Abstract

This chapter discusses mathematical methods in the study of economic models. It also presents simple linear models of equilibrium and exchange and some properties of matrices whose eigenvalues have negative real parts. The solutions of these linear models are obtained by appealing to the theory of positive matrices. The chapter also explores the elements of production theory, consumption theory, and equilibrium theory. The theory of production is concerned first with the allocation of productive factors among various technological activities to produce goods for consumption, and then with the distribution of the value of the total product among the productive factors. The theory of consumption uses the approach to postulate a preference relation from which a demand function is derived. As this approach is independent of the specific form of the utility index function of the consumer, Slutsky relations can be formulated that describe the variations of the demand function solely in terms of price changes and changes in the level of the budget constraint for a given preference relation. The production and consumption theory are combined in the analysis of general static equilibrium models.

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