What is the importance of mathematical economics

Business Mathematics

The Business Mathematics is a branch of mathematics. Mathematical and, in particular, stochastic methods are used to answer economic questions.

Importance of business mathematics in economics

Mathematical models and procedures contribute to to define economic relationships. Patterns can be clearly recorded that are observed in practice. Both qualitative and quantitative relationships can be represented with the help of business mathematics.

The aim is always to be able to generally apply the calculated model later. For example, a consumption function can be calculated with the help of business mathematics. The respective economic situation is clearly defined beforehand. For example, the consumption function for the purchasing behavior of households for bananas in Germany is shown under a certain budget restriction. In addition, business mathematics can also describe general economic processes. For example, it is possible to determine the trend in a Price-sales function to calculate.

Areas of application of business mathematics

Business mathematics is used for many economic issues. It is used not only in science, but especially in industry. Many service providers such as banks, insurance companies and management consultancies also use business mathematics to solve problems. For example, price fluctuations on the stock exchanges can be calculated, trends in marketing analyze or develop individual software solutions for companies based on mathematical models. Typical areas of application:

Difference between financial mathematics and business mathematics

The terms Financial mathematics and business mathematics are often used interchangeably. However, distinctions can be drawn between the two disciplines, even if both are based primarily on aspects of stochastics. Financial mathematics is primarily used to Cash values of financial products. In particular, financial derivatives are examined in the context of financial mathematics. In addition, there are credit default risks or Exchange rates calculated.

Business mathematics, on the other hand, is used to mathematically describe economic relationships. As a rule, the goal is not a clear result of a specific "arithmetic task", but rather the establishment of a general model. For example, financial mathematics calculates the present value of a certain financial derivative. Business mathematics, on the other hand, represents a generally valid function for the relationship between demand and price of a good. Then different constellations of price and demand can be represented.

Business Mathematics - Definition & Explanation - Summary

  • In the context of business mathematics, economic relationships are described in mathematical models
  • Areas of application include financial analysis, auditing and controlling
  • In contrast to financial mathematics, business mathematics tries to set up generally applicable models