 5x2 − 4x3 = −4

2x1 + x2 + 4x3 − 2x4 = 1
3 
x1 − 3x2 − 6x3 + 5x4 = 0
 


 x1 + x2 + 2x4 = 5
2x + 4x − x 3 + 5x4 = −1


 1
 2 6

x1 + 3x2 + 5x4 = −3 2x1 − 3x2 + 2x4 = −14


3x + 7x − 3x 3 + 9x4 = −14 3x1 + x2 − 5x3 + 3x4 = 1

1 2



 
x + 4x − 2x + x = −11 
4x1 − 2x2 − 5x3 − 3x4 = 2
1 2 3 4

1 2 3 : only one solution

4 5 : no solution
6 : infinitely many solutions

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• The case linear system in two variables: beside elimination method we
have substitution method
• Example: Assume you have $2000 to invest for one year. You can make
a safe investment that yields 4% interest a year or a risky investment
that yields 9% a year.
a. How much interest will you earn in one year if you invest all of
your money in the safe investment? How much if you invest all in the
risky investment?
b. Suppose you invest x dollars in the safe investment and y dollars
in the risky investment. How much interest will you earn in one year?
c. Suppose you want to combine safe and risky investments to earn
$100 a year. Find a system of two linear equations that x and y must
satisfy. Solve the system

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• Application in Economics: Supply and Demand
• Demand is defined as the quantity of a good consumers are willing
and able to buy at a particular price
• Supply is defined as the quantity of a good producers are willing to
produce and supply at a particular price
• We can consider Quantity Demanded and Supplied (of a kind of
good) are functions of the price of that good
• When the supply and demand curves intersect we call the
coordinates of intersection point are the equilibrium price and equilibrium
quantity, respectively

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Theorem: If f (c) is a local maximum (local minimum) of function f ,
then either f is not differentiable at c or f 0 (c) = 0. That is, at a local
max or min f either has no tangent, or f has a horizontal tangent there.

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Chapter 3: When lines meet: linear systems
3.3 Reading between the Lines: Linear Inequalities
• Intersection of some half planes
2 2
− −

p p p p
−3 3 −2 1
−1

− −
−2
x + 3y = 0 2x − y = 2

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• Half planes from the straight line x + 3y = 0:
{(x, y)|x + 3y < 0}, {(x, y)|x + 3y > 0}: Open half planes
{(x, y)|x + 3y ≤ 0}, {(x, y)|x + 3y ≥ 0}: Closed half planes
The line is called by boundary line. An open half plane does not include
the boundary line, so the boundary line is written as a dashed line on the
graph. A closed half plane includes the boundary line and is graphed
using a solid line
n o
• Intersection: (x, y) | x + 3y < 0 and 2x − y ≤ 2
n o
= (x, y) | 2x − 2 ≤ y < −x3
−x
We call 2x − 2 ≤ y < 3 by compound inequality

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• Rules for manipulating inequalities:
• Rule 1: Adding or subtracting the same quantity from both sides
of an inequality leaves the inequality symbol unchanged.
• Rule 2: Multiplying or dividing both sides by a positive number
leaves the inequality symbol unchanged.
• Rule 3: Multiplying or dividing both sides by a negative number
reverses the inequality. This means < changes to >, and vice versa.

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Chapter 3: When lines meet: linear systems
3.4 Systems with Piecewise Linear Functions: Tax
Plans

• Piecewise Linear Functions (are not linear throughout but are made up
of linear segments).

a1 x + b1 if x ∈ D1

f (x) = · · · · · · · · · · · ·

an x + bn if x ∈ Dn


where Di ∩ Dj = ∅ for all i 6= j

• Graduated vs. Flat Income Tax
• Flat income tax is a fixed percentage of income. If the flat tax rate
is 15% then flat tax can be represented as f (i) = 0.15i where i = income
• Graduated income tax: the tax rate changes for different income
levels. Let’s consider a graduated tax where the first $10,000 of income
is taxed at 10% and any income over $10,000 is taxed at 20%.

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Figure: 3.4

Flat tax versus graduated tax

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Chapter 4:The law of exponents and logarithms:
measuring the universe
4.1 The Numbers of Science: Measuring Time and
Space
• Powers of 10: Let n be a positive integer.
•10n = 10 × · · · × 10 = 1 0| .{z
. . 0}
| {z }
n factors n zeros
• 100 = 1
• 10−n = 1
10n = 0. |0 .{z
. . 0} 1
n−1 zeros
• The Relative Sizes of Small Objects in the Universe
Object Radius (in meters)

Human being 1 = 10
10 = 1
DNA molecules 1
0.01 = 100 = 1012 = 10−2
Living cells 1
0.00001 = 100000 = 1015 = 10−5
Atoms 1
0.0000000001 = 10000000000 = 1
1010 = 10−10

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• Scientific Notation: A number is in scientific notation if it is in the
form N × 10n where N is called the coefficient and 1 ≤ |N | < 10, n is
an integer
• Prefixes for Powers of 10
pico- p 10−12 (unit) 100
nano- n 10−9 kilo- k 103
micro- µ 10−6 mega- M 106
milli- m 10−3 giga- G 109
centi- c 10−2 tera- T 1012
• Example: Express each of the following as a power of 10 and then in
standard notation.
a. A nanosecond in terms of seconds
b. A kilometer in terms of meters
c. A terabyte in terms of bytes
d. A microgram in terms of grams

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• Converting from Standard Decimal Form to Scientific Notation:
• Place a decimal point to the right of the first nonzero digit,
creating the coefficient N, where 1 ≤ |N | < 10
• Determine n, the power of 10 needed to convert the coefficient
back to the original number. If the original number is greater than 1,
then the decimal point is shifted to the left and n is nonnegative. If the
original number is less than 1, then the decimal point is shifted to the
right and n is negative. Write in the form N × 10n , where the exponent
n is an integer.
• Examples: 346, 800, 000 = 3.468 × 108 ; 0.0000084 = 8.4 × 10−6

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• The Tale of the Universe in Scientific Notation
Object Age (in years)

Universe 13.7 billion = 13, 700, 000, 000 = 1.37 × 1010

Earth 4.6 billion = 4, 600, 000, 000 = 4.6 × 109
Human life 100 thousand = 100, 000 = 1.0 × 105

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