ECO604 Mathematical Economics

Instructor: Prof Shulin Liu

Office: #726 Keyan Building
Phone: 64494081
Email: slliu258@163.com
Office Hours: Friday, 14:00~16:00
Session: Fall 2017
Credits: 3
Class Date & Time: Thursday, 9:50~12:10
Classrooms: B1303

Course Description

This course will be the student's first exposure to integrating sophisticated mathematical
models with economic theory. The focus of the course is on
Differential techniques and optimization theory with and without constraints with
application to microeconomic theory including comparative static economics, utility and
profit maximization, expenditure and cost minimization, etc
dynamic optimization with applications to macroeconomic theory,
Matrix algebra with application to statics equilibrium analysis such as market and
national-income models (optional)
This course is designed to introduce the student to, and give the student hands on experience
with, a wide range of mathematical techniques used in PhD level economics courses. The
course will extensively employ algebra and advanced calculus, although there will be a review
of basic techniques such as differentiation as these skills are required. This course can help to
learn both advanced microeconomic theory and macroeconomic theory.

Prerequisites: Calculus and linear algebra

Textbook

Alpha C. Chiang and Kevin Wainwright, Fundamental Methods of Mathematical Economics

(4th Edition), 2005, McGraw Hill, ISBN: 0071238239.

Learning Outcomes

At the end of the course students should be able to

1. Demonstrate their understanding of the mathematical methods for economists including
differential techniques, matrix algebra (optional), unconstrained (free) and constrained
optimization techniques including envelop theories, differential equation(s).

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 2. use the above mathematical methods to make static (equilibrium) analysis and
comparative static analysis for some economic models including market and
National-Income models.
3. use the above mathematical methods to solve utility and profit maximization problem,
cost and expenditure minimization.
4. use the above mathematical methods to determine whether a function is concave or
convex, homogeneous or homothetic.
5. demonstrate their understanding of the mathematical methods for economists including
differential equation, a system of differential equations including phase diagram, and
dynamical optimization with their applications in macroeconomic theory (this depends
if we have some time and how well you know about math).

Course Content
Section I. Review of finding derivatives and differentials of single variable functions
Section II. Applications of finding derivatives and differentials to math
Section III. Applications of finding derivatives and differentials to ECON
Section IV. Review of finding partial derivatives and total differentials, total derivatives of multivariate
variable functions
Section V Applications of finding partial derivatives and total differentials to math
Section VI. Applications of finding partial derivatives and total differentials to ECON
Part VII Dynamics optimization with applications to macroeconomic theory1

Course Schedule (14 weeks)

The schedule maybe changed based on your understanding of the lectures and
background of math.

Week Sections Note

I. Review of finding derivatives and
1 differentials of single variable functions
Ref: Sections 7.1, 7.2, 7.3, 8.1, 8.3, 9.3
II. Applications of finding derivatives and
2 differentials to math
Ref: Sections 9.1, 9.2, 9.4, 9.5
III. Applications of finding derivatives and
3 differentials to ECON
Ref: Sections 7.2, 8.1, 9.2, 9.4
Constant rule, power rule, sum rule,
difference rule, quotient rule, product rule,
chain rule, etc.
where the function is increasing or
decreasing; where the function is concave or
convex; where do the relative extrema
occur? (first derivative test in 9.2 and
second derivative test in 9.4) Taylor
expansion of an arbitrary function and
linearly approximates of nonlinear functions
of single variable (9.5)
Marginal cost (revenue, profit) (7.1);
elasticity (8.1); total function, marginal
function, average function (9.2);
upward-slope marginal-revenue curve (9.4);
profit maximization (9.4)

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I will try to cover some main dynamic optimization methods with their applications to advanced macroeconomic theory if
we can squeeze some time. Whether we can squeeze some time depends on how well you know about math.

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 IV. Review of finding partial derivatives and
total differentials, total derivatives of
Closely related to Section I
multivariate variable functions
Ref: Sections 7.4, 8.2, 8.3, 8.4

V. Applications of partial derivatives and

5.1 Linearly approximates of nonlinear
total differentials to math
functions of two or more than two variables
Ref: None
V. Applications of partial derivatives and
5.2 Implicit function theorem (Section 8.5)
4 total differentials to math (contd)
5.3 quadratic forms (Section 11.3)
Ref: Sections 8.5, 11.3
5.4 multivariable concave (convex) function
V. Applications of partial derivatives and
and (Section 11.5);
5 total differentials to math (contd); Ref:
5.5 Unconstrained optimization (Section
Sections 11.4, 11.5
11.4)
V. Applications of partial derivatives and
5.6 Constrained optimization (Sections 12.2,
6 total differentials to math (contd) Ref:
12.3)
Sections 12.2, 12.3
V. Applications of partial derivatives and 5.7 Comparative static analysis (Ref:
7
total differentials to ECON Sections 7.5 and 8.6)
8 Mid term Cover Sections I to V
VI. Applications of partial derivatives and
9 total differentials to ECON (contd). Case: 6.1: Sections 11.6 and 11.7
unconstrained opt
VI. Applications of partial derivatives and
6.2 Utility maximization (Ref: Section 12.5)
10 total differentials to ECON (contd) Case:
6.3 Expenditure minimization (lecture note)
Constrained opt
VI. Applications of partial derivatives and
6.4 Profit maximization (lecture note)
11 total differentials to ECON (contd) Case:
6.5 Cost minimization (lecture note)
Constrained opt
7.1 Dynamical optimization in discrete time
12 VII. dynamic optimization with applications
with applications: Bellman equation
7.2 System of differential equations and
VII. dynamic optimization with applications
13 Phase diagram with applications (Sections
(contd)
19.5, 19.6);
7.3 Dynamical optimization in continuous
time with applications: variational
VII. dynamic optimization with applications
14 method and Euler equation; optimal
(contd)
control, Pontryagins maximum principle,
and Hamiltonian function (Chap 20)
15 Final Exam Cover Section VI

Course policies

Homework Policy: Homework will be assigned for each section during every class. The
homework for each Section is supposed to be submitted by the end of that
section. It is ESSENTIAL to your success in the course that you do the
homework regularly and on time. No makeup homework is permitted. Your
homework will be checked and marked. After you submit your homework, I
will upload the answer to it into our public email box

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Attendance Policy: You are expected to attend every class. If a class is missed, the student is
responsible for all material, assignments and announcements. Every student is
supposed to put his/her signature on the attendance record for each class. Your
attendance will be graded based on the number of times youve attended my
class at the end of term. If you attend all the class, you will get 12 points.
Mid Exam Policy: No make-up mid exam is permitted.
Final Exam Policy: No make-up final exam is permitted.
Attendance: 5 absences lead to a failure.

Grading Procedure

Regular homework: 24%

We will collect a total of six homework. One homework for one section. 4 points for one
homework
Attendance: 13%
One point for one signature
Mid-term exam: 32% (There will be a 2.5 hours final exam, cover sections I ~ V).
Final Exam: 31% (There will be a 2.5 hours final exam, cover section VI)
Final Score: is computed as
total number of times you submit the HW / 6 * 24 ( 24 po int s )
total number of times you attend the class / 13 *13 (13 po int s )
total po int s for the Mid Exam you obtain (32 po int s )
po int s for the final exam (31 po int s )

Important Dates

Mid Exam: to be announced

Final Exam: to be announced

Getting Help

If you find that you are having difficulty with any aspect of the course, you can meet me at my
office hours to seek help. You should try to provide as much information as possible in your
help request. For example, you should at least describe how you attempted the problem and at
least guess where you might be going wrong.
The instructor will be holding during office hours in his office.