ADDIS ABABA UNIVERSITY

DEPARTMENT OF ECONOMICS

Course outline for Econ 907: Mathematics for Economists

Aim: This course is intended to introduce students with a solid understanding of contemporary
theory of Mathematics for economists and its application in Economics. The …rst topic of this
course reviews topics in matrix algebra. The second topic of the course discusses elements of
set theory taught at the PhD level. Real Analysis will be the third topic of the course which
will be followed by Static optimization and di¤erential equations taught to PhD students in
economics are discussed in topics four and …ve, respectively. The next three topics of this
course in mathematics for economists taught to PhD students discuss optimal control theory,
di¤erence equations and discrete time optimization, respectively. The last two topic of this
course introduces students with the chaos theory and the Wienrer Process and the Itô’s Lemma.

GRADING: grading will be based on the AAU’s marking rules. Continuous assessment will
constitute 40% of the total marks. Two assignments will be given out. Each assignment carries
20%, and therefore continuous assessment make up 40% of the total score. There will be a …nal
exam that carries 60% of the remaining total score.

ASSIGNMENTS: While it is OK to discuss the way of solving a problem with your fellow
students, it is dishonest to copy the whole work from your friends.

CHEATING AND PLAGIARISM: Plagiarism and cheating are extremely serious academic
o¤enses. These are su¢ cient grounds for failure of the course.

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Course Outline for Mathematics for Economists

1. Topics in Linear Algebra (7 Hours)

1.1 Review of Basic Linear Algebra

1.2 Linear Independence

1.3 The Rank of a Matrix

1.4 Main Results on Linear Systems

1.5 Eigenvalues

1.6 Diagonalization

1.7 Quadratic Forms

1.8 Quadratic Forms with Linear Constraints

1.9 Partitioned Matrices and their Inverses

2. Elements of Set Theory (3 Hours)

2.1 Sequences of Real Numbers

2.2 Open Sets

2.3 Closed Sets

2.4 Compact Sets

2.5 Convex Sets

3. Real Analysis (6 Hours)

3.1 Homogeneous and Homothetic Functions

3.2 Gradients and Directional Derivatives

3.3 Concave and Convex Functions

3.4 Quasiconcave and Quasiconvex Functions

3.5 Taylor’s Formula

3.6 Implicit and Inverse Function Theorems

3.7 Di¤erentiability and Derivatives

4. Static Optimization (7 Hours)

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 4.1 Extreme Points

4.2 Local Extreme Points

4.3 Equality Constraints: The Lagrange Problem

4.4 Local Second-Order Condition

4.5 Inequality Constraints: Nonlinear Programming

4.6 Su¢ cient Conditions

4.7 Comparative Statics

4.8 Nonnegativity Constraints

4.9 Concave Programming

4.10 Precise Comparative Statics Results

5. Di¤erential Equations (7 Hours)

5.1 Review of Integral Calculus

5.2 Separable Equations

5.3 First-Order Linear Di¤erential Equations

5.4 Exact Di¤erential Equations and Integrating Factors

5.5 Transformation of Variables

5.6 Qualitative Theory and Stability

5.7 Introduction to Second Order Di¤erential Equations

5.8 Stability for Linear Equations

5.9 Systems of Di¤erential Equations

5.10 Phase Plane Analysis

5.11 Introduction to Higher Order Di¤erential Equations

6. Optimal Control Theory (6 Hours)

6.1 The Euler’s Equation

6.2 The Basic Problem

6.3 The Maximum Principle

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 6.4 Current Value Formulations

6.5 In…nite Horizon Control Problem

6.6 Several Control and State Variables

7. Di¤erence Equations (6 Hours)

7.1 First-Order Di¤erence Equations

7.2 Second-Order Di¤erence Equations

7.3 Higher-Order Di¤erence Equations

7.4 Systems of Di¤erence Equations

7.5 Stability of Nonlinear Di¤erence Equations

8. Discrete Time Optimization (6 Hours)

8.1 Dynamic Programming

8.2 The Euler Equation

8.3 In…nite Horizon

8.4 The Maximum Principle

9. Introduction to Chaos Theory (4 Hours)

9.1 Bifurcations: Single Variable Case

9.2 The Logistic Equation, Periodic-Doubling Bifurcations and Chaos

10. Wiener Processes and Itô’s Lemma (5 Hours)

10.1 The Markov Property

10.2 Continuous-Time Stochastic Processes

10.3 The Process for a Stock Price

10.4 The Parameters

10.5 Correlated Process

10.6 Itô’s Lemma

10.7 The Lognormal Property

10.8 A Heuristic Derivation of Itô’s Lemma

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Textbooks:

1. Sydsǽter, K.; P. Hammond, Atle Seierstad and Arne Strøm (2008), Further Mathematics
for Economic Analysis, Prentice Hall.

2. Angel de la Fuente, A. de la (2000), Mathematical Methods and Models for Economists.

3. Chiang, A.C. and K. Wainwright (2005): Fundamental Methods of Mathematical Eco-

4. R. Shone (2002). Economic Dynamics: Phase Diagrams and Their Economic Applications,
2nd edition.

5. Simon, C.P., and L. Blume (1994), Mathematics for Economists, Norton.

1. Hull, J.C. (2018). Options, Futures and Other Derivatives, Pearson, New York, NY.