Applied mathematics related Economics

University X

Department of Economics

Semester: Summer 2009

ECO 134:Applied mathematics-1

Section: 3

Time: ST 1.00pm-2.30pm

Class Room: NAC 403


Lecturer, Department of Economics

Email: h

Office hours: NAC 822

Sunday: 10 am to 1.00 pm

Monday:10 am to 1.00pm.

Thursday: By Appointmant

Course objective: The course focuses on the Economic Application of basic mathematical techniques .Economic theory is intrinsically mathematical , this course will give  emphasis on  basic mathematical modeling, matrix operations and differential calculus . These techniques will be illustrated through economic applications principally microeconomic and  applications in simple macro models. This course will allow students how quantitative tools could be applied in the analysis of theoretical economic problems.

Course Text: Alpha C. Chiang, Fundamental methods of Mathematical Economics

Mc Graw Hill, 2005, 4th Edition.

In addition to the above I also recommend the following text :

Jacques, Ian , Mathematics for Economics and Business, Prentice Hall , 5th edition , 2005.

Course Content:

Topic-1: Introduction to  Mathematical Modeling, real number system, the concept of sets, Relations and Functions, types of functions.

Topic-2: Graphs of linear equations , Algebraic solutions of simultaneous linear equations : Application in Demand and Supply analysis and National Income determination.

Topic-3: Non-linear equations , Quadratic functions , Revenue, Cost and Profit .

Topic-4: Basic Matrix Operations, Matrix inversion , Cramer’s rule , Application in input-output analysis.

Topic-5: Concept of limit and continuity , The derivative of a function, Rules of differentiation , Marginal functions, Further rules of differentiation , Application in elasticity.

Topic-6: Optimization of Economic functions, The derivative of Natural logarithm and exponential function.

Topic-7: Partial differentiation, Functions of several variables , Partial elasticity and marginal functions, Comparative Statics.

Topic-8: Unconstrained optimization, constrained optimization, Lagrange multipliers.

Course Evaluation:

Class Test:    (One)                                 10%

Mid-Term -1                                           15%

Mid-Term- 2                                            20%

Mid-Term-3                                             25%

Final Exam                                              30%

Examination schedule will be announced earlier . Questions will be basically based on the concepts and problem solving . Students should be attentive in the class. Exercises and problems will be discussed and solved in the class.


1. Mobile phones must be switched off during the class hour.

2. Make-up exams will be arranged only in case of emergency , subject to submission of genuine documents.

3. Students  are not allowed to be late or leave class early.

4. Distracting the instructor by talking to other classmates will not be allowed.

5. Students are free to consult the instructor regarding the class material during the office hour mentioned.

6. Attendance is important  to earn satisfactory grade in this course.



Department of Economics

Semester: Summer 2009

ECO 101: Introduction to Microeconomics

Section: 11and 15

Time: MW 9.40am to 11.10pm

MW 1.00pm to 2.30pm

Class Room: NAC401


Lecturer, Department of Economics


Office hours: NAC 822

Monday/Wednesday: 11.30 am to 12.30 pm

Tuesday:11.00am to 1.00pm

Thursday: By appointment

Course Objective: At the beginning this introductory course in Microeconomics will primarily focus on the fundamental economic principles. Later on ,it emphasizes on the basic Demand and supply analysis , introduces the concept of market and how does it work. Then it discusses  Elasticity, Consumer and producer theory . Finally the course gives emphasis on the discussion of various market structures: Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly (The Basic Cournot solution). We will also discuss how does the factor market work.

Learning outcome: To familiarize the students with basic principles of Microeconomics.

To help students develop appropriate intuition  of Introductory Micro Theory.

To help students enhance their analytical ability and understanding of economic theory and enable them to apply this understanding in real life economic problems.

Recommended text: “Micronomics” by Michael Parkin, 8th edition, 2009, Addison-Wesley.

Students those prefer more mathematical approach to the course can consult the following text in addition to the above.

Nicholson, W. “ Microeconomic theory” 2005, Dryden Press

Course Contents:

Topic-1: What Economics is about?(Basic Principles), Economic way of thinking:  Production Possibility Frontier, Opportunity Cost, productive efficiency, terms of trade, trade and specialization , circular flow of economic activities.

Topic-2: Supply and Demand Analysis: Law of Demand, Law of diminishing marginal utility, Market Demand curve, shift of the Demand curve and movement along the Demand curve .Law of supply, shifts in supply, movement along the supply curve. The market: equilibrium price and quantity, Consumer’s and Producer’s surplus and what can change equilibrium price and quantity. Price ceiling and Price floor and it’s effects.

Topic-3: Elasticity: Price elasticity of Demand, Elasticity and slope, perfectly elastic to perfectly inelastic demand, Elastic, Inelastic and Unit- elastic Demand, relation between price elasticity and revenue, Price elasticity along a straight line and curvature, cross elasticity of Demand, Income elasticity of Demand, Price elasticity of supply. Real World

Income elasticities of Demand.

Topic-4: Consumer theory: Budget constraint and indifference curve analysis.

Topic-5: Theory of firm: Firms’ objective-maximizing profit, Accounting profit and Economic Profit, theory of cost, Total, average and marginal costs, average total cost curves, marginal cost curves. Production and cost in the long run, economies of scale, diseconomies of scale and returns to scale.

Topic-6: Perfectly competitive firm: Characteristics, profit maximization, shut-sown condition, upward sloping market supply curve. Perfect Competition in long-run.

Topic-7: Monopoly: The theory of Monopoly, Natural Monopoly, monopoly pricing and output decision, profit maximization. Comparison between perfectly competition and monopoly, consumer surplus and  deadweight loss, rent seeking, different aspects of price discrimination.

Topic-8: Monopolistic Competition: Characteristics, Price and output in Monopolistic Competition, excess capacity, Oligopoly:  prisoner’s dilemma, An Oligopoly Price fixing game.

Topic9: Demand for factor, marginal revenue product.

Course Evaluation:

Quiz                           10%

Mid-term 1                 15%

Mid-term 2                 20%

Mid-term 3                 25%

Final Examination      30%


1.Mobile phones must be switched off during the class hour.

2. Make-up exams will be considered only in case of emergency.

3. Gossiping with other class mates during the class is not allowed.

4. Attendance is important to earn satisfactory grades in this course.

5. Students who wish to be late in class or leave the class earlier will not attend the class.

6. Students are free to consult me during my office hour.


Economics is the social science that studies the choices that individuals , businesses, governments, and entire societies  make as they cope with scarcity and the incentives that influence and reconcile those choices.

Resources ( Natural Resources, skilled labour force ,etc)  are SCARCE but we all want to fulfill our NEEDS. The choices we make depends on the incentives that we face. An incentive is the reward that encourages or a penalty that discourages one.

Microeconomics is the study of the choices that individuals and businesses make , the way these choices interact in markets.

Two Big questions in Economics:

  1. How do choices end up determining what, how, and for whom goods and services get produced?
  2. When do choices made in the pursuit of self-interest also promote social interest?

What, How and for Whom?

What determines the quantities of corn and haircuts and all other millions of items that we produce?

Goods are produced by using productive resources that are called factors of production:

Land, Labour, Capital and Entrepreneurship.

Land – gifts of nature

Labor-the work time and work effort that people devote to produce things.

The quality of Labour depends on human capital.

Capital –the tools, equipments, businesses use to produce goods.

Entreprenuership-the human resource that organizes land, labour and capital .

For whom?

People earn their incomes by selling the factors of production they own.

Land earns Rent

Labour earn  wages

Capital earns interest

Entreprenuership earns profit.

The Economic trade-off:

Because of scarcity we must choose among alternatives. A trade-off is an exchange , giving up something to get something else. If we want more of one thing we must trade something else in exchange for it.

The opportunity Cost :

The opportunity cost of something is the highest valued alternative that we give up to get it.

Production Possibilities Frontier and the opportunity cost.

The PPF is the boundary between those combinations of goods and services that can be produced and those that cannot. We focus on a economy producing two goods only to illustrate the concept. Everything remains constant except the production of two goods.

Picture:    CD’s (Millions)

Pizzas (Millions)

Production efficiency: We achieve production efficiency if we cannot produce more of one good without producing less of some other good. When production is efficient we are on the boundary, when it is inefficient we are inside the frontier. It is inefficient because some resources are unused or misallocated.

Trade-off along the PPF:

Given our available technology, and resources (That are productive) We are limited in what we can produce. This limits defines a boundary between what we can attain and what we cannot attain. This boundary is the real-world’s PPF.

Measuring opportunity cost along the frontier:

Opportunity cost is a ratio. It is  the decrease in the quantity produced in one good divided by increase in the quantity produced of another good as we move along the PPF.

Suppose if the opportunity cost of producing a pizza is 3 CD’s , the opportunity cost of a CD would be one third of a pizza.

The increasing opportunity cost:

The opportunity cost of a pizza increases as the quantity of pizzas produced increases. This is also true for the production of the CD’s. This increasing opportunity cost reflects the shape of the PPF. It is strictly concave downward. The PPF has this shape because all the resources are not equally productive in producing all activities. The more of either good we try to produce, the less productive are the additional resources that we use to  produce that good and the larger  is the opportunity cost of a unit of that good.