Important Mathematical Tools

Learning objectives:
.
.
.
.

Ability to apply important mathematical tools for economic

analysis
Ability to give interpretations of mathematical properties in
terms of economic concepts

Topics reviewed

Sets: definition, notation

Binary relations, orderings
Functions, sequences
Sets: properties
Browers fixed point theorem
Separation theorems (Minkowski)

c Ronald Wendner

GE-Math-1

v2.1

Sets: Definition, Notation

set
notation: upper case letter
use elements to define set: X {x | P (x)}
X {x students at KFUG | x study economics}
elements of a set: x X, x 6 X
most sets we use are sets of vectors (w/ an interpretation)
elements: points or vectors
N {x | x is a natural number}, -1.3 6 N
R {x | x is a real number}, -1.3 R
R+ {x | x is a nonnegative real number}, -1.3 6 R+
R++ {x | x is a strictly positive real number}, 0 6 R++
empty set (null set)
notice that 6 R
subsets Xi X iff for all x Xi: x X
masters students in econ are a subset of students in econ
X (!)
set operations/relationships & logical connectives

subset relation; set equality

set union, intersection, complement
set subtraction
(x A)(x B) , (x A)(x B)
(Cartesian) set product

c Ronald Wendner

GE-Math-2

v2.1

 Cartesian product, cross product, direct product

set ordered n-tuples
C A B {(a, b) | a A , b B}
(4, 5) C, (5, 4) C, (4, 5) 6= (5, 4)
Example 1. L = 2, p = (p1, p2):
pl R+, p = (p1, p2) R+ R+ = R2+, (1, 2) 6= (2, 1)
Example 2. A = B = [0, 1]. What is C = A B?
Example 3. Suppose we have L commodities. Then every commodity bundle is an element (a vector) of:
RL+ R+ R+ R+ .... R+ (L-fold Cartesian product)

dot product notation:

inner (dot) product of two L-vectors
x = (x1, x2, ..., xL), y = (y1, y2, ..., yL):

y1
L
X
y2
x y (x1, x2, ..., xL) .. =
xl y l .
.
l=1
yL
Example: x = (x1, x2, ..., xL), p = (p1, p2, ..., pL);
cost of consumption bundle x is: p x

c Ronald Wendner

GE-Math-3

v2.1

Binary Relations, Orderings

Consider two elements of a set: a, b X.

binary relations (R): a R b

a is the brother of b
a is to the left of b
a>b
ab
a=b
a%b
ab

quasi-ordering
reflexivity: a R a for all a X
transitivity: a R b, and b R c a R c.
complete ordering
for all a, b X, either a R b or b R a or both
how to compare Pizza with Rogan Josh?
Rational % are a complete ordering (binary relation)
on consumption space
c Ronald Wendner

GE-Math-4

v2.1

 upper contour sets of % on X

X +(y) {x X | x % y}
lower contour sets of % on X
X (y) {x X | y % x}
indifference set of % on X
X (y) X +(y)
3

Functions, Sequences
A function f : A B is a rule that associates to every
element of set A exactly one element in set B. Set A is called
the domain of the function, and set B is called the codomain
of the function.
onto if for every y B, x A | y = f (x)
one to one if for any two elements in the domain, x, x0 A
with x 6= x0, it holds: f (x) 6= f (x0)
Example 1. Consider f (x) : R+ R+, with f (x) = x2. Then
f (x) is onto and one to one.
Example 2. f (x) : R R+, with f (x) = x2. Then f (x) is
onto but not one to one

c Ronald Wendner

GE-Math-5

v2.1

 Sequence f : N R
elements: xn, n = 1, 2, ....;

sequence: {xn}
n=1

sequences in R: 1/n, or n/(1 + n), or 5

sequences in R2: (1/n, n/(1 + n)), or (1/n, 5)
sequence in set X: xn X for all n = 1, 2, ...
convergence: limn xn = x
for all  > 0, n0 N : n > n0, d(xn, x) < 
convergence in set X: limit x X
{xn}
n=1 = 1/n, A = [0, 1], B = (0, 1]
subsequence
m(n) = strictly increasing function, m(n) : N N
e.g., m(n) = 3 n
n
{xm(n)}
n=1 is subsequence of {x }n=1

Theorem 1 (Bolzano-Weierstrass) .
Every bounded sequence in RL contains a convergent
subsequence.

c Ronald Wendner

GE-Math-6

v2.1

 Continuity of a function
Let f (x) : X R, X RL. f (x) is continuous at x if for
every sequence {xn} x, {f (xn)} f (x).
f (x) is continuous if function is continuous at all x X.
if f (.) is continuous: image of compact set is compact
Theorem 2 (Extreme value theorem) .
If f (.) is continuous and X compact then f (.) has a maximum/minimum.
compactness? ...

Sets in Euclidean space RL: Properties

Euclidean distance d(x, x0)
0

x, x X R , d(x, x )

qP

L
l=1 (xl

x0l )2

-neighborhood (nbhd) about x:

N(x) = {x0 X | d(x, x0) < }
open set
X RL open if for every x X there exists an  > 0 such
that N(x) X.
c Ronald Wendner

GE-Math-7

v2.1

 closed set
X RL closed if every converging sequence in X
converges in X
consider X = (0, 1], {xn}
n=1 = 1/n
example: closed interval: [a, b] R {x R | a x b}
closed sets and maximizing bahavior
bounded set
X bounded if for all x, x0 X, d(x, x0) <
compact set
X RL compact if X closed and bounded
boundary of X
boundary point x X: every N(x) contains x0 X
and x0 6 X
boundary of X = set of all boundary points
example: X = (0, 1], boundary points = {0, 1}
closure of set X: X
X X boundary of X
XX
X = X iff X closed

c Ronald Wendner

GE-Math-8

v2.1

 interior X = biggest open set contained in X

interior X X
interior X = X iff X open
boundary of X = X\ interior X
convex set
x, x0 X and [0, 1]
convex combination x00 x + (1 )x0
convex set: x00 X for all x, x0 X and [0, 1]
examples ( class)
if X, X 0 convex, then:
X, X, X X 0, X + X 0 convex
5

Browers Fixed-Point Theorem

Theorem 3 (Brouwer) Suppose that X RL is nonempty,

compact, and convex. If f : X X is a continuous function
from X to itself, then f (.) has a fixed point; i.e., there is an
x X such that: x = f (x).
in which way may the theorem fail to hold if:

f (x) is not continuous

X is not closed
X is not bounded
X is not convex

c Ronald Wendner

GE-Math-9

v2.1

Separation Theorems

Consider p RL
hyperplane H(p, k) {x RL | p x = k}
budget line
(p = prices, x = consumption bundle, k = wealth)
isoprofit line (k = profit)
Lemma 1 Consider K RL nonempty, closed, convex, and
z 6 K, z RL. Then y K and p RL\{0}: p z < k =
p y p x for all x K.

exists a hyperplane separating z from K and

bounding for K (K on one side of H)

Theorem 4 (Bounding H Theorem, Minkowski) .

Consider K RL, convex, and z boundary K. Then there
exists a bounding hyperplane through z.

there exists a bounding hyperplane for K

illustrate theorem by figure

c Ronald Wendner

GE-Math-10

v2.1

Theorem 5 (Separating H Theorem) .

Consider A, B RL, nonempty, convex, disjoint: A B = .
Then, there exists p RL\{0}: pa pb, for all a A, b B.

there exists a separating hyperplane for A and B

illustrate theorem by figure
results needed for welfare analysis
(e.g., 2nd FUN theorem)

c Ronald Wendner

GE-Math-11

v2.1