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Quantitative Methods

Lectures: Mondays and Wednesdays 11:3012:50

Rooms: K38 Monday and E37 Wednesday.
Instructor: Carlos Ponce.
Office hours: TBA

Teaching Assistant: Carlos Cortez
Recitation: Tuesdays 13:30-14:50
Room: E54.
Office Hours: TBA
Course Description
The objective of the course is expose students to the uses of mathematics in
economics. We will approach mathematics as a way of demonstrating relationships
and formalizing concepts.
Midterms: Last week of September and last week of November.
Final exam: TBA
Homework: Approximately five problem sets will be distributed in class every three
weeks or so, depending on lecture progress.
Grading: A students overall grade will be calculated as follows:

Overall = 0.4 midterm average + 0.3 final + 0.3 homework average

There is no mandatory book for this course. Students with different backgrounds will
be able to choose a book with the most suitable level of exposition. The following is a
list of some books in alphabetic order:

1. Carter, M. Foundations of Mathematical Economics. (Harlow: Pearson Prentice
Hall, 2011, 3rd Edition). A comprehensive and long book that integrates exercises
and economic applications for microeconomic. Very hard reading for master

2. Dixit, A.K. Optimization in economics theory. (Oxford: Oxford University Press,
1990). This textbook covers the essentials of optimization in a very intuitive manner.
It also offers many useful examples.

3. Jehle, G. and P. Reny. Advanced-Microeconomic Theory. (MIT Press:
Cambridge, Massachusetts London, England, 2001). An excellent short book for
microeconomics. It contains a very clear and well-ordered appendix that includes
much of the material covered in this course.

4. Rangarajan, S. A first course in optimization theory. (Cambridge: Cambridge
University Press, 1996). A very rigorous and advanced book although startlingly
clear. It has an excellent treatment of dynamic programming.

5. Simon, C.P. and L. Blume. Mathematics for economists. (New York: W.W
Norton, 1994). A voluminous book that covers most of the standard topics in
mathematical economics but for dynamic programming. The level of difficulty is in
between the two books listed below.

6. Sydster, K., P. Hammond and A. Strm. Essential Mathematics for Economic
Analysis. (Harlow: Pearson Prentice Hall, 2012, 4th Edition). A useful review of
basic math with applications to economic analysis.

7. Sydster, K., P. Hammond, A. Seierstad and A. Strm. Further mathematics for
economic analysis. (Harlow: Pearson Prentice Hall, 2008, 2nd Edition). This book
covers every topic of the course. The book is harder to read than the previous one.

Tentative Outline

1. Preliminaries. Optimization Problems: A presentation. Sets, Euclidean spaces and
functions. Economics examples: consumer and producer theory. 2 Lectures.

2. Functions and Related Sets. Inner product in Euclidean spaces. Level sets,
upper and lower level sets of functions. Linear functions. Lines, planes and
hyperplanes. Convex sets and convex cones. Economics examples: indifference
curves, better and worse sets, and constant returns to scale. 4 lectures.

3. Basic Analysis. Norm and distance in Euclidean spaces. Open sets, closed sets,
and compact sets. Continuous functions. Extreme value theorem. Differentiable
functions. Homogeneous and homothetic functions. Economics examples. 5 lectures.

4. Unconstrained Optimization. Definitions and first order conditions. Second
order conditions. Convex functions: Uniqueness and sufficient conditions. Optimal
value function and envelope theorem. Implicit functions and comparative statics.
Economic examples. 4 lectures.

5. Constrained Optimization I. Equality Constraints. The theorem of Lagrange.
Second order conditions. Convexity and sufficient conditions. Economic
interpretation of the Lagrange multipliers. Value function and envelope theorem.
Implicit function and comparative statics. Economic examples. 5 lectures.

6. Constrained Optimization II. Inequality constraints. The theorem of Kuhn-
Tucker. Second order conditions. Convex and quasi-convex functions: Uniqueness
and sufficient conditions. Interpretation of the multipliers. Value function and
envelope theorem. Implicit function and comparative statics. 6 lectures.

7. Discrete Time Optimization. Dynamic Programming: Finite and infinite
horizon. Histories and strategies: Markovian strategies and value functions. The
principle of optimality, backwards induction and Bellman equation. 5 lectures.