EC 336

MATHEMATICAL ECONOMICS
SYLLABUS
Colby College
Department of Economics
Fall 2008
Professor: Guillermo Vuletin (email: gvuletin@colby.edu)
Office: Diamond 359
Phone: 5235
Lecture time and location: Tuesdays and Thursdays 9:30-10:45 am, DIAM 341.
Office hours: Tuesdays and Thursdays 3:00-4:30 pm.
TA: Ling Zhu (email: lzhu@colby.edu)
TA office hours: Wednesdays 7:00-8:30pm (DIAM 354)
Course web page: http://www.colby.edu/academics_cs/courses/EC336

Description
A course in advanced economic theory designed to provide students the fundamental
mathematical tools necessary to prepare for graduate work in economics or business
administration. Topics include the development of portions of consumer, producer and macro
(fiscal and monetary) theory. The material includes comparative static analysis, single and
multiple agent unconstraint and constraint optimization problems and dynamic analysis.
Course objectives
By the end of the course, students are expected to i) learn how to read and understand most
current journal articles in economics without stumbling over the mathematics, ii) develop an
initial understanding of how to frame economic modeling ideas in mathematical format, iii)
prepare students to use a wide range of mathematical techniques used in senior undergraduate
and graduate level courses and, iv) develop a set of problem-solving and analytical skills to
solve problems in other fields of study and everyday decisions.
Prerequisites
Economics 224 and either Mathematics 122 or 162.
Text
Fundamental Methods of Mathematical Economics (4th Edition) by Alpha C. Chiang and Kevin
Wainwright.

Course policies
Course web site: You should frequently access the course web site to find updated course
information. There, you will find problem sets and their solutions and postings of important
announcements.
Software: You will learn to use two software packages (Mathematica 6 and Scientific
WorkPlace 5.5) that will prove to be very handy. Both packages are currently installed in DIAM
322. We will spend a class in DIAM 322 (day TBA) learning the basics of those programs.
Office hours: Tuesdays and Thursdays 3:00-4:30 pm, Diamond 359. If you need to meet with me
and cannot make one of those times, please schedule an appointment by email.
If you feel that you are not making as good progress in the course as you should, please talk to
me as soon as possible. It is my job to help you understand the material and this is the reason
why office hours are held, so make use of them. Do not wait until the week before the final
exam!
Class and exam attendance: I do not take attendance. However, I expect students to attend all
classes and actively participate in class discussions. Please note ahead the scheduled dates of
exams. Unexcused absences from exams will result in a zero grade. Acceptable reasons for
missing an exam include critical emergencies, athletic trips or illness. If some athletic event
overlaps with a course exam please contact me as soon as you know about such event (at least
one week in advance) so I can help you to resolve the problem.
Grading policy: The grades for this course will be based on class participation, problem sets, a
final exam, and a paper. The final exam will Thursday, December 4 (during class time). That is
to say, there will be no final during finals week. The paper will be due Sunday, December 14 at
11:00am. Late problem sets or paper will not be accepted. There will not be extra credit assigned
for this course. Your final grade will be determined as follows:
Problem sets
Final
Paper
Class participation

45%
25%
20%
10%

Paper: The paper consists on modeling some real-life phenomenon using the techniques and
tools learned in the course. Topics must be chosen by the first week of November, and a short
(one page) paper proposal must be turned in at the beginning of Thursday, November 6 class.
The final paper must have a maximum of 7 single-spaced pages of text (including a list of
references) and must be typed using Scientific WorkPlace 5.5.
Academic honesty: Colbys policy on academic honesty can be found in
http://www.colby.edu/academics_cs/catalogue/2005_2006/academic_program/aca_procedures.c
fm .
I encourage you to work with other classmates; however, all problem sets (and exams!) must be
your own.
Electronic device policy: Please turn off all electronic devices during class. If there is a
legitimate reason for you to be within reach during class times, please see me prior to using the
cell phone.

Tentative course outline

Topic
I. INTRODUCTION TO MATHEMATICAL ECONOMICS
II. EQUILIBRIUM (OR STATIC) ANALYSIS
II.1. Equilibrium analysis in Economics
Definition of equilibrium.
Solution of equilibrium.
Single vs. multiple equilibrium.
Application: labor supply.
Partial vs. general equilibrium.
Application: single vs. multiple commodity markets.
II.2 Linear Models and Matrix Algebra
Matrix algebra with special emphasis on Cramers rule.
Applications: i) multiple commodity markets.
ii) wage gaps and international trade.

Textbook chapters
1, 2.1-2.2
3

4, 5

Problem set 1 (II.1 and II.2):

i) National-Income model (macro).
ii) Heckscher-Ohlin model (trade).
III. COMPARATIVE STATIC ANALISYS
Review of comparative static analysis using IS-LM model.
Alternative approaches.

6, 7, 8

Problem set 2 (III):

i) Mundell-Fleming model (IS-LM with small open economy) (macro).
ii) Rybczynski model(trade).
IV. UNCONSTRAINT OPTIMIZATION PROBLEMS
IV.1 Optimization of functions of one variable
Main concepts
First-derivative test or first order conditions
(necessary conditions)
Second-derivative or second order conditions
(sufficient conditions)
Applications: Profit maximization (one product) under:
- perfect competition.
- monopoly.
- Cournot competition (duopoly).

9.1-9.4

11.1-11.4,
IV.2 Optimization of functions of more than one variable
11.6-11.7
The differential version of optimization conditions.
Extreme values of function of two variables and comparative static
aspect of optimization.
Application: Profit maximization (two products) under perfect
competition.
Extreme values of function of n variables.
Applications: i) Monopolist selling in segmented markets.
ii) Ordinary least squares (OLS) estimators.
Problem set 3 (IV.1 and IV.2):
i) Inputs -labor and capital- selection under perfect competition. The role of elasticity of
substitution (micro).
ii) Technical vs. policy journal articles selection (micro).
iii) Profit maximization (two products) under monopoly (complementary vs. substitutable goods).
V. CONSTRAINT OPTIMIZATION PROBLEMS
Lagrange-multiplier method.
First-derivative test or first order conditions.
Second-derivative or second order conditions.

12.1-12.3, 12.5,
12.7

Applications:
i) Utility maximization and consumer demand (two goods, one
period) (micro).
ii) Utility maximization and consumer demand (one goods, two
periods) (macro).
ii.a) perfect access to international capital markets.
ii.b) financial autarky.
ii.c) welfare implications. ii.a) vs. ii.b).
iii) Presidential preferences for inflation versus unemployment.
Peter A. Zaleski, Presidential preferences for inflation versus
unemployment, Journal of Macroeconomics. Volume 14, Issue
3, Summer 1992, Pages 555-561.
(http://www.sciencedirect.com/science/article/B6X4M4ND1M0B-B/2/2953b08d790a6a4acfd4bb75c4ddcd02)
Problem set 4 (VI):
i) Technical vs. policy journal articles selection revisited (micro).
ii) Utility maximization and consumer demand. The role of non time-separable preferences.
iii) Utility maximization, consumer demand, and labor decisions.
VI. INTRODUCTION TO MATHEMATICA 6 AND SCIENTIFIC WORKPLACE 5.5
(This class will take place in DIAM 322)

VII. FURTHER TOPICS IN OPTIMIZATION

VII.1 Uncertainty and consumption under capital markets
imperfections (incomplete vs. complete asset markets)
Applications:
i) Utility maximization and consumption under uncertainty of
output path and incomplete markets. Certainty equivalence and
precautionary savings.
Problem set 5 (VII.1):
i) Utility maximization and consumption under uncertainty of output path and complete markets.
The role of state contingent assets.
VII.2 Multiple agents optimization.
Applications:
i) Optimal taxation. Exogenous government spending. Benevolent
government.
Problem set 6 (VII.2):
i) Optimal taxation. Endogenous government spending. Benevolent and nonbenevolent government.
VIII. DYNAMIC ANALYSIS
TBA

14, 15, 17, 19, 20