Examples of separable ordinary differential equations in economics - MathOverflow most recent 30 from http://mathoverflow.net 2013-06-19T00:42:14Z http://mathoverflow.net/feeds/question/110468 http://www.creativecommons.org/licenses/by-nc/2.5/rdf http://mathoverflow.net/questions/110468/examples-of-separable-ordinary-differential-equations-in-economics Examples of separable ordinary differential equations in economics Gordon Craig 2012-10-23T20:34:09Z 2012-10-25T02:13:47Z <p>I'm currently teaching an integral calculus course for business students, and we're just about to discuss differential equations. They've worked hard, and I'd like to reward them with some economic applications of ODEs, but they can only handle simple separable equations. </p> <p>I'm going to frame exponential growth in terms of economic growth(among other things,) and then I'm currently planning on looking at which demand functions have constant elasticity and looking at the logistic model of a population. I might be asking for too much, but I was wondering whether anyone could suggest a separable equation that arises from a simple model(they've all taken an introduction to economics, but no more.)</p> http://mathoverflow.net/questions/110468/examples-of-separable-ordinary-differential-equations-in-economics/110486#110486 Answer by Alexandre Eremenko for Examples of separable ordinary differential equations in economics Alexandre Eremenko 2012-10-23T22:46:28Z 2012-10-25T02:13:47Z <p>Suppose you maintain a pond with fish (for profit, of course, this is economics!). When the food is abundant and there are not many fish, the population grows at a constant rate \$k>1\$ (reproduction rate minus death rate), so we have \$y'=ky\$. This is separable. Solve it. Give a numerical example. Conclude from the example that our assumptions are not realistic. So what is wrong with our assumtions? Abundant food!!! (Of course. This is economics after all:-) The next simple assumption is that the pond can support only some maximal population, say \$A\$. Which means that when the population approaches \$A\$ the death rate increases (starvation), so the net growth rate is not just \$k\$ but \$k(1-y/A)\$. When \$y\$ is small, (or \$A\$ is very large) we have almost \$y'=ky\$ as before. When \$y\$ is close to \$A\$, the net rate of change approaches \$0\$, as it should be. We obtain \$y'=ky(1-y/A)\$, another separable equation!</p> <p>But this pond brings you no profit yet. To make a profit, you have to catch some fish, say at a constant rate. You obtain another separable equation \$y'=ky(1-y/A)-c\$. Discuss what happens for various values of parameters \$k,A,c\$. </p> <p>And so on:-)</p> <p>Then, if time permits, you can pass to two functions and systems of equations. The classical example is Volterra-Lottka system, which involves a slightly more complicated ODE. And its original motivation was also economics: the influence of World War I on the population of sardines in the Mediterranean (an important economic resource for surrounding countries).</p>