EC 2203 Quantitative Methods II

1
EC 2203 Quantitative Methods II

• Aims of course (first term)
• have a thorough understanding of the main
  mathematical tools used in economics and of
  optimisation theory in particular,
• be able to use this knowledge to manipulate and
  solve problems and models,
• be familiar with the logic of proofs of
  mathematical theorems and be able to construct
  simple proofs yourself .
• Personnel
• Alistair Munro
• Organisation of this lecture
• Course overview
• Reminders of QM I material.

2
Why Maths?

• Extrinsic motivation
• Its needed for your other courses at Royal
  Holloway
• Good and relevant maths skills are the main
  reason why economics graduates are paid more than
  say business studies graduates
• Intrinsic motivation
• Maths reveals deep truths about the general
  structure of many economics problems.
• E.g. for some economists all economics is
  constrained optimization
• Consumers maximize utility subject to budget
  constraints
• Firms maximize profits subject to the available
  technology and market structure
• Politicians maximize their utility subject to
  election constraints etc.

3
What we are expecting of you.

• Lecture and seminar attendance
• always
• Reading
• do the textbook reading for each lecture
• Seminar preparation
• attempt all questions before hand prepare notes
• Seminar participation
• be prepared to explain your answers to others
• Helping us and helping your fellow students.
• Work in groups
• ask questions when you dont understand
• pointing out mistakes
• offering feedback on the course.
• The assessment.
• On time
• The assessment
• 2 course tests this term
• Week 4 test of weeks 1-3.
• End of term test of weeks 3-.

4
Content.

• Essentially two parts to course
• Optimization subject to constraints
• Essential part of micro and macro theory
• We build on QM 1
• Vectors and Matrices
• Most useful for the second part of QM II i.e.
  econometrics.
• Also used for generalising micro and macro theory
  to n goods etc.
• Also used for planning and environmental
  economics e.g
• Input-output analysis how much coal is required
  to produce one tonne of steel, when coal itself
  is produced using steel equipment
• Carbon emissions how does carbon use change
  when an economy grows?
• We begin with the first order conditions for
  constrained optimization
• Then matrices
• Then second order conditions.