Chapter six

INTRODUCTION TO DIFFERNTIAL EQUATIONS

AND
DIFFERENCE EQUATIONS
Part one :Differential equations
Definition: an equation that involves derivative of some dependent
variable with respect to the independent variable is called differential
equation. The derivative that may involve in the equation may be partial
or ordinary derivative.
We recall from chapter 3 the difference quotient
f ( x+ ∆ x )−f ( x )
∆x

Now if we set it equal to a certain function then we will get a difference

equation
f ( x+ ∆ x )−f ( x )
=r ( x )
∆x

But we will discuss the difference equation in part two, but for now let’s
discuss the formation of differential equation
Now derivatives are a segregated part analysis a continuous function f(x)
So when we finf the limit as x approaches to 0 of the difference equation
we find the derivative but when we set it equal to a certain function we
form a differential equation. But there is a certain procedure about the
formation a differential equation.
To form differential equation we differentiate a given function as much
as possible to eliminate the given constant and we substitute the
constant value back to the parent function
Example: y=mx
dy
=m= y '
dx

since y ' =mwe sustitute it back ¿ the parent function

y=x y '

And this is a differential equation

Lets see another example
y=e−x +c e x

y ' =−e−x + ce x

c=e−x y' +e−2 x

When we substitute c back into the parent function

y= y' +2 e−x

Remark the repetition of derivative we make to form a differential

equation will determine the order of the differential equation.
if the equation have ordinary derivative then we call it ordinary
differential equation.
If the equation contains partial differential equations then we call it
partial differential equation.

dy
Example: =e 3 x is an ordinary differential equation
dx

∂2 y ∂ y
−
∂ x2 ∂ x
=x− y is a partial differential equation.

But in regards of our course we only try to see the ordinary differential
equation.
Order of differential equations
The order of differential equation is determined by the highest derivative
that shows up on the equation.
As an example let’s look at the above example
dy
: =e 3 x is a first order differential equation
dx

d 2 y dy
+ =x− y
d x 2 dx
is second order differential equation.

Degree of differential equations: the degree of the DE is determined by

the highest positive integer power (exponent) of the term that contains
the highest order derivative.
d5 y d3 y 6
Example: 5
+ 3 =x −1
dx d x
has the order of 5 and has a degree 1 because
the highest exponent of the highest order derivative is 1.
Linearity and nonlinearity of differential equations:
A differential equation is said to be linear if the following two
conditions are satisfied:
1) The dependent variable and its derivatives are all 1st degree.
2) There is no term involving the product of the dependent variable
and any order of its derivatives.
Example: y’’’+3y’+1=5 is not a linear differential equation
because it violates the first condition.
Y’+ yy’+3x=1 is not linear because it violates the
second condition.
Solutions of differential equations
Any function (involving the dependent variable and independent
variable) that satisfies the given DE is called the solution of
differential equations.
There are two types solutions of DEs
1 General solutions: a solutions which contains arbitrary
constants
 2 particular solutions: the solutions from arbitrary constants, i.e.
the particular solutions are obtained from general solutions by
assigning particular values to the arbitrary constants.
I) Separable differential equations
The differential equation is said to be separable if it can be written
in the form of:
G(y) dy =F(x) dx
Example: let’s check the following function is separable
y’+xy=xy2
Solution
y’=xy2 –xy = x(y2-y)
dy
=x ¿)
dx
dy
2 = xdx , so it is separable.
( y −y)

Initial value problem

The problem finding a function solution that satisfy the differential
equations and an initial value is called initial value theorem.
Example:
dy
=6 x−30 where y(0)=4
dx

Solution:
First let’s look at the initial value if x=0 the y=4
And let’s multiply the both sides of the equation by dx.
dx ( dydx )=( 6 x−30 ) dx
dy =( 6 x−30 ) dx
 Then we integrate both sides
∫ dy=∫ ( 6 x−30 ) dx
6 x2
y= −30 x
2

y=3 x 2−30 x +c (This is the general solution of the

initial value problem.
To find the particular solution, set x=0 and y=4 and solve for C
4=3 ( 0 )+ 30 ( 0 )+ c

With C=4 the particular solution of the above differential equation is

“ y=3 x 2 +30 x+ 4”

HOMOGENEOUS ORDINARY DIFFERENTIAL EQUATIONS

If we recall from chapter 1 a function f(x) is said to be homogeneous if
and only if f ( tx )=f (x)
The same principle applies to the homogeneous differential equations.
dy
dx
=f ( x ) is said to be homogenous if and only if f ( x ) is homogeneous

Example: let’s verify the following DE is homogeneous

dy
2 xy =x 2+ y 2
dx

dy x 2 + y 2
Solution: dx
=
2 xy
f ( x , y )=¿ ¿

Then let’s check the function is homogeneous

( t2 x2 +t 2 y 3 ) t 2 ( x 2+ y2 ) x2 + y 2
f ( tx , ty )= = = 2 xy
2t 2 xy t 2 2 xy

So the function is homogeneous so the DE is the homogeneous.

If a functions nonhomogeneous then the DE is Nonhomogeneous.

FIRST ORDER ORDINARY DIFFERENTIAL EQUATION WITH

CONSTATNT COEFFICIENT AND CONSTANT TERM
Now we have seen the basics of differential equation is lets proceed to
the general expressions of the Des.
dy
+u ( x ) y=w ( x)
dx
dy
Where U and W are two functions of x as is y, in contrast to dx , y,
however, no restriction what so ever is placed on the independent
variable X.
This last point leads us to a further classification. When the function u
(the coefficient of the dependent variable y) is a constant, and when the
function w is a constant additive term, (reduces to the special case of a
first-order linear differential equation with constant coefficient and
constant term.
Which leads us to the two sub-classification DEs.
The homogeneous differential equations’ case
If u and w are constant functions and if w happens to be identically zero,
will become
dy
+ ay=0
dx
Where a is some constant. This differential equation is said to be
homogeneous on account of the zero constant term (compare with
homogeneous-equation systems).

The defining characteristic of a homogeneous equation is that when

all the variables (here, dy/dt and y) are multiplied by a given constant,
the equation remains valid. This characteristic holds if the constant term
is zero, but will be lost if the constant term is not zero.

1 dy
=−a
y dx

Now to solve homogeneous equation first let y=vx

And the derivative of y is dy =xdv+ vdx

Now we substitute the above equations for y in the example equation
dy
Then ux
=−adx but dy =xdv+ vdx
xdv+ vdx
So vx
=−adx

xdv vdx
+ =−adx
xv vx
dv dx
We are left with v
+ =−adx
x

Then we integrate every term

dv dx
∫ = adx
v ∫ x ∫
+

Then ln |v|+ln |x|=−ax

By the rule of natural logarithms

ln |vx|=−ax
 To get the value of vx we set e raised to both sides of
the equation. Then we will be left with
vx=e−ax but
vx= y

So y= A e−ax(the general solution)

y= y ( 0 ) e
−at
the specific solution
There appears an arbitrary constant A; therefore it is & general
solution. When any particular value is substituted for the general
solution, the solution becomes a particular solution There is an infinite
number of particular solutions, one for each possible value of A,
including the value y(0), This latter value, however, has a special
significance: y(0) is the only value that can make the solution satisfy the
initial condition. Since this represents the result of defining the arbitrary
constant, we shall refer to as the definite solution of the differential
equation.
The nonhomogeneous case
When a nonzero constant takes the place of the zero in our general
formula, we have a nonhomogeneous linear differential equation.
dy
+ ay=b
dx

The solution of this equation will consist of the sum of two terms, one of
which is called the complementary function (which we shall denote by
yc), and the other known as the particular integral (to be denoted by y p,).
each of these has a significant economic interpretation. Here, we shall
present only the method of solution;
Even though our objective is to solve the nonhomogeneous equation,
frequently we shall have to refer to its homogeneous version, For
convenient reference, we call the latter the reduced equation. It turns
out that the complementary function yc. is nothing but the general
solution of the reduced equation, whereas the particular integral yp is
simply any particular solution of the complete equation.
Our discussion of the homogeneous case has already given us the
general solution of the reduced equation, and we may therefore write
y c= A e −ax

What about the particular integral? Since the particular integral is any
particular solution of the complete equation, we can first try the simplest
possible type of solution, namely, y being some constant (y = k). If y is a
dy
constant, then it follows that dx
=0, and

will become ay = b, with the solution y = b/a. Therefore, the

constant solution will work as long as a ≠ 0. In that case, we have
b
yp= a

The sum of the complementary function and the particular integral then
constitutes the general solution of the complete equation
y= y c+ y p

b
y= A e−ax +
a the is our general solution
b −ax b
[
y= y ( 0 )−
a]e +
a is our definite solution for nonhomogeneous DE.

FIRST ORDER ORDINARY DIFFERENTIAL EQUATIONS IN

CASE OF VARIABLE TERM AND VARIABLE COEFFICIENTS
In the more general case of a first-order linear differential equation
 dy
+u ( x ) y=w ( x )
dx

Where u(x) and w(x) represent a variable coefficient and a variable term,
respectively.
The homogeneous case
For the homogeneous case, where w(x) = 0, the solution is still easy to
obtain. Since the differential equation is in the form
dy
+u ( x )=0
dx
dy
=−u ( t ) dx
y

then we integrate both sides

ln ⁡∨ y∨¿+c=∫ −u ( t ) dx

then
ln | y|=∫ −u ( t ) dx−c

Then to obtain the general solution

y= A e∫
−u ( x ) dx
where A=e−c

The nonhomogeneous case

As compared with the general solution for the constant-coefficient case,
the only modification in is the replacement of the e−ax expression by the
more complicated expression e∫ −u ( x ) dx The rationale behind this change can
be better understood if we interpret the at term in e−at as an integral:
∫ adx=ax (plus a constant which can be absorbed into the A term, since e
raised to a constant power is again a constant). In this light, the
difference between the two general solutions in fact turns into a
similarity. For in both cases we are taking the coefficient of the v term in
the differential equation—a constant term a in one case, and a variable
term u in the other—and integrating that with respect to t, and then
taking the negative of the resulting integral as the exponent of e.
Once the general solution is obtained, it is a relatively simple matter to
get the definite solution with the help of an appropriate initial condition.
For the nonhomogeneous case, where w (x) ≠ 0 0, the solution is not as
easy to obtain. We shall try to find that solution via the concept of exact
differential equations, to be discussed in. It does no harm, however, to
state the result here first: Given the differential equation, the general
solution is
−u ( x ) dx udx
y ( x ) =e∫ ( A +∫ w e∫ )

Where A is an arbitrary constant that can be defined if we have an

appropriate initial condition.is of interest that this general solution, like
the solution in the constant-coefficient constant-term case, again consists
of two additive components. Furthermore, one of these two, A e∫−u ( x ) dx , is
nothing but the general solution of the reduced (homogeneous) equation,
derived earlier in the constant coefficient part of nonhomogeneous case,
and is therefore in the nature of a complementary function.

Difference equations
and
their economic application
In dynamic economics we might come across with to functions:
Which are f ( t )∧f t where f(t) generally refers to continuous function and f t
refers to discrete function.
The concept of discrete function on our case discrete time is described
by the method of iteration.
Iteration means repetition .and when we say iterative method we are
saying repetitive method to generate a sequence of outcomes. Lets
consider an example before we proceed
Example:
If “t” is the time period, ∆ t=1 means a change in time by 1 unit.
Let the current time be represented by “t”, the previous time by one
period is written as t−1
The next time by 1 unit is given byt+ 1 and so on
If ∆ y t is the change in “y” at a time period of “t” ,
We can write change of y as :
∆ y t = y t +1− y t and this is called the first difference
And ∆ y t +1= y t +2− y t+1
Then if we wan to find the two successive periods from t up to t+2 we
may write
∆ y t +1−∆ y t

∆ ( y t+1− y t )

∆ (∆ y t )

∆ 2 yt this is called the second

difference
Then the nth difference will be ∆ n y t
Equations involving such differences with such discrete time are called
difference equations.
Types of difference equations
 Linear difference equation
An equation that looks like
 y t =a0 + a1 y t −1+ a2 y t −2+ …+a n y t −n where the degree of each term is zero or
one.
 Rational difference equation
It has a form
a xt + b
x t +1=
c x t +d
where a , b, c and d are real numbers
 matrix difference equations
it has a form
y t =A y t +1+ B where A and B are two by two matrices or vectors.
Analogous to differential equations, difference equations can be
either linear or nonlinear, homogeneous or nonhomogeneous, and
of the first or second (or higher) orders.

Solutions of difference equations

In solving a differential equation, our objective was to find a time path
y(t). As we know, such a time path is a function of time which is totally
free from any derivative (or differential) expressions and which is
perfectly consistent with the given differential equation as well as with
its initial conditions. The time path we seek from a difference equation is
similar in nature. Again, it should be a function of t-a formula defining
the values of y in every time period—which is consistent with the given
difference equation as well as with its initial conditions. Besides, it must
not contain any difference expressions such as∆ y t ,
Now in search of the solutions of the difference equation we are going to
encounter with two types of function the one is the particular integral(PI)
the other is the complementary function(CF)
The particular integral show of the static status of the discrete function
where will be no change in time.
Where as the complementary functions shows us the dynamic status of
the discrete time.
Lets consider y t +1 +a1 y t=b and now lets find the particular integral.
As we have said before PI describes the static status of the function so
There is no change in time which means
y t +1= y t = y p yp means y at particular
Then we insert the above statement at the difference equation
y p +a 1 y p=b

b
Then y at particular is given by y p=
1+a1 this is the particular integral.

But solving for the complementary function we actually consider the

homogenous part. that is the 1st condition
So our equation becomes
y t +1 +a1 y t=0

The 2nd condition we consider is that the trial condition which says
y t =A bt and y t +1= A b t+1

So we solve the equation

A bt +1 + a1 A bt =0
And we solve to find b
A bt ( b+a1 ) =0

The we are left with b=−a 1 because A bt our trial condition coud not
equal zero
Now the complementary solution would look like
yc= A bt we substitute the b value
 y c = A (−a)t and our general
solution would look like yt = y p + yc

b
yt = + A(−a)t this is the general solution
1+ a1
of our equation

Economic application of difference equation

The cobweb model
The cobweb model or cobweb theory is an economic model that explains
why prices might be subject to periodic fluctuations in certain types of
markets.
Lets for instance have a demand function of d t =α + β y t and a supply
function of st =δ + θ y t−1
Now at equilibrium supply and demand are equal which means
α + β y t =δ + θ y t−1

Rearranging this equation will give us typical difference equation

β y t−θ y t −1=δ −α

Now to solve this equation as we have seen above we need the particular
integral and complementary function which are nonhomogeneous and
homogeneous respectively.
Lets find PI first
y p= y t−1= y t so
β y p +θ y p =δ −α

δ−α
Solving for yp y p=
β +θ

The lets solve for the complementary function

Then we need the function set to the zero because we want it to be
homogeneous.
Lets have our trial condition
y t =Ab t and y t −1 =A bt −1

Lets insert the 2 conditions on our difference equation

β ( A bt ) −θ ( A bt −1) =0

When we solve this we are left with

A bt ( β−θ b−1 ) =0 our trial equation couldn’t be zero so
−1
β−θ b =0
θ
β=
b
& then b= θβ

When we insert this in to the trial equation we get

θ t
yc= A ( ) to find the general solution
β
y t = y c+ y p

θ t δ −α
y t =A ( ) + β +θ
β

The interpretation of this solution is that a price fluctuations can lead to

fluctuations in supply which cause a cycle of rising and falling prices.
And this creates and oscillation on the model which causes iteration.

Thank you