GC UNIVERSITY LAHORE

DEPARTMENT OF ECONOMICS
Program: B.Sc. Hons Economics
Course Title: Advanced Mathematical Economics
Course Code: ECON 3105
Year: III
Semester: VI
Course Duration: One Semester (16 weeks of Study)
Credit Hours: 03
Instructor: Dr. Farhan Ali

Course Description:
This course presents concepts and applications of mathematics in the discipline of economics.
It introduces the intermediate level of mathematical economics and takes it to an advanced
level. The purpose of this course is to provide a comprehensive exposition of basic
mathematical instruments that are commonly used in all fields of economics -
microeconomics, macroeconomics, econometrics, international trade and finance, public
finance, money and banking, resource and environmental economics, urban and regional
economics, labour and human resources, and industrial
organization. Methods of Static Analysis, Comparative Static Analysis, and Optimization will
be introduced.
The primary emphasis is on illustrating how these tools can be used to analyze theoretical and
practical economic problems which arise in the behaviours of households, firms, and markets.
To ensure homogeneity of the student background, the prerequisites of this course will be
enforced.

Prerequisites Course(s): Micro & Macro Economics.

Co-Requisite Course(s): Elementary Mathematics and Basic Mathematical Economics

Topic 1: Dynamic Analysis: Integral Calculus

Dynamics and Integration. The Nature of Indefinite Integrals, Basic Rules of Integrations &
Rules of Operation. The Substitution Rule and the Rule of Integration by Parts. Definite
Integrals. Significant Properties of Definite Integral. A Definite Integral as an Area Under a

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DEPARTMENT OF ECONOMICS
Curve. Improper Integrals. Economic Applications of Integrals – Finding Total Functions
from Marginal Functions, Investment & Capital Formation, Present Value of Cash Flow.
Present Value of a Perpetual Flow, Domar Growth Model.

Topic 2: Differential Equations: Continuous Time: First-Order Linear Differential

Equations
Meaning and Definition; Homogenous & non-Homogenous Cases. Solution of First Order
Linear Differential Equation with Constant Coefficient & Constant Term and its Verification.
Economic Application: Dynamics of Market Price. Key and its Verification of First Order
Differential Equation with Variable Coefficient and Variable Term. Exact Differential
Equation, its Solution and Verification. Nonlinear Differential Equations of the First Order
and First Degree. Bernoulli Equation, Separable Variables. The Qualitative Graphic
Approach. Concept of Phase Diagram, types of Time Paths and their Dynamic Stability.
Economic Application: Solow Growth Model.

Topic 3: Differential Equations: Higher Order Differential Equations

Solution and Verification of Second-order Linear Differential Equations with Constant
Coefficient and Constant term-Distinct Real Roots, Repeated Real Roots and Complex Root
Cases. Dynamic Stability of Equilibrium. Economic Applications. A Market Model with
Price Expectations. The Interaction of Inflation and Unemployment. Solution of Higher-order
Differential Equations with Constant Coefficient and Constant Term. Convergence and the
Routh Theorem.

Topic 4: Difference Equations; Discrete-Time: First-Order Difference Equations

Solution and its Verification of First Order Difference Equations. The Dynamic Stability of
Equilibrium. Economic Applications – The Cobweb Model, A Market Model with Inventory.
Nonlinear Difference Equations – The Qualitative-Graphic Approach. Phase Diagrams Types
of Time Path. A Market with a Price Ceiling.

Topic 5: Higher Order Difference Equations

Solution and Verification of Second-Order Linear Difference Equations with Constant
Coefficients and Term-Distinct Real Roots, Repeated Real Roots and Complex Roots cases.
The Convergence of the Time Path. Economic Applications, Samuelson Multiplier-

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DEPARTMENT OF ECONOMICS
Acceleration Interaction Model. Inflation and Unemployment in Discrete Time. Higher Order
Linear Difference Equations and their Solutions. Convergence and Schur Theorem Again.
The Solution of Simultaneous Differential Equations.

Topic 6: Nonlinear Programming

The Nature of Nonlinear Programming Non-Linearities in Economics. Kuhn Tucker
Condition. Interpretation of Kuhn Tucker Condition. Kuhn Tucker Sufficiency Theorem:
Concave Programming. Arrow Enthoven Sufficiency Theorem: Quasiconcave Programming.
Economic Application-Utility Maximization, Least Cost Combination. Solving a Nonlinear
Program via the Kuhn-Tucker Conditions.

Recommended Texts:
1. Chiang A.C. Fundamental Methods of Mathematical Economics McGraw Hill (3rd
Edition) 1984.
2. Weber E. Jean, Mathematical Analysis, Business and Economic Application (Latest
Edition), Harper and Row Publishers, New York.
3. Thomas, R. L., Using Mathematics in Economics. Longman and New York.
4. Timbrell, Martin. Mathematics for Economists: An Introduction. Basil Blackwell,
Cambridge, Massachusetts.
5. Rosser, Mike, Basic Mathematics for Economists. Routledge, Taylor & Francis
Group, London and New York
6. Hoy M., Livermois J, Rees R, Stengos T., Mathematic for Economics, 1996.
Addison0Wesley Publishers limited.
7. Yamene, Taro, Mathematics for Economists, Prentice Hall, latest Edition.

Additional Readings:

1. Allen R.G.D., Mathematical Economics, London, Macmillan English Language Book

Society.

Other References:
 Hoy, Michael. (2001) Mathematics for Economists. Cambridge, MA: M.I.T. Press.
 Klein, M.W.: Mathematical Methods for Economics, 2nd ed., 2001.

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DEPARTMENT OF ECONOMICS
 Simon, C. P. and L. Blume, 1994, Mathematics for Economists, New York: W. W.
Norton & Company.
 Dixit, A. K., 1990, Optimization in Economic Theory, 2 nd ed. Oxford: Oxford
University Press.
 Dowling, E.T., Introduction to Mathematical Economics, 2 nd ed., Schaum's Outline
Series in Economics, McGraw-Hill, 1992.

Textbooks on Micro and Macroeconomics which use more Mathematics

 Henderson, J. M. and R.E. Quandt, Microeconomic Theory, A Mathematical
Approach, 2nd ed., McGraw-Hill.
 Layard P.R.G. and A.A. Walters, Microeconomic Theory. McGraw-Hill.