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SCHOOL OF ORIENTAL AND AFRICAN STUDIES

(University of London)
DEPARTMENT OF ECONOMICS

2010/11

QUANTITATIVE METHODS FOR ECONOMISTS


15 340 0121
This is a core course for students taking a single-subject economics degree, and
compulsory for students taking single-subject development economics degree and two
subject economics degree, whether taken in first or second year. Introduction to
Quantitative Methods for Economists (15 340 0120) is a prerequisite for this course if
taken in year 2. Students with A level mathematics or equivalent may be permitted to take
this course in Year 1, subject to the year tutors approval. It is a pre-requisite for
Econometrics.
Course Aims: To provide an introduction to the mathematical and statistical methods
used in undergraduate courses in economics, and to provide applications of these
methods to economic analysis.
Lecturer

Satoshi MIYAMURA (Office: 4525, Email: sm97@soas.ac.uk)

Tutors

Neha Batura (Email: 240393@soas.ac.uk)


Luigi Maria Antonio Ventimiglia Di Monteforte (Email: 162031@soas.ac.uk)

Lectures

There is a two-hour lecture each week.

Tutorials

Each week, there is a one-hour tutorial.

Assignments Exercises will be handed out weekly during lectures and will be solved
during tutorials. Although they are not assessed, you are strongly advised
to answer all of the questions.
Blackboard

This course is participating in the Schools Virtual Learning Environment


(VLE) project. Students will receive instruction on the course shell in the
introduction session.

Calculators

An electronic calculator will be helpful for parts of this course. Provided


your calculator cannot store text, you may use it in the final examination in
May/June, stating the type of calculator on your answer book.

Assessment There will be an examination of 3 hours duration to be held in May/June,


which will account for 100% of the final grade.

Outline Updated: September 2010

QUANTITATIVE METHODS FOR ECONOMISTS


Reading List:
The topics listed in this course outline are covered in almost all introductory mathematics
and statistics textbooks for economists. The following are some recommended books you
may refer to for the course:
Mathematics:
The principal textbook is

Chiang, A. C. and K. Wainwright (2005) Fundamental Methods of Mathematical
Economics, Forth Edition. McGraw-Hill.
This textbook covers all the required topics in introductory and intermediate level
mathematical economics with rigor and detail. However students with less exposure to
mathematics may find some of the expositions difficult.
The following books are also useful

Bradley, T. (2008) Essential Mathematics for Economics and Business, 3rd
Edition, John Wiley.

Jacques, I. (2009) Mathematics for Economics and Business, 6th Edition, Prentice
Hall.

Renshaw, G. (2009) Maths for Economics, 2nd Edition, Oxford U.P.

Thomas, R. L. (1999) Using Mathematics in Economics, 2nd Edition. AddisonWesley.
These textbooks are popular amongst students, because of the more accessible
exposition in explaining mathematical techniques. However the books only cover part of
the material on matrix algebra that is required for this course.


Dowling, E. T. (2000) Introduction to Mathematical Economics, Schaums


Outlines, 3rd Edition. McGraw-Hill.
This textbook provides problems with step-by-step detailed solution. While it may not be
sufficient as a stand-alone textbook, it is a useful supplementary source for exercise and
revision.



Abadir, K. M. and J. R. Magnus (2005) Matrix Algebra, Cambridge U. P.


Werner, F. and Y. N. Sotskov (2006) Mathematics for Economics and Business,
Routledge.
This book offers a comprehensive overview of matrix algebra with exercises; ideal for
further problem solving and revision.

Statistics:
The principal textbook is

Gujarati, D. and D. C. Porter (2010) Essentials of Econometrics, 4th Edition,
McGraw Hill.
This textbook covers most of the required topics in introductory level statistics and
econometrics, with the exception of the topics on index numbers.


Bancroft, G. and G. OSullivan (1993) Quantitative Methods for Accounting and


Business Studies, 3rd edition, McGraw-Hill.

Barrow, M. (2009) Statistics for Economics Accounting and Business Studies, 5th
Edition, Prentice-Hall.
These two textbooks provide an excellent introduction to index numbers and statistical
tools for the analysis of inequality, which we discuss in topic 7 and cannot be found in
other comparable textbooks. It also provides an accessible overview of some of the
introductory statistical materials.

Kmenta, J. (1990) Elements of Econometrics, 2nd Edition (New York: Macmillan).
This is a textbook with a slightly more technical exposition, which would be useful for
some of the algebraic proofs and derivations of statistical theorems.

McClave, J. T., P. G. Benson and T. Sincich (2005) Statistics for Business and
Economics, 9th ed., NJ: Pearson Prentice-Hall.

Newbold, P., W. L. Carlson, and B. Thorne (2009) Statistics for Business and
Economics, 7th ed., London: Prentice-Hall.

Sharpe, N. R., R. D. De Veaux, P. F. Velleman (2010) Business Statistics,
Pearson.

Thomas, R. L. (2005) Using Statistics in Economics, London: McGraw-Hill.

Wonnacott, T. H. and R. J. Wonnacott (1990) Introductory Statistics, 5th ed., John
Wiley & Sons.
These textbooks are of a similar technical level to Gujarati, but with different styles and
presentations, and can be used as a good substitute to the principle textbook for those
who might find it less accessible.


Lipschutz, S. and J. Schiller (1998) Introduction to Probability and Statistics,


Schaums Outlines, McGraw-Hill.

Salvatore, D. and D. Reagle (2002) Statistics and Econometrics, 2nd edition,
Shaums Outlines, McGraw-Hill.
Just like Dowling for the maths part, this textbook provides problems with step-by-step
detailed solution and would be a useful supplementary source for exercise and revision.
Quantitative Methods for Economists- Weekly Lecture Plan
Term 1
Mathematics (6 weeks)
1 & 2. Linear (Matrix) algebra
3.
Calculus.
4.
Optimization.
5.
Constrained Optimization.
(Reading week)
6.
Integration
Statistics and econometrics (14 weeks)
7.
Index numbers
8.
Probability
9.& 10. Probability distributions I

Objectives and learning outcomes of the course


On successful completion of the course, you should be able to:
use matrices for simple manipulations
solve system of equations using matrix algebra
use Jacobian determinants to test for functional dependence
demonstrate understanding of, derivatives, rules of differentiation, partial
derivatives, total differential, higher order derivatives, their uses and applications
find unconstrained and constrained optima and use these techniques to solve
problems in economics.
understand indefinite and definite integrals and apply them to economic problems.
use index numbers to describe changes in prices and quantity
use Lorentz curve and Gini coefficient to describe inequality
explain basic concepts in probability theory including, but not restricted to,
experiment, population or sample space, sample point, event, mutually exclusive,
equally likely and collectively exhaustive events, random variable, discrete and
continuous random variable, probability, probability distribution or probability
density function (PDF), statistical independence
use characteristics or moments of PDF including, but not restricted to expected
value, variance and standard deviation, skewness and kurtosis, covariance,
coefficient of correlation, conditional and unconditional expectation
use population parameters and sample estimators including, but not restricted to
sample mean, sample variance, sample standard deviation, sample covariance,
sample correlation, sample skewness and sample kurtosis
demonstrate understanding of and ability to use normal distribution, chi-square, t
and F distributions
explain the sampling distribution of an estimator (e.g. the sample mean)
demonstrate understanding of and ability to use point and interval estimation and
hypothesis testing
explain the method of ordinary least squares (OLS) and use it to estimate
regression coefficients
interpret and critically evaluate econometric results
demonstrate understanding of measures of goodness of fit including their uses
and limitations
explain the assumptions of the classical linear regression model
use hypothesis test on regression coefficients

Lecture Plan
Term 1 Mathematics (6 weeks)
1 & 2. Linear (Matrix) algebra
Matrix, Elements of a matrix, Dimension, Row vector, Column vector, Scalar.
Equality of matrices, Addition, subtraction, scalar multiplication, matrix
multiplication, conformable matrices, rules of matrix operations. Transpose,
Properties of transpose, Symmetry, Identity matrix, Null matrix, Diagonal matrix,
Idempotent matrix. Quadratic form, Positive definite and negative definite
matrices. Determinants, minors, cofactors. Properties of determinants, nonsingular and singular matrices. Linear dependence and independence, rank of a
matrix, non-singular and singular matrices. Inversion, properties of inverse,
solution to a system of non-homogenous linear equations. Cramers rule.
Readings:
 Abadir, K. M. and J. R. Magnus (2005) Matrix Algebra, Cambridge.
 Chiang, A. C. and K. Wainwright (2005) Fundamental Methods of
Mathematical Economics, Forth Edition. McGraw-Hill. Chapter 4 and 5.
 Dowling, E. T. (2000) Introduction to Mathematical Economics, Third
Edition. McGraw-Hill. Chapters 10-12.
 Jacques (2009) Mathematics for Economics and Business, Sixth Edition.
Prentice-Hall. Chapter 7.
 Thomas, R. L. (1999) Using Mathematics in Economics, Second Edition.
Addison-Wesley. Chapter 17.
3.

Calculus.
Revision of differentiation for functions of single variable; Revision of partial
differentiation; Jacobian determinants; Revision of differentials, rules of
differentials, total derivatives.
Readings:
 Chiang, A. C. and K. Wainwright (2005) Chapters 6-8
 Dowling (2001) Chapters 3-9.
 Jacques (2009) Chapter 4-5.
 Thomas (1999) Chapters 7-8.
 Also on the basic concept of differentiation, see Caroline Dinwiddy (1967)
Elementary Mathematics for Economists, Oxford University Press.

4.

Optimization.
Relative extrema of a function of one choice variable, first derivative test for a
relative extremum, second derivative test, necessary versus sufficient conditions,
inflection points, nth derivative test for relative extrema or inflection points.
Optimum values of functions containing two or more choice variables, first-order
conditions, sufficiency and necessity, economic applications.
Readings:
 Chiang, A. C. and K. Wainwright (2005) Chapters 9 and 11.
 Dowling (2001) Chapter 6.
 Thomas (1999) Chapters 10-12.
 Jacques (2009) Chapter 5.

5.

Constrained Optimization.
General statement of constrained optimization. Solutions by direct substitution and
the Lagrange multiplier method, Interpretation of the Lagrangian multipliers,
Comparative static applications. Second order conditions, bordered Hessian.
Readings:

 Chiang, A. C. and K. Wainwright (2005) Chapter 12.


 Dowling (2001) Chapter 6.
 Jacques (2009) Chapter 5 and Appendix 3.
 Thomas (1999) Chapter 12.
Note that Dowling and Thomas does not cover determinantal tests, which should
be complemented with other texts.
6.

(Term 1 week 7) Integration


Indefinite integral; Rules of integration; Economic applications of indefinite
integration; Definite integral; Economic applications of definite integration:
Consumers and producers surplus
Readings:
 Chiang, A. C. and K. Wainwright (2005) Chapter 14.
 Dowling (2001) Chapters 14 and 15.
 Jacques (2009) Chapter 6.
 Thomas (1999) Chapter 9.

Statistics and econometrics (14 weeks)


7.

(Week 8) Index numbers


Simple indices: price relatives, quantity relatives, value index, aggregated indices
Weighted indices: Laspeyres and Paasche indices
Applications: Comparison of index values using different base dates; Index
numbers as deflators
Lorenz curves and Gini coefficient
Readings:
 Bancroft, G. and G. OSullivan (1993) Quantitative Methods for Accounting
and Business Studies, Third edition (McGraw-Hill), chs. 7 and 11.
 Barrow, M. (2009) Statistics for Economics, Accounting and Business
Studies, Fifth edition (London: Longman), ch.10.
 McClave, J. T., P. G. Benson and T. Sincich (2005) Statistics for Business
and Economics, 9th ed., NJ: Pearson Prentice-Hall, section 15.1 (Index
numbers).
 Newbold, P., W. L. Carlson, and B. Thorne (2009) Statistics for Business
and Economics, 7th ed., London: Prentice-Hall, section 16.1 (Index
numbers).

8.

(Week 9) Probability
Random variable and probability distribution function (p.d.f.); Discrete and
continuous r.v.; Statistical independence
Readings
 Gujarati (2010, 4/d) Appendix A; (2006/1999) Chapter 2.
 Kmenta (1997) Chapter 3.
 McClave, J. T., P. G. Benson and T. Sincich (2005), chs. 3-4.
 Newbold, P., W. L. Carlson, and B. Thorne (2009), chs. 3-5.
 Thomas (2005) Prerequisites, pp.19-28.

9 & 10. (Week 10 & 11) Characteristics of probability distributions


Population and sample, parameter and estimator; Expected value (population
mean); Variance; Covariance; Correlation coefficient; Conditional expectation;
Other moments.
Readings
 Gujarati (2010, 4/d) Appendix B; (2006, 3/e) Chapter 3; (1999, 2/e)
Chapter 2.
 Kmenta (1997) Chapters 1-4.
 McClave, J. T., P. G. Benson and T. Sincich (2005), ch. 2.
 Newbold, P., W. L. Carlson, and B. Thorne (2009), ch. 4.
 Thomas (2005) Chapter 1; also see Prereqisites, pp.1-19.

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