Syllabus for Economics 304

Introduction to Mathematical Methods in Economics

Willem van Vliet
Last Updated: July 16, 2015

The goal of this course is to review and develop the majority of the mathematics that will be
used in the first year economics core classes. The treatment of topics will be semi-rigorous: we will
prove the simpler results but not the more advanced results. You will not receive an official grade
for this course, but you are strongly recommended to attend and work through the problem sets.
The course meets every weekday from Monday, August 31st through Friday, September 18th
in a room that will be announced later. Classes will be held twice a day: a morning session from
10-12, and an afternoon session from 1-3. The morning session will generally be more technical and
the afternoon session will generally have more applications, but for some topics it may make more
sense to mix the two.
I encourage everyone who will be taking first year graduate economics courses to take this
course. The first week should feel like review for most students, but afterwards we will be getting
into optimization which will probably be new material for most students. The three weeks is also
a good time to get to know your cohort and to start forming study groups.
Students with a particularly weak math background should work hard during these three weeks.
The first year classes use a substantial amount of math, so the more you learn in advance the less
time you will spend catching up and the more time you will have to learn the (economic) material.
You will also be more likely to follow the lectures better.

What I Assume You Know

The following is a list of topics I assume you are already comfortable with. It is probably not
complete, but I hope it is pretty close. Some of the topics below will be briefly covered during
math camp, but the goal is just to review these topics and make sure you understand my notation.
Its OK if you are rusty with the items on this list that will also be covered in math camp, but
math camp should not be the first time you see this material.
On the computational side:
Calculus (by this I mean computing derivatives, integrals, limits, etc.)
Differentiation (univariate and multivariate): You should be able to take (partial) derivatives without any problems. A lot of optimization depends on taking derivatives, so you
will be taking a lot of them during your first year.
Integration (univariate): You should be very comfortable taking basic (Riemann) integrals. A particular thing to be comfortable with is integration by parts. Integrals of the

I can be contacted at wvanvliet -at- uchicago -dot- edu.

R
form xn f (x)dx show up in econometrics, and these are often easy to evaluate when
using integration by parts.
Integration (multivariate): you will see some multiple integrals. Dont worry about
things like line and surface integrals. These are not used much in economics.
Limits: You should be able to take limits. The most important thing to know is
LH
opitals rule. It will be very useful for evaluating some limits during first year.
Ordinary differential equations (ODEs): You should be able to solve basic ODEs. If you
know how to solve homogeneous linear ODEs and first-order separable ODEs, you will be
fine. Some non-homogeneous linear ODEs might show up, but the non-homogeneous part
should be relatively simple and can be solved by guessing a function of a similar form.
Matrix algebra. You should be comfortable working with matrices. This means taking products, inverses (mostly of 2 2s), determinants, etc.
Working with complex numbers.
On the theory side:
Rigorous proofs. You will get some practice during the course, but it is best if you already
have had some practice before.
Basic real analysis. Look at the Basic Real Analysis section of Week 1 of the schedule. If
most of these topics look familiar, you should be fine. It is OK if you havent seen metric
spaces and havent done much with fixed points.
Basic probability. I will assume you know the very basics of probability. It will also be helpful
if you have already seen (and worked with) random variables.
Basic statistics. You can get away with never having done any statistics, but I really dont
recommend it. It will be helpful to know the very basics of regression and hypothesis testing,
although it is possible to catch up on this material.

Very Tentative Schedule

2.1

Week 1 Math

Basic Real Analysis

Sets of real numbers and their properties (open, closed, compact, etc.)
- definitions and proofs
Sequences
Series
Functions and their properties (continuity, differentiability, etc.)
Basic theorems (intermediate value theorem, mean value theorem, Taylors theorem, etc.)
Fixed point theorems (mostly Brouwers fixed-point theorem)
Metric spaces
2

Linear Algebra
Matrices
Determinants, eigenvectors, eigenvalues, diagonalization
(Normed) vector spaces
ODEs and Difference Equations
First-order ODEs
Linear higher order ODEs
Linear difference equations

2.2

Week 2 and Beginning of Week 3 Optimization

Unconstrained Optimization
Univariate and multivariate optimization
First-order conditions
Second-order conditions
Envelope theorem
Implicit function theorem
Constrained Optimization with Equality Constraints
Substitution method
Lagrange multipliers
Envelope theorem
Implicit function theorem
Constrained Optimization with Inequality Constraints
Kuhn-Tucker method
Envelope theorem
Maximum theorem

Dynamic Optimization in Discrete Time

Lagranges method
Euler equation
Transversality conditions
Dynamic programming
First-order conditions
Envelope condition
Dynamic Optimization in Continuous Time
Calculus of variations
Hamiltonians
Hamilton-Jacobi-Bellman equations

2.3

End of Week 3 Statistics

Distribution Theory
Probability distributions
Expectations
Conditional expectations
Law of iterated expectations
Some standard distributions
Measure Theory
Brief introduction and definitions
Notation (the primary goal of teaching measure theory is to get you comfortable with the
notation, not to make you an expert in measure theory)
An Introduction to Econometrics
Hypothesis testing
Ordinary least squares
Maximum likelihood applied to regressions

Some References

This is a very non-exhaustive list of references. You should judge for yourself whether you think you
would benefit from having any of these resources, or whether you are better off saving your money.
If you already have a decent textbook or reference for any of the topics, dont bother getting a new
book. It will probably just sit on your shelf collecting dust. Also, you should ask other people for
recommendations as well. I only know a tiny slice of whats available, and Im convinced there are
better texts than some of the ones I have listed.
Mathematical appendix to: Jehle, G.A. and P.J. Reny. Advanced Microeconomic Theory. 3rd
ed. Harlow: FT Prentice Hall, 2011.
The appendix does not cover everything, but it is a pretty good place to start. It covers most
of the math you will need for microeconomics.
Mathematical appendix to: Mas-Colell, A., M. Whinston, and J. Green. Microeconomic
Theory. Oxford: Oxford University Press, 1995.
An alternative to the above.
Simon, C.P. and L. Blume. Mathematics for Economists. New York: Norton, 1994.
I do not like this book very much, but others do. It is very verbose (and therefore hard to
use as a reference), but it does cover a wide range of relevant topics and it is full of examples.
If you need lots of examples, this may be a good book for you.
Stokey, N.L. and R.E. Lucas, Jr., with E.C. Prescott. Recursive Methods in Economic Dynamics. Cambridge: Harvard University Press, 1989.
This is basically the book on dynamic programming. It is written at a pretty high level, but
it is a good book to own (or have access to).
Kamien, M., and N. Schwartz. Dynamic Optimization: The Calculus of Variations and
Optimal Control in Economics and Management. 2nd ed. 1991. Mineola: Dover, 2012.
This is the 2012 Dover reprint of the 1991 book. This covers continuous time optimization:
calculus of variations, Hamiltonians, and Hamilton-Jacobi-Bellman equations. This is a good
book to own (or have access to).
Coddington, E.A. An Introduction to Ordinary Differential Equations. New York: Dover,
1961.
Cheap introductory book on ODEs. Probably not the best, but its relatively easy to read.
Shilov, G.E. Linear Algebra. 1971. New York: Dover, 1977.
Cheap book on linear algebra. It is pretty dense, so if this your first time seeing linear algebra
you may want to look for a different book.
Rudin, W. Principles of Mathematical Analysis. McGraw-Hill, 1976.
I have never read this book, but when I was an undergraduate this was used to teach some of
the undergraduate analysis courses. There is a paperback version that is not very expensive.
Do not confuse this with Real & Complex Analysis by the same author, which is a very dense
and difficult textbook that is more appropriate for advanced undergraduate math majors and
graduate math students.
5

 Wade, W.R. An Introduction to Analysis. (Any Edition)

The undergraduate basic analysis course I took used this textbook. Its not particularly
good, but its written at a slightly lower level, so this may be helpful for students with a weak
background in analysis. If you have a background in analysis already, I would avoid this.
Kolmogorov, A.N., and S.V. Fomin. Elements of the Theory of Functions and Functional
Analysis. Mineola: Dover, 1999.
This is a Dover reprint of an older translation of two Russian textbooks. It is quite dense,
and some of the language is a bit unusual/dated, but for those of you who have a strong
background in analysis this can be a useful reference.
Pollard, D. A Users Guide to Measure Theoretic Probability. Cambridge, 2001.
I have never read this book, but the first portion of this book is supposed to be a relatively
readable guide to measure theory. If you wont be doing any advanced econometrics, you
probably wont need this book, but it may be nice to take a look at it if you are struggling
with some of the measure theoretic notation that comes up in your first year.