Venn Diagrams and Set Relations in Foundations of Mathematical Economics

Figure from Foundations of Mathematical Economics
c 2001 Massachusetts Institute of Technology. All rights reserved.

⃝
𝑋 𝑋
𝑆 𝑇 𝑆 𝑇
𝑆∪𝑇 𝑆∩𝑇
𝑋 𝑋
𝑆 𝑆 𝑇
𝑆𝑐 𝑆∖𝑇
Figure 1.1: Venn diagrams
1
⃝
2 (1,2)
1 (2,1)
1 2
Figure 1.2: The coordinate plane ℜ2
2
⃝
𝑥2
𝑥1
𝑥
ˆ1
Figure 1.3: A consumption set with two commodities
3
⃝
Relations
reflexive
transitive
Preorder
symmetric not symmetric
Equivalence induces ∼ Order

relation relation
antisymmetric complete
Partial Weak
order order
bounded complete
antisymmetric
Total order
Lattice
(Chain)
Figure 1.4: Types of relations
4
⃝
1 2 3
Figure 1.5: A relation
5
⃝
8 5 7
4 1 9
2 6 3
Figure 1.6: Integer multiples
6
⃝
1 2 3
Figure 1.7: A simple lattice in ℜ2
7
⃝
{a,b,c,d}
{a,b,c} {a,b,d} {a,c,d} {b,c,d}
{a,b} {a,c} {a,d} {b,c} {b,d} {c,d}
{a} {b} {c} {d}
{}
Figure 1.8: The lattice of subsets of a four element set
8
⃝
1 2 3
Figure 1.9: A lattice which is not a sublattice
9
⃝
3
𝑆2
1 𝑆3
𝑆1
1 2 3
Figure 1.10: The strong set order
10
⃝
𝜌(𝑥, 𝑦)
𝜌(𝑦, 𝑧)
𝜌(𝑥, 𝑧)
𝑧
Figure 1.11: The triangle inequality
11
⃝
𝑋
Neighbourhood
𝑆
r
𝑥0
Open ball
Figure 1.12: An open ball and its neighborhood
12
⃝
𝜌2
𝜌1 𝜌∞
-1 0 1
-1
Figure 1.13: Unit balls in ℜ2
13
⃝
𝑋
Boundary
𝑆 point
Interior
point
Figure 1.14: Interior and boundary points
14
⃝
𝑆
1
(2,0)
1 2
Figure 1.15: The relative topology of the consumption set
15
⃝
𝑆1 + 𝑆2
x1+x2
𝑆1
x1
x2
𝑆2
Figure 1.16: The sum of two sets
16
⃝
𝛼x + (1 − 𝛼)y
Figure 1.17: The line through x and y
17
⃝
Figure 1.18: An affine set in the plane
18
⃝
𝛼 y
𝛼x + (1 − 𝛼)y
1−𝛼
Figure 1.19: The line joining two points
19
⃝
Convex Nonconvex
Figure 1.20: Convex and nonconvex sets
20
⃝
𝑥2
𝑥3
𝑥1
𝑥4
𝑥5
Figure 1.21: Two convex hulls
21
⃝
None Finite Infinite
Figure 1.22: Sets with and without extreme points
22
⃝
Extreme points
Face
Figure 1.23: Faces and extreme points
23
⃝
c
c
Figure 1.24: A three dimensional cube.
24
⃝
Polytope Simplex
Figure 1.25: A polytope and a simplex
25
⃝
Δ1 Δ2 Δ3
Figure 1.26: Some simplices
26
⃝
Agriculture
1879
1980
Manufacturing Services
Figure 1.27: Illustrating the changing sectoral distribution of employment in the US
27
⃝
100 3
100
0
1 2
100
Figure 1.28: Outcomes in a three player cooperative game
28
⃝
Paper
Rock Scissors
Figure 1.29: Mixed strategies in Rock-Scissors-Paper
29
⃝
𝑥2 𝑥2 𝑥2
𝑥1 𝑥1 𝑥1
Figure 1.30: Some cones in ℜ2
30
⃝
cone 𝑆
Figure 1.31: The conic hull of 𝑆
31
⃝
cone 𝑆˜
S
1
𝑋
conv 𝑆
Figure 1.32: Caratheodory’s theorem for cones
32
⃝
Figure 1.33: Invalid intersections of subsimplices
33
⃝
Figure 1.34: A simplicial partition
34
⃝
1 1 2 2 1 2
Figure 1.35: An admissibly labeled partition of a one dimensional simplex
35
⃝
3 2
2 3
3
2
2
3 3
1 2
1 1 2 2 2
Figure 1.36: An admissibly labeled simplicial partition
36
⃝
𝑥2
∥x∥2
𝑥1
Figure 1.37: The theorem of Pythagorus
37
⃝
Δ1
Δ2
Figure 1.38: The relative interiors of Δ1 and Δ2
38
⃝
𝑥2
𝐵(x, 𝑟)
x
z 2𝑟
y
𝑥1
Figure 1.39: Lexicographic preferences are not continuous
39
⃝
𝑂2
Core
x∗
𝑂1
Figure 1.40: An Edgeworth box, illustrating an exchange economy with two traders
and two goods
40
⃝
𝑋 𝑌
𝑥1
𝑦1
𝑥2 𝑦2
Figure 2.1: A function mapping 𝑋 to 𝑌
41
⃝
𝑓 (𝑥)
𝑥2 𝑥3
6
𝑥
-4 -2 2 4
-2
-4
Figure 2.2: The functions 𝑓 (𝑥) = 𝑥2 and 𝑓 (𝑥) = 𝑥3
42
⃝
𝑥2
𝑓 (𝑥1 , 𝑥2 )
(𝑥1 , 𝑥2 )
𝑥1
Figure 2.3: Rotation of a vector
43
⃝
Demand curve
Price
𝑞
Quantity demanded
Figure 2.4: A downward sloping demand function
44
⃝
-2 -1 1 2
Figure 2.5: The exponential function
45
⃝
Total
Cost
𝑐ˆ(𝑦)
𝑦
Output
Figure 2.6: A total cost function
46
⃝
𝑋 𝑌
𝑓 𝑦
𝑥
𝑓 (𝑋)
Figure 2.7: Illustrating a function from ℜ𝑛 → ℜ𝑚
47
⃝
𝑥2
𝑥1
Figure 2.8: A function from ℜ2 → ℜ
48
⃝
𝑓ˆ1 (𝑡)
Figure 2.9: A vertical cross section of Figure 2.8
49
⃝
𝑥2
𝑥1
Figure 2.10: Horizontal cross-sections (contours) of Figure 2.8
50
⃝
𝑥2
𝑥2
𝑥1
𝑥1
𝑓 (x) 𝑓 (x)
𝑥1 𝑡
Figure 2.11: A Cobb-Douglas function and three useful cross-sections
51
⃝
𝑋 𝑌 𝑋 𝑌 𝑋 𝑌
Relation Function Correspondence
Figure 2.12: Comparing a relation, a correspondence and a function
52
⃝
𝜑(𝑥0 )
𝑋
𝑥0
Figure 2.13: The graph of a correspondence
53
⃝
log(𝑥)
𝑥
1
Figure 2.14: The log function
54
⃝
𝑥2
𝑍
z̄
∼(x)
z x
𝑥1
Figure 2.15: Constructive proof of the existence of a utility function
55
⃝
𝑌 𝑌
𝑋 𝑋
Increasing Always increasing
Figure 2.16: Monotone correspondences
56
⃝
𝑥2
x1
x1 ∨ x2
x2
𝑥1
𝑋(p, 𝑚1 ) 𝑋(p, 𝑚2 )
Figure 2.17: The budget correspondence is not monotone
57
⃝
𝑓 (𝑥, 𝑦)
𝑓 (𝑥2 , 𝑦)
𝑓 (𝑥1 , 𝑦)
Figure 2.18: A supermodular function displays increasing differences
58
⃝
Figure 2.19: An upper semicontinuous function
59
⃝
𝜑2 (𝑠1 ) 𝜑2 (𝑠2 ) 𝜑2 (𝑠3 )
𝑡1 𝑡2 𝑡3 𝑡4
Figure 2.20: The best response correspondence of Player 2
60
⃝
𝜑(𝑥0 )
𝑋
𝑥0
Figure 2.21: 𝜑 is not uhc at 𝑥0
61
⃝
𝜑(𝑥0 )
𝑋
𝑥0
Figure 2.22: 𝜑 is not lhc at 𝑥0
62
⃝
𝑓 (𝑥)
𝑥1 𝑥2 𝑥3
Figure 2.23: A function with three fixed points
63
⃝
[ ) [ ]
𝑥˜
𝑀
Figure 2.24: Illustrating the proof of the Tarksi theorem.
64
⃝
𝑓 (𝑥)
0
0 1
Figure 2.25: Brouwer’s theorem in ℜ
65
⃝
1 1
2 3
2
1
1 2
Figure 2.26: Illustrating an operator on the 2-dimensional simplex
66
⃝
𝑓 (𝑥)
-1.5
𝑥
Figure 3.1: The graph of the affine function 𝑓 (𝑥) = 2𝑥 + 3
67
⃝
𝑥2
𝑥1
Figure 3.2: A hyperplane in ℜ2
68
⃝
𝑦2
𝑦1
Figure 3.3: Isoprofit lines
69
⃝
x0
x
y
Figure 3.4: Minimum distance to a closed convex set
70
⃝
Figure 3.5: The solutions of three equations in three unknowns
71
⃝
2 3𝑥1 + 8𝑥2 = 12
2 4
3𝑥1 + 8𝑥2 ≤ 12
(a)
𝑥1 + 𝑥2 = 2 2𝑥1 = 3 𝑥1 + 𝑥2 = 2 2𝑥1 = 3
4 4
2 2
3𝑥1 + 8𝑥2 = 12 3𝑥1 + 8𝑥2 = 12
2 4 2 4
(b) (c)
Figure 3.6: Systems of inequalities
72
⃝
Linear functions
𝑓 (𝛼x1 + (1 − 𝛼)x2 ) = 𝛼𝑓 (x1 ) + (1 − 𝛼)𝑓 (x2 )
implies implies
Additivity Homogeneity
𝑓 (x1 + x2 ) = 𝑓 (x1 ) + 𝑓 (x2 ) 𝑓 (𝛼x) = 𝛼𝑓 (x)
generalizes generalizes
to to
Concave functions Homogeneous functions

𝑓 (𝛼x1 + (1 − 𝛼)x2 ) ≤ 𝑓 (𝛼x) = 𝛼𝑘 𝑓 (x), 𝛼 > 0
𝛼𝑓 (x1 ) + (1 − 𝛼)𝑓 (x2 )
generalizes
generalizes
to
to
Quasiconcave functions Homothetic functions

𝑓 (𝛼x1 + (1 − 𝛼)x2 ) ≤ 𝑓 (x1 ) = 𝑓 (x2 ) =⇒
min{𝑓 (x1 ), 𝑓 (x2 )} 𝑓 (𝛼x1 ) = 𝑓 (𝛼x2 ), 𝛼 > 0
Figure 3.7: Generalizing linear functions
73
⃝
𝑦 𝑦
𝑦 = 𝑥2 𝑦 = 𝑒𝑥
𝑥 𝑥
Figure 3.8: Two examples of convex functions
74
⃝
𝑓 (x)
Epigraph
Figure 3.9: The epigraph of a convex function is a convex set
75
⃝
Figure 3.10: A concave function
76
⃝
𝑓 (𝑥)
𝑥2
1
𝑥− 2
1
𝑥2
𝑥
1
Figure 3.11: The power function 𝑥𝑎 for different values of 𝑎
77
⃝
Figure 3.12: A bell
78
⃝
𝑓 𝑔
Figure 3.13: The Cobb-Douglas function is quasiconcave
79
⃝
𝑥
𝑦
Figure 3.14: A saddle point
80
⃝
𝐻 𝐻 𝐻
𝑆 𝑆 𝐴
x0
𝐵
Bounding Supporting Separating
Figure 3.15: Bounding, separating and supporting hyperplanes
81
⃝
𝐴 𝐵
𝐵
Separable Non separable
Figure 3.16: Convexity is the fundamental requirement for separation
82
⃝
Fish caught (𝑞)
y∗
𝑞∗
Separating
A
hyperplane
24 ℎ∗
Time spent (ℎ)
Figure 3.17: Robinson’s choice of lifestyle
83
⃝
Profit
Π(𝑝)
Subgradient
Figure 3.18: A subgradient of the profit function
84
⃝
𝐻 𝐻
𝐵 𝐴
𝐴 𝐵
Improper separation Proper separation
𝐻 𝐻
𝐴 𝐴
𝐵 𝐵
Strict separation Strong separation
Figure 3.19: Various forms of separation
85
⃝
𝑓 (x)
e0
𝑔(x)
Figure 3.20: The Fredholm alternative via separation
86
⃝
Figure 3.21: Deriving the Hahn-Banach theorem
87
⃝
Figure 3.22: Minkowski’s theorem
88
⃝
𝑥2
20
𝐻(2,1) (11)
15 𝑉 (𝑦)
10
𝐻(1,2) (11)
5
𝑥1
5 10 15 20
Figure 3.23: Recovering the technology from the cost function
89
⃝
𝑆 𝑆
𝑆 ∗∗
𝑆∗ 𝑆∗
Figure 3.24: Polar cones in ℜ2
90
⃝
a1
𝐻a 2
a2
P
a3
0
𝐻a 1
Q
𝐻a 3
(a)
c a1 a1
a2 a2
𝐻c+ 𝐻a 1 c
P P
a3 a3
0 0
x̂
𝐻a 1 𝐻c+
Q Q
𝐻a 3 𝐻a 3
(b) (c)
Figure 3.25: The Farkas lemma
91
⃝
a1
a2 a4
a1
a3
a4
x a3
a2
(a) (b)
Figure 3.26: Gordan’s Theorem
92
⃝
Economics Finance
Second theorem
No arbitrage
of
theorem
welfare economics
Separating
hyperplane
theorem
Optimization Game Theory
Concave Minimax
programming theorem
Farkas
lemma
Kuhn-Tucker Bondareva-Shapley
theorem theorem
Duality theorem
of linear
programming Hahn
Banach Stochastic Processes
theorem
Stationary
distribution for
Markov chains
Figure 3.27: Applications of the separating hyperplane theorem
93
⃝
𝑡2
4
𝑍
3
𝑡1 2 𝑡3
𝑡4
1
-1 1 2 3
-1
Supporting
-2 𝑡5 hyperplane
Figure 3.28: The feasible payoffs
94
⃝
21
𝑔
1 2 3 4
Figure 4.1: The tangency of 𝑓 and 𝑔
95
⃝
21
ℎ
𝑥
1 2 3 4
Figure 4.2: 𝑓 and ℎ are not tangential
96
⃝
𝑓
𝑔
Figure 4.3: The tangency of 𝑓 and 𝑔
97
⃝
ℎ(𝑙)
𝑙
4 8
Figure 4.4: The restricted production function
98
⃝
contour 𝑓 (x) = 𝑐
∇𝑓 (x0 )
tangent
hyperplane x0
Figure 4.5: A contour and its tangent hyperplane
99
⃝
𝑓 (𝑥0 ) + 𝐷𝑓 [𝑥0 ](𝑥)
𝑓 (𝑥)
𝑓 (𝑥0 ) + 𝐷𝑓 [¯
𝑥](𝑥)
𝑥0 𝑥
¯ 𝑥0 + 𝑥
Figure 4.6: Illustrating the mean value theorem
100
⃝
Weierstrass
theorem
Mean value
theorem
L’Hôpital’s Young’s
rule theorem
Taylor’s Inverse function

theorem theorem
Implicit function
theorem
Figure 4.7: Theorems for smooth functions
101
⃝
𝑓 (x1 ) + 𝐷𝑓 [x1 ](x2 − x1 )
𝑓 (x1 ) + 𝐷𝑓 [x2 ](x2 − x1 )
x1 x2
Figure 4.8: The mean value inclusion theorem
102
⃝
𝑓 (𝑥)
3 𝑓ˆ2
𝑓
𝑓2
2 𝑓1
𝑥
1
Figure 4.9: Approximating the exponential function
103
⃝
𝑓 (𝑥) 𝑓
𝑓3
6
𝑓2
𝑥
1 2
Figure 4.10: Adding another term extends the range of useful approximation
104
⃝
𝑓 (𝑥) 𝑓 (𝑥) 𝑓 (𝑥)
𝑥 𝑥 𝑥
Stationary Boundary Both
point point
Figure 5.1: A maximum must be either a stationary point or a boundary point or both
105
⃝
1
1
0
0 𝑥2
𝑥1
-1
Figure 5.2: A saddle point
106
⃝
Local
Saddle maximum
point
-1
0 2
𝑥1 1
1 0
-1 𝑥2
Figure 5.3: A local maximum which is not a global maximum
107
⃝
𝑥2
Indifference curve
x∗
Budget line
𝑥1
Figure 5.4: Optimum consumption occurs where the indifference curve is tangential to
the budget line
108
⃝
Optimum
1
2
1
0
0
Figure 5.5: The optimum is the highest point which is common to the objective surface
and the constraint
109
⃝
𝑥2
𝑣2 > 𝑣1
x∗
𝑔(x) = 0
𝑓 (x) = 𝑣2
x̂ 𝑓 (x) = 𝑣1
𝑥1
Figure 5.6: Tangency between the constraint and the objective function
110
⃝
∇𝑔 1 ∇𝑓 ∇𝑔 2
𝑔 2 (x) = 0 𝑔 1 (x) = 0
∗
x
Figure 5.7: A problem with two constraints
111
⃝
𝑥2
𝐷𝑔 1 (𝑥)
𝑥1
1
𝐷𝑔 2 (𝑥)
Figure 5.8: Kuhn and Tucker’s example
112
⃝
x𝑘
x∗
𝑆
Figure 5.9: x𝑘 converges to x∗ from direction x
113
⃝
Figure 5.10: Examples of the cone of tangents
114
⃝
𝑧
𝑣(c)
𝑧∗
c
0
Figure 5.11: Concave programming
115
⃝
ℜ
𝑣(𝜃)
𝑓 (𝑥1 , 𝜃)
𝑓 (𝑥2 , 𝜃)
𝑓 (𝑥3 , 𝜃)
Figure 6.1: The value function is the upper envelope of the objective functions
116
⃝
𝑣(𝜃)
1
𝜃
0.5 1
Figure 6.2: The value function is differentiable except at 𝜃 = 0.5
117

Venn Diagrams and Set Relations in Foundations of Mathematical Economics

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Venn Diagrams and Set Relations in Foundations of Mathematical Economics

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Figure from Foundations of Mathematical Economics

c 2001 Massachusetts Institute of Technology. All rights reserved.

Figure 1.1: Venn diagrams

Figure 1.2: The coordinate plane ℜ2

Figure 1.3: A consumption set with two commodities

symmetric not symmetric

Equivalence induces ∼ Order

Figure 1.4: Types of relations

Figure 1.5: A relation

Figure 1.6: Integer multiples

Figure 1.7: A simple lattice in ℜ2

{a,b,c} {a,b,d} {a,c,d} {b,c,d}

{a,b} {a,c} {a,d} {b,c} {b,d} {c,d}

{a} {b} {c} {d}

Figure 1.8: The lattice of subsets of a four element set

Figure 1.9: A lattice which is not a sublattice

Figure 1.10: The strong set order

Figure 1.11: The triangle inequality

Figure 1.12: An open ball and its neighborhood

Figure 1.13: Unit balls in ℜ2

Figure 1.14: Interior and boundary points

Figure 1.15: The relative topology of the consumption set

Figure 1.16: The sum of two sets

Figure 1.17: The line through x and y

Figure 1.18: An aﬃne set in the plane

Figure 1.19: The line joining two points

Figure 1.20: Convex and nonconvex sets

Figure 1.21: Two convex hulls

None Finite Inﬁnite

Figure 1.22: Sets with and without extreme points

Figure 1.23: Faces and extreme points

Figure 1.24: A three dimensional cube.

Figure 1.25: A polytope and a simplex

Figure 1.26: Some simplices

Figure 1.27: Illustrating the changing sectoral distribution of employment in the US

Figure 1.28: Outcomes in a three player cooperative game

Figure 1.29: Mixed strategies in Rock-Scissors-Paper

Figure 1.30: Some cones in ℜ2

Figure 1.31: The conic hull of 𝑆

Figure 1.32: Caratheodory’s theorem for cones

Figure 1.33: Invalid intersections of subsimplices

Figure 1.34: A simplicial partition

Figure 1.35: An admissibly labeled partition of a one dimensional simplex

Figure 1.36: An admissibly labeled simplicial partition

Figure 1.37: The theorem of Pythagorus

Figure 1.38: The relative interiors of Δ1 and Δ2

Figure 1.39: Lexicographic preferences are not continuous

Figure 2.1: A function mapping 𝑋 to 𝑌

Figure 2.2: The functions 𝑓 (𝑥) = 𝑥2 and 𝑓 (𝑥) = 𝑥3

Figure 2.3: Rotation of a vector

Figure 2.4: A downward sloping demand function

Figure 2.5: The exponential function

Figure 2.6: A total cost function

Figure 2.7: Illustrating a function from ℜ𝑛 → ℜ𝑚

Figure 2.8: A function from ℜ2 → ℜ

Figure 2.9: A vertical cross section of Figure 2.8

Figure 2.10: Horizontal cross-sections (contours) of Figure 2.8

Figure 2.11: A Cobb-Douglas function and three useful cross-sections

Relation Function Correspondence

Figure 2.12: Comparing a relation, a correspondence and a function

Figure 2.13: The graph of a correspondence

Figure 2.14: The log function