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Quantitative Methods For Economists
Quantitative Methods For Economists
Quantitative Methods For Economists
(University of London)
DEPARTMENT OF ECONOMICS 2010/11
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 tutor’s approval. It is a pre-requisite for
Econometrics.
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.
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.
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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.
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.
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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.
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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
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Lecture Plan
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:
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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.
Readings:
Chiang, A. C. and K. Wainwright (2005) Chapter 14.
Dowling (2001) Chapters 14 and 15.
Jacques (2009) Chapter 6.
Thomas (1999) Chapter 9.
Readings:
Bancroft, G. and G. O’Sullivan (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.
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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.