Prof. Kinnaman Department of Economics ECON 335, Spring 2001 Bucknell University

MATHEMATICAL ECONOMICS

General Information: Time and location: TR 2:30-3:52 in Coleman 261 Office: Coleman 169 Office hours: Monday through Thursday 4:00-5:00 Office phone: 577-3465 E-mail address: kinnaman@bucknell.edu

Course Content: This course will introduce you to the mathematical tools necessary to develop and comprehend many advanced economic models. Many of the models covered in this class will be familiar to you, such as the market model (supply and demand) and Keynes' IS-LM model. But instead of using graphs, we will present these models using mathematics. In time, you should find the mathematical approach easier to comprehend! This course will begin with a review of calculus. Calculus is the building block for virtually all economic models developed today. The course will also provide a thorough introduction to matrix algebra, another essential tool to understanding economic models.

Mathematics is the language of many economists. Like any other language, it takes time and practice before one can speak, write, and comprehend it fluently. Be patient! Time and dedication have their rewards. By the end of the semester, you should develop an appreciation for the clarity and elegance of mathematics as a tool in model building. You should also gain the mathematical fundamentals necessary to succeed in graduate or professional programs.

Prerequisites: EC 256 and one semester of calculus

Required Texts: Toumanoff, Peter and Nourzad, Farrokh, A Mathematical Approach to Economic Analysis. St. Paul, MN: West Publishing Company, 1994.

Attendance You will be penalized 1% point of your final grade for each unexplained absence.

Assignments and Grading: Grades will be based on two midterm exams on February 20th (20%) and on April 5th (20%), a series of weekly homework assignments (20%), and a final exam (40%).

Homework The purpose of the weekly homework assignments is to help you learn and understand the language of mathematics and its application to economic theory. Homework reinforces your knowledge of the course by putting it to immediate use, helps keep you up with the material, gives you examples of the kinds of questions I am likely to ask on exams, and gives me useful feedback from you. You will receive a homework assignment at the beginning of class each Thursday. Each assignment is due one week later. I encourage discussion of the homework but avoid doing entire sections of homework together because you will only learn how to approach these problems if you get some practice at working alone.

Late Assignments Late assignments are accepted but discouraged. The cost to you of choosing to submit a late assignment is 25% of that assignment's grade for each calendar day that it is late. Therefore, an assignment that is turned in 4 calendar days late will earn a grade of zero.

COURSE SCHEDULE

Jan. 18: Introduction and the Market Model - Chapter 1 Jan. 23: Review of One-Variable Calculus - Chapter 3: pp. 60-73 Jan. 25: Economic Application of One-Variable Calculus - Chapter 3: pp. 74-87 Jan. 30: One-Variable Unconstrained Optimization - Chapter 4: pp. 93-107 Feb. 1: One-Variable Unconstrained Optimization - Chapter 4: pp. 107-118 Feb. 6: Two-Variable Calculus - Chapter 5: pp. 125-137 Feb. 8: Economic Application of Two-Variable Calculus - Chapter 5: pp. 137-150 Feb. 13: Two-Variable Unconstrained Optimization - Chapter 6: pp. 157-172 Feb. 15: Comparative Statics of Optimization Models - Chapter 6: pp. 172-178

Feb. 20: MIDTERM EXAM #1

Feb. 22: Constrained Optimization - Chapter 7: pp. 185-201 Feb. 27: Constrained Optimization - Chapter 7: pp. 201-209 Mar. 1: Matrix Algebra - Chapter 8: pp. 217-234 Mar. 6: Applications of Matrix Algebra - Chapter 8: pp. 235-250 Mar. 8: Models of Consumer Behavior - Chapter 9: pp. 259-276

Mar. 13: SPRING BREAK Mar. 15: SPRING BREAK

Mar. 20: Models of Consumer Behavior - Chapter 9: pp. 276-285 Mar. 22: Models of Production - Chapter 10: pp. 297-310 Mar. 27: Models of Production - Chapter 10: pp. 310-320 Mar. 29: Models of Cost Minimization - Chapter 11: pp. 327-344 Apr. 3: Models of Cost Minimization - Chapter 11: pp. 344-355

Apr. 5: MIDTERM EXAM #2

Apr. 10: Macroeconomic Models - Chapter 12: pp. 361-371 Apr. 12: Macroeconomic Models - Chapter 12: pp. 371-386 Apr. 17: Models with Time as a Variable (when should I cut down a tree?) Apr. 19: Models with Uncertainty (how much health insurance should I buy?) Apr. 24: Models with Strategic Behavior (the monopolist and a durable good) Apr. 26: Game Theory May 1: Game Theory