Lahore University of Management Sciences

ECON 262 Mathematical Applications in Economics

Spring Semester 2014


Instructor Kiran Arooj
Room No. 253
Office Hours TBA
Email kiran.naseer@lums.edu.pk
Telephone -
Secretary/TA TBA
TA Office Hours TBA
Course URL (if any) -

Course Basics
Credit Hours 4
Lecture(s) Nbr of Lec(s) Per Week 2 Duration 110 minutes
Recitation/Lab (per week) Nbr of Lec(s) Per Week None Duration -
Tutorial (per week) Nbr of Lec(s) Per Week None Duration -

Course Distribution
Core None
Elective Elective
Open for Student Category All
Close for Student Category None

COURSE DESCRIPTION

While an economic model is a theoretical framework and need not necessarily be mathematical, a non-mathematical approach has
severe limitations when analyzing any even moderately complex economic situation. Thus there is a need to study mathematical
methods vis--vis their applications in economics.

This course provides instruction in basic tools of mathematical economics and their applications to economic analysis. Techniques
discussed include elementary algebra, linear algebra, single and multivariable calculus, optimization, equilibrium analysis,
comparative static analysis and dynamic optimization. Depth of treatment of each topic will vary according to our needs.


COURSE PREREQUISITE(S)




Calculus I
Principles of Microeconomics

COURSE OBJECTIVES





Boost the students ability to understand economic reasoning using basic mathematical tools and to understand the
link between mathematics and economics.





Lahore University of Management Sciences



Learning Outcomes





Have a complete grasp over mathematical concepts used in economics.
Ability to use mathematical concepts for problem solving in economic models.
Grading Breakup and Policy


Quiz(s): 30% (4 quizzes)
Midterm Examination: 30%
Final Examination: 40%


Examination Detail
Midterm
Exam

Yes/No: Yes
Combine Separate: Combined
Duration: 2 hours
Preferred Date: TBA
Exam Specifications: Closed books and notes, help sheet not allowed, calculator usage allowed

Final Exam

Yes/No: Yes
Combine Separate: Combined
Duration: 2 hours
Exam Specifications: Closed books and notes, help sheet not allowed, calculator usage allowed


COURSE OVERVIEW
Module Topics
Recommended
Readings
Objectives/
Application
1
One Variable
Calculus
Types of functions, composition of
functions, inverse functions, slope of linear
and nonlinear functions, differentiability
and continuity, higher order derivatives,
convexity and concavity, critical points.

An overview of applications to production,
cost, revenue, profit, demand functions and
elasticity.

Log and exponent functions, their
properties and logarithmic derivative.

Carl P. Simon and Lawrence
Blume, Mathematics for
Economists; W W Norton, 1994.
Chapters 2, 3, 4 and 5
Understand the application of
differentiation, logs and
exponents in economics.
2
Linear
Algebra
Elementary matrix operations, laws of
matrix algebra, elementary row operations,
rank of a matrix, linear independence,
special kinds of matrices, algebra of square
matrices, determinants, inverse of a matrix,
solving linear systems using Cramers rule
and ISLM analysis via Cramers rule.

Carl P. Simon and Lawrence
Blume, Mathematics for
Economists; W W Norton, 1994.
Chapters 8 and 9
Apply linear algebra concepts in
economic models.




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3
Multivariate
Calculus

Functions of several variables, level
curves, isoquants, isoprofit lines,
indifference curves, linear functions and
matrix representation of the quadratic
form.

Partial differentiation and its applications
including marginal utility, marginal
productivity and elasticity, total derivative
as a form of linearization, Hessian matrix
and Youngs Theorem, implicit functions
and nonlinear systems.


Carl P. Simon and Lawrence
Blume, Mathematics for
Economists; W W Norton, 1994.
Chapters 13, 14 and 15


Grasp the techniques of
multivariate calculus and learn to
apply them in economic problems

4
Optimization
Techniques
Hessian matrix, definiteness, semi-
definiteness, bordered matrices, concave
and convex functions.

Unconstrained optimization: sufficient and
necessary conditions, global maxima and
minima, application to profit
maximization, discriminating monopolist
and least squares.

Constrained optimization: Types of
constraints, Lagrange multiplier, solving
models with several equality constraints,
solving models with inequality constraints.

Application to utility and demand, profit
and cost and pareto-optimum.


Carl P. Simon and Lawrence
Blume, Mathematics for
Economists; W W Norton, 1994.
Chapters 16, 17, 18, 19, 20, 21
and 22
Use optimization techniques to
solve maximization and
minimization problems in
economics.
5
Dynamical
Systems
Eigenvalues and Eigenvectors: finding
Eigenvalues and Eigenvectors, their
properties, difference equations,
diagnolization.

Ordinary Differential Equations: solving
linear first order and second order
differential equations, homogenous and
non-homogenous equations, phase
diagrams and stability conditions and
application to the Solow growth model.

Systems of Differential Equations: Solving
linear systems via Eigenvalues and
substitutions, steady states and their
stability, phase diagrams.


Carl P. Simon and Lawrence
Blume, Mathematics for
Economists; W W Norton, 1994.
Chapter 23

Alpha C. Chiang and Kevin
Wainwright, Fundamental
Methods of Mathematical
Economics, Fourth Edition.
Chapter 15 and 16

Brian S. Ferguson and G.C. Lim,
Introduction to Dynamic
Economic Models, Manchester
University Press, 1998.
Chapter 4
Understand the application of
differential equations in
economics







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Textbook(s)/Supplementary Readings
Principle Text:
Carl P. Simon and Lawrence Blume, Mathematics for Economists; W W Norton, 1994.

Supplementary Text:
Alpha C. Chiang and Kevin Wainwright, Fundamental Methods of Mathematical Economics, Fourth Edition.

Brian S. Ferguson and G.C. Lim, Introduction to Dynamic Economic Models, Manchester University Press, 1998.