2 EQUILIBRIUM ANALYSIS/LINEAR MODELS 2.

2 EQUILIBRIUM ANALYSIS/LINEAR MODELS

Sets and functions

We can write the equilibrium Q = ad bc b+d a+c P = b+d

5) Complement set: The complement set of set A contains all the elements in U not included in A, denoted as A = {1, 2, 4, 5} or A = {x|x U and x A} = {1, 2, 4, 5} /

Application: Consider the universal set U = {(x, y)|px x + py y M }. Back to the linear model we have D = {(P, Q)|Q = a bP } S = {(P, Q)|Q = c + dP } and the equilibrium is found with D S = (P , Q ).

A subset of U could be S1 = {(x, y)|px x + py y = M } and hence S1 U . What is S1 ?

for the one commodity linear market model using set notations. Before doing so let us start with the denition of a set as well as some background. Denition of a set: A set is a collection of distinct objects (elements). Examples of enumerated sets are Examples: S1 = {}, S2 = {1, 2, 3}. while sets that are described could take the form S3 = {x|Real}, S4 = {x|integer, 5 x 100}, S5 = {x|x is a positive integer}, S6 = {x|2 < x < 5}. It can be nite (denumerable or countable) such that the elements can be counted by the sequence 1, 2, 3, .... . Sets S1 , S2 , S4 are nite. Sets S3 , S5 , S6 are innite. A set that is innite can be denumerable (S5 ) or not (S6 ). Set Relations: 1) Member (is an element of) and non member: and . Examples / 2 S2 8 S5 /

If the elements of a set, X, are associated with the elements of another set Y , we have a relationship. If the relationship is such that each element of a set X is associated with a single element of another set Y we have a function. A function f is a mapping from X to Y f :XY Here X is the domain of the function and the set of values that occur is called the range. Example: f associates the set of Nobel Prize winners N to the year in which the person won, an element of set T f :N T Peter A. Diamond, Dale T. Mortensen, Christopher A. Pissarides: 2010 Their analysis of markets with search frictions. Elinor Ostrom, Oliver E. Williamson: 2009 For her analysis of economic governance, especially the commons and Oliver E. Williamson for his analysis of economic governance, especially the boundaries of the rm. Paul Krugman: 2008 For his analysis of trade patterns and location of economic activity. Leonid Hurwicz, Eric S. Maskin, Roger B. Myerson: 2007 For having laid the foundations of mechanism design theory. Edmund S. Phelps: 2006

2) Subset (is contained in) and superset (includes) : and . Examples with S = {1, 3, 5, 7, 9} and T = {3, 7} T S Set Operations 3) Union and intersection: (union) and (intersection). Example with A = {3, 5, 7} and B = {2, 3, 4, 8} A B = {2, 3, 4, 5, 7, 8} A B = {3} 4) Universal set: U : Contains all elements that could be included in a set. For example, if are only interested in set of rst seven positive integer, the universal set is U = {1, 2, 3, 4, 5, 6, 7}. Then for a given set A = {3, 6, 7}, the complement is dened as follows. ST

2 EQUILIBRIUM ANALYSIS/LINEAR MODELS For his analysis of intertemporal tradeos in macroeconomic policy. Is the reverse relationship a function? If we do not have a unique value of Y for values of X, we have a between Y and X. Note that p1 x1 + p2 x2 < M is a relation.