Econ 326 Notes

Mathematics for Economists 326
January 6, 2016
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Preliminaries
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Sets
A set is any collection of elements. Sets of objects will usually be denoted

by capital letters, A, S, T for example, while their members by lower case,
a, s, t for example (English or Greek). A set S is a subset of another set T
if every element of S is also an element of T . We write S T . If S T ,
then x S x T .
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Sets
The set S is a proper subset of T if S T and S 6= T ; sometimes one

writes S ( T or S T in this case. Two sets are equal sets if they each
contain exactly the same elements. We write S = T whenever
x S x T and x T x S.
I
The upside down A, , means for all
The backward E , means there exists.
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Sets
A set S is empty or is an empty set if it contains no elements at all. It is a

subset of every set. For example, if A = {x | x 2 = 0, x > 1}, then A is
empty. We denote the empty set by the symbol . The complement of a
set S in a universal set U is the set of all elements in U that are not in S
and is denoted S c . For any two sets S and T in a universal set U, we
define the set difference denoted S\T , as all elements in the set S that are
not elements of T . Thus, we can think S c = U\S.
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Sets
For two sets S and T , we define the union of S and T as the set
S T {x | x S or x T }.
We define the intersection of S and T as the set S T {x | x S and
x T }.
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Sets
The following are some important identities involving the operations

defined above.
A B = B A, A B = B A (Commutative laws)
A (B C ) = (A B) (A C ), A (B C ) = (A B) (A C )
(Distribute laws)
(A B) C = A (B C ), (A B) C = A (B C ) (Associative
laws)
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Sets
The collection of all subsets of a set A is also a set, called the power set of
A and denoted by P(A). Thus, B P(A) B A.
Example
Let A = {a, b, c}. Then, P(A) = {, {a}, {b}, {c}, {a, b},
{a, c}, {b, c}, {a, b, c}}.
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Sets
The order of the elements in a set specification does not matter. In

particular, {a, b} = {b, a}. However, on many occasions, one is interested
in distinguishing between the first and the second elements of a pair. One
such example is the coordinates of a point in the x y -plane. These
coordinates are given as an ordered pair (a, b) of real numbers. The
important property of ordered pairs is that (a, b) = (c, d) if and only if
a = c and b = d.
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Sets
The product of two sets S and T is the set of ordered pairs in the form
(s, t), where the first element in the pair is a member of S and the second
is a member of T . The product of S and T is denoted
S T {(s, t) | s S, t T }.
The set of real numbers is denoted by the special symbol R and is defined
as
R {x | < x < }.
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Sets
Any n-tuple, or vector, is just an n dimensional ordered tuple (x1 , . . . , xn )
and can be thought of as a point in n dimensional Euclidean space. This
space is defined as the set product
Rn |R {z
R} {(x1 , . . . , xn ) | xi R, i = 1, . . . , n}.
n times
Often, we want to restrict our attention to a subset of Rn , called the

nonnegative orthant and denoted Rn+ , where
Rn+ {(x1 , . . . , xn ) | xi 0, i = 1, . . . , n} Rn .
Furthermore, we sometimes talk about the strictly positive orthant of Rn
Rn++ {(x1 , . . . , xn ) | xi > 0, i = 1, . . . , n} Rn+ .
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Functions
A function is a relation that associates each element of one set with a

single, unique element of another set. We say that the function f is a
mapping, map, or transformation from one set D to another set Y and
write f : D Y .
We call the set D the domain and the set Y the codomain of the mapping.
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Functions
If y is the point in the range mapped into by the point x in the domain,
we write y = f (x). In set-theoretic terms, f is a relation from D to Y
with the property that for each x D, there is exactly one y Y such
that xfy (x is related to y via f ).
The range of f is the subset of the codomain that contains all f (x); that is,
range(f ) = {y Y |x D s.t. f (x) = y }
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Functions
The image of a subset S D under f is the set of points in the range into
which some point in S is mapped, i.e.,
f (S) {y Y | y = f (x) for some x S}
The inverse image (or preimage) of a set of points A Y defined as
f 1 (A) {x D | f (x) A}.
The graph of the function f is the set of ordered pairs
G {(x, y ) | x D, y = f (x)}.
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Functions
If f (x) = y , one also writes x 7 y . The squaring function s : R R, for

example, can then be written as s : x 7 x 2 . Thus, 7 indicates the effect
of the function on an element of the domain. If f : D Y is a function
and S D, the restriction of f to S is the function f |S defined by
f |S (x) = f (x) for every x S.
There is nothing in the definition of a function that prohibits more than
one element in the domain from being mapped into the same element in
the range.
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Sequences in R
A sequence is a function k 7 x(k) whose domain is the set {1, 2, 3, . . .} of

all positive integers. I denote the set of natural numbers by N = {1, 2, . . .}.
The terms x(1), x(2), . . . , x(k), . . . of the sequence are usually denoted by
using subscripts: x1 , x2 , . . . , xk , . . . . We shall use the notation {xk }
k=1 , or
simply {xk }, to indicate an arbitrary sequence of real numbers.
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Sequences in R
A sequence {xk } of real numbers is said to be

1. nondecreasing if xk xk+1 for k = 1, 2, . . .
2. strictly increasing if xk < xk+1 for k = 1, 2, . . .
3. nonincreasing if xk xk+1 for k = 1, 2, . . .
4. strictly decreasing if xk > xk+1 for k = 1, 2, . . .
A sequence that is nondecreasing or nonincreasing is called monotone.
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Sequences in R: Convergence
Definition
The sequence {xk } converge to x if for every > 0, there exists a natural
number N such that |xk x| < for all k > N . The number x is called
the limit of the sequence {xk }. A convergent sequence is one that
converges to some number.
Definition (Alternative definition)

The sequence {xk } converges to x if for every > 0, |xk x| < for all
but finitely many k.
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Sequences in R
Note that the limit of a convergent sequence is unique. A sequence that

does not converge to any real number is said to diverge. In some cases we
use the notation limk xk even if the sequence {xk } is divergent. For
example, we say that xk as k . A sequence {xk } is bounded if
there exists a number M such that |xk | M for all k = 1, 2, . . . .
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Sequences in R
It is easy to see that every convergent sequence is bounded. The converse
is true only for monotone sequences.
Theorem
Every bounded monotone sequence is convergent.
Theorem
Suppose that the sequences {xk } and {yk } converge to x and y ,
respectively. Then,
1. limk (xk yk ) = x y
2. limk (xk yk ) = x y
3. limk (xk /yk ) = x/y , assuming that yk 6= 0 for all k and y 6= 0.
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Exercise 1
lim
n+1
n =?
Hint: (a b)(a + b) = a2 b 2 .
Exercise 2

1 n
lim 1 +
e
n
n
Hint: Take logs and use the fact log0 (1) = 1
Exercise 3
xk = 2, xk+1 =
xk + 2
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Vectors
An n-vector a is an ordered n-tuple of numbers.
a = (a1 , a2 , . . . , an )
The operations of addition, subtraction and multiplication by scalars of
vectors are defined in the obvious way.
The dot product (or inner product) of the n-vectors a = (a1 , a2 , . . . , an )
and b = (b1 , b2 , . . . , bn ) is defined as
a b = a1 b1 + a2 b2 + + an bn =
n
X
ai bi
i=1
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Vectors
Proposition
If a, b, and c are n-vectors and is a scalar, then
1. a b = b a,
2. a (b + c) = a b + a c,
3. (a) b = a (b) = (a b).
4. a a = 0 = a = 0
5. (a + b) (a + b) = a a + 2(a b) + b b.
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Vectors
The Euclidean norm or length of the vector a = (a1 , a2 , . . . , an ) is

q
kak = a a = a12 + a22 + + an2

Note that kak = ||kak for all scalars and vectors.
Lemma (Cauchy-Schwartz inequality)

|a b| kak kbk
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Vectors
The Cauchy-Schwartz inequality implies that, for any a, b Rn ,
1
ab
1.
kakkbk
Thus, the angle between nonzero vectors a and b Rn is defined by

cos =
ab
, |0, ]
kak kbk
This definition reveals that cos = 0 if and only if a b = 0. Then

= /2. In symbols,
a b a b = 0
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Line and Hyperplane

Definition
The straight line in Rn that passes through the point a and b is the set of
points
{x | x = ta + (1 t)b for some t R}
Alternatively, we can eliminate t and write the equation for the line as
xn an
x1 a1
= ... =
b 1 a1
bn an
Definition
The hyperplane in Rn that passes through the point a = (a1 , . . . , an ) and
is orthogonal to the nonzero vector p = (p1 , . . . , pn ), is the set of all
points x = (x1 , . . . , xn ) such that
p (x a) = 0
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Exercise 4
What is the equation of the line through (1, 5, 3), (4, 6, 0)?
Exercise 5
What is the equation of the plane through (1, 1, 1), (-1, 1, -1), and (1, -1,
-1)?
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Point Set Topology in Rn
Consider the n-dimensional Euclidean space Rn , whose elements, or

points, are n-dimensional vectors x = (x1 , . . . , xn ). The Euclidean distance
d(x, y ) between any two points x = (x1 , . . . , xn ) and y = (y1 , . . . , yn ) in
Rn is the norm kx y k of the vector difference between x and y . Thus,
q
d(x, y ) = kx y k = (x1 y1 )2 + . . . + (xn yn )2
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If x, y , and z are points in Rn , then
d(x, z) d(x, y ) + d(y , z) (triangle inequality )
If x0 is a point in Rn and r is a positive real number, then the set of all
points x Rn whose distance from x0 is less than r , is called the open ball
around x0 with radius r .
This open ball is denoted by Br (x0 ). Thus,
Br (x0 ) = {x Rn | d(x0 , x) < r }
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Definition
A set S Rn is open if, for all x0 S, there exists some > 0 such that
B (x0 ) S.
On the real line R, the simplest type of open set is an open interval. Let S
be any subset of Rn . A point x0 S is called an interior point of S if
there is some > 0 such that B (x0 ) S. The set of all interior points of
S is called the interior of S, and is denoted int(S).
A set S is said to be a neighborhood of x0 if x0 is an interior point of S,
that is, if S contains some open ball B (x0 ) (i.e., B (x0 ) S) for some
> 0.
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Theorem
1. The entire space Rn and the empty set are both open.
2. The union of open sets is open.
3. The intersection of finitely many open sets is open.
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Each point in a set is either an interior point or a boundary point of the
set. The set of all boundary points of a set S is said to be the boundary of
S and is denoted S or bd(S). Given any set S Rn , there is a
corresponding partition of Rn into three mutually disjoint sets (some of
which may be empty), namely;
1. the interior of S, which consists of all points x Rn such that N S
for some neighborhood N of x;
2. the exterior of S, which consists of all points x Rn for which there
exists some neighborhood N of x such that N Rn \S;
3. the boundary of S, which consists of all points x Rn with the
property that every neighborhood N of x intersects both S and its
complement Rn \S.
The closure of a set S Rn is the union of the interior of the set and its
boundary, S = int S S. For a closed set, its closure is the set itself.
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Topology and Convergence
The basic idea to do so is to apply the arguments developed earlier to R

n
coordinate-wise. A sequence {xk }
k=1 in R is a function that for each
natural number k yields a corresponding point xk in Rn .
Definition
A sequence {xk } in Rn converges to a point x Rn if for each > 0,
there exists a natural number N such that xk B (x) for all k N, or
equivalently, if d(xk , x) 0 as k .
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Definition
A set S Rn is bounded if there exists a number M R such that
kxk M for all x S. A set that is not bounded is called unbounded.
Similarly, a sequence {xk } in Rn is bounded if the set {xk |k = 1, 2, . . .} is
bounded.
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Theorem (Closed Sets)

A set S Rn is closed if and only if every convergent sequence of points
in S has its limit in S.
The next concept of compact sets is used extensively in both mathematics
and economics.
Definition
A set S in Rn is compact if it is closed and bounded.
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Continuous Functions
Consider first a real-valued function z = f (x) = f (x1 , . . . , xn ) of n

variables. Roughly speaking, f is continuous if small changes in the
independent variables cause only small changes in the function value.
Theorem
A function f from S Rn into Rm is continuous at a point x0 in S if and
only if f (xk ) f (x0 ) for every sequence {xk } of points in S that
converges to x0 .
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Limits of functions
Definition
L is a limit of function f : S R at x0 S, L = limxx0 f (x), if
xn x0 = f (xn ) L
Corollary
A function f : S R is continuous at x0 S if and only if
f (x0 ) = lim f (x)
xx0
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Calculus: Functions of a Single Variable

The derivatives of function f () are defined as the limits
f 0 (x) = lim
h0
f (x + h) f (x)
,
h
f 0 (x + h) f 0 (x)
,
h0
h
f 00 (X ) = lim
and so on.
In general, a function may or may not have a derivative. If a function

possesses a continuous derivatives f 0 , f 00 , . . . , f n , it is called n-times
continuously differentiable, or a C n function.
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Calculus: Single Variable
Some rules of differentiation is provided below:

For constants, : d/dx = 0.
For sums: d/dx[f (x) g (x)] = f 0 (x) g 0 (x).
Power rule: d/dx(x n ) = nx n1 .
Product rule: d/dx[f (x)g (x)] = f (x)g 0 (x) + f 0 (x)g (x)).
Quotient rule: d/dx[f (x)/g (x)] = (g (x)f 0 (x) f (x)g 0 (x))/[g (x)]2 .
Chain rule: d/dx[f (g (x))] = f 0 (g (x))g 0 (x).
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Partial derivatives
Definition
Let y = f (x1 , . . . , xn ). The partial derivative of f with respect to xi is
defined as
f (x)
f (x1 , . . . , xi + h, . . . , xn ) f (x1 , . . . , xi , . . . , xn )
lim
h0
xi
h
y /xi or fi (x) or fi 0 (x) are also used to denote partial derivatives.
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Gradients
Suppose that F (x) = F (x1 , . . . , xn ) is a function of n variables defined on

an open set A in Rn , and let x 0 = (x10 , . . . , xn0 ) be a point in A. The
gradient of F at x 0 is the vector

F (x 0 )
F (x 0 )
0
,...,
F (x ) =
x1
xn
of first-order partial derivatives.
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Directional Derivative
We define the derivative of f along the vector a by

fa0 (x) = lim
h0
f (x + ha) f (x)
h
or, with components,

f (x1 + ha1 , . . . , xn + han ) f (xi , . . . , xn )
h0
h
fa0 (x1 , . . . , xn ) = lim
Usually, we normalize ||a|| = 1.
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Gradient chain rule and directional derivative
Let x : R Rn be a C 1 function. Then

df (x(t))
= f (x(t)) x 0 (t)
dt
Corollary (Directional derivative through gradient)

fa0 (x) = f (x) a
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Exercise 6
Find the derivative of f (x1 , x2 ) in the direction a = (1/ 2, 1/ 2)
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Level Surface
Definition
For a function f : Rn R, and for a given x0 Rn , the level surface
through x0 is defined as
{x Rn : f (x) = f (x0 )}.
Definition
A curve on the surface through x0 is a mapping x : R Rn such that
f (x(t)) = f (x0 ),
x(0) = x0
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Tangent Hyperplane
Definition
The tangent hyperplane is formed by the set of all tangent vectors x 0 (t0 )
of the curves on the level surface through x0 .
Applying the chain rule to f (x(t)) = f (x0 ), we see that the gradient
f (x0 ) is orthogonal to the tangent hyperplane.
Corollary
The tangent hyperplane to the level surface at point x0 is given by
{x Rn : f (x0 ) (x x0 ) = 0}
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Gradient
Theorem
Suppose that f (x) = f (x1 , . . . , xn ) is C 1 . Then, at points x where
f (x) 6= 0, the gradient f (x) = (f1 (x), . . . , fn (x)) satisfies:
1. f (x) is orthogonal to the level surface through x.
2. f (x) points in the direction of maximal increase of f .
3. kf (x)k measures how fast the function increases in the direction of
maximal increase.
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Econ 326 Notes

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Mathematics for Economists 326

Mathematics for Economists 326

Mathematics for Economists 326

A set is any collection of elements. Sets of objects will usually be denoted

Mathematics for Economists 326

The set S is a proper subset of T if S T and S 6= T ; sometimes one

The upside down A, , means for all

The backward E , means there exists.

Mathematics for Economists 326

A set S is empty or is an empty set if it contains no elements at all. It is a

Mathematics for Economists 326

Mathematics for Economists 326

The following are some important identities involving the operations

Mathematics for Economists 326

Mathematics for Economists 326

The order of the elements in a set specification does not matter. In

Mathematics for Economists 326

Mathematics for Economists 326

Often, we want to restrict our attention to a subset of Rn , called the

Mathematics for Economists 326

A function is a relation that associates each element of one set with a

Mathematics for Economists 326

Mathematics for Economists 326

Mathematics for Economists 326

If f (x) = y , one also writes x 7 y . The squaring function s : R R, for

Mathematics for Economists 326

A sequence is a function k 7 x(k) whose domain is the set {1, 2, 3, . . .} of

Mathematics for Economists 326

A sequence {xk } of real numbers is said to be

Mathematics for Economists 326

Definition (Alternative definition)

Mathematics for Economists 326

Note that the limit of a convergent sequence is unique. A sequence that

Mathematics for Economists 326

Mathematics for Economists 326

Mathematics for Economists 326

Mathematics for Economists 326

Mathematics for Economists 326

Mathematics for Economists 326

Mathematics for Economists 326

The Euclidean norm or length of the vector a = (a1 , a2 , . . . , an ) is

kak = a a = a12 + a22 + + an2

Lemma (Cauchy-Schwartz inequality)

Mathematics for Economists 326

Thus, the angle between nonzero vectors a and b Rn is defined by

This definition reveals that cos = 0 if and only if a b = 0. Then

Mathematics for Economists 326

Line and Hyperplane

Mathematics for Economists 326

Mathematics for Economists 326

Point Set Topology in Rn

Consider the n-dimensional Euclidean space Rn , whose elements, or

Mathematics for Economists 326

Point Set Topology in Rn

Mathematics for Economists 326

Point Set Topology in Rn

Mathematics for Economists 326

Point Set Topology in Rn

Mathematics for Economists 326

Point Set Topology in Rn

Topology and Convergence

The basic idea to do so is to apply the arguments developed earlier to R

Mathematics for Economists 326