Chapter 1

Chapter 1: Review of Fundamentals
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Duong T. PHAM
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Duong T. PHAM 1 / 40
The goals for this lecture
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Students will be able to identify and to use set properties and set
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notations, perform set operations, and solve applications involving
sets.
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g.
Students will understand different functions and know how to
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construct mathematical models
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Sets and subsets
Definition (Sets and Elements).

A set is a collection of items, referred to as the elements of the set.
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Visualizing a Set
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g.
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Sets and subsets
Examples
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We usually use a capital letter
to name a set and braces to W = {Amazon, eBay, Apple}
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enclose the elements of a set. N = {1, 2, 3, ...}
x ∈ A means that x is an
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element of the set A. If x is not Amazon ∈ W (Was above)
g.
an element of A, we write Microsoft ∈
/ W, 2∈N
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x∈ / A.
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Sets and subsets
B = A means that A and B have the same elements. The order in
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which the elements are listed does not matter.
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Examples: {5, −9, 1, 3} = {−9, 1, 3, 5}, {1, 2, 3, 4} =
6 {1, 2, 3, 6}
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B ⊆ A means that B is a subset of A; every element of B is also an
g.
element of A.
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Examples: {1, 2, 3, 4} ⊆ {1, 2, 3, 4, 5},
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Let W = {Amazon, eBay, Apple}. Then {Amazon, eBay} ⊆ W
Sets and subsets
If all the elements in a set B are in a set A, but not all the elements
of A are in B, then B is a proper subset of A , and we write B ⊂ A
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Examples: {1, 2, 3, 4} ⊂ {1, 2, 3, 4, 5}, {1, 2, 3} ⊂ N
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∅ is the empty set, the set containing no elements. It is a subset of
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every set.
Examples: ∅ ⊂ W , ∅⊆W
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A finite set has finitely many elements. An infinite set does not
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have finitely many elements.
Examples: {1, 2, 3, 4} is finite set. It has 4 elements.
The set N = {1, 2, 3, . . . } is an infinite set.

Sets and subsets
Some economic examples

The set of firms producing a particular good =⇒ industry for that
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good.
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The set of buyers and sellers of a good =⇒ market for that good.
The set of quantities of goods and services that a consumer is
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physically capable of consuming =⇒ consumption set for the
consumer.
g.
The set of bundles of goods and services that a consumer can afford
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to buy =⇒ budget set of the consumer.
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The set of output quantities a firm is technologically capable of

producing and the input quantities required to produce these =⇒
production set for the firm.
Venn Diagrams
We can visualize sets and relations between sets using Venn diagrams.
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In a Venn diagram we represent a set as a region, often a disk
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The elements of A are the points inside the region.
Set operations
Definition.
The union of two sets A and B is the set of all elements formed by
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combining all the elements of set A and all the elements of set B into one
set. It is written A ∪ B.
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A ∪ B = {x : x ∈ A or x ∈ B}.
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Set operations
Definition.
The intersection of two sets A and B is the set of all elements that are
common to both A and B. It is written A ∩ B.
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A ∩ B = {x : x ∈ A and x ∈ B}.
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Example. Let A = {a, b, c, d} and B = {c, d, e, f }. Then

A ∪ B = {a, b, c, d, e, f }, A ∩ B = {c, d}
Set operations
Definition.
The set of all elements under consideration is called the universal set U.
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Example. The set R of all real numbers is a universal set. All other types
of numbers (integers, rational numbers, irrational numbers ) are subsets of
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the universal set of real numbers.
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Definition.
The complement of a set A is defined as the set of elements that are
g.
contained in U, the universal set, but not contained in set A.
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A or A0 = {x ∈ U : x ∈
/ A}
Example. In the universal set R, the complement of the set (−1, 1) is
(−1, 1)0 = (−∞, −1] ∪ [1, ∞)
Relative difference
Definition.
The relative difference of X and Y , denoted X − Y (or X \ Y ), is the set
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of elements of X that are not also in Y .
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Example. Let A = {a, b, c, d} and B = {c, d, e, f }. Then
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A − B = {a, b} , B − A = {e, f }
g.
Example. Let R be the set of real numbers. Then
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R − (−2, 3) = (−∞, −2] ∪ [3, ∞)
[−5, 5] − (0, 2] = [−5, 0] ∪ (2, 5]
Example - Customer Interests
NobelBooks.com maintains a database of customers and the types of

books they have purchased. In the company’s database there is the
set of customers
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S = {Einstein, Bohr, Millikan, Heisenberg, Schrödinger, Dirac}.
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A search of the database for customers who have purchased
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cookbooks yields the subset
g.
A = {Einstein, Bohr, Heisenberg, Dirac}.
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Another search, this time for customers who have purchased
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mysteries, yields the subset
B = {Bohr, Heisenberg, Schrödinger}.
A = {Einstein, Bohr, Heisenberg, Dirac}

B = {Bohr, Heisenberg, Schrödinger}.
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A ∪ B = {Einstein, Bohr, Heisenberg, Schrödinger, Dirac}

A ∩ B = {Bohr, Heisenberg}
S = {Einstein, Bohr, Millikan, Heisenberg, Schrödinger, Dirac} → universal set
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A = {Einstein, Bohr, Heisenberg, Dirac} → people purchased cookbooks
B = {Bohr, Heisenberg, Schrödinger} → people purchased mysteries
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Exercise. Use set operations to describe the following subsets:
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(i) C = The subset of customers who have purchased either cookbooks or
mysteries
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(ii) D = The subset of customers who have purchased both cookbooks and
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mysteries
(iii) E = The subset of customers who have not purchased cookbooks
(iv) F = The subset of customers who have purchased cookbooks but have not
used their first-time customer discount
Functions
Definition.
Let A and B be sets. A function f : A → B is an assignment of exactly
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one element of B to each element of A.
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Ex: Let A = {Tom, Hai, Thao, David, Nam} and B = {1, 2, 3, 4, 5}. The
grades of students in A are given by
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Tom 1 The assigment grade of the
g. students is a function.
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Hai 2
grade(Tom) = 2;
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Thao 3 grade(Hai) = 2;
grade(Thao) = 4;
David 4
grade(David) = 3;
Nam 5 grade(Nam) = 1.
Domain, Range, Image and Pre-image
Definition.
Let f : A → B be a function. We call f maps A to B and
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The set A is called the domain of f . The set B is called the
codomain
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If f (a) = b, then b is called the image of a and a is called the
pre–image of b.
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The set f (A) = {f (a)| a ∈ A} is called the range of f .
g.
{Tom, Hai, Thao, David, Nam} =
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grade
Tom 1 domain
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Hai 2 {1, 2, 3, 4, 5} = codomain

Thao 3 range(grade) = {grade(Tom), grade(Hai),
David 4 grade(Thao), grade(David), grade(Nam)}
Nam 5 = {2, 2, 4, 3, 1} = {1, 2, 3, 4}
Diagrams for a function f
Machine diagram for a function f
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Arrow diagram for a function f
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Graphs
Definition.
Let f : A → B be a function. The graph of f is the set
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{(a, b)| a ∈ A and b = f (a)}
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Ex: Find the graph of the function f : R → R defined by f (x) = 2x + 1.
Ans: The graph of f is {(x, 2x + 1) | x ∈ R}
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g. y
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1
-1
x
Linear functions
Definition.
The function y = ax + b is a linear function. Here a is the slope of the
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function.
Remark. - Graph of a linear function is a straight line.
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- Linear functions grow at a constant rate
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Example. Consider the function f (x) = 3x − 2.
g.
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The function increases at the rate 3.
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Whenever x increases by 1, the value

of f (x) increases by 3.
Linear Functions - Application
Example. An anticlot drug can be made for $10 per unit. The total cost
to produce 100 units is $1500.
(a) Assuming that the cost function is linear, find its rule.
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(b) What are the fixed costs?
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Ans. (a) Since the cost function is linear, its rule is of the form
C (x) = mx + b.
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The cost per item is 10. Thus, m = 10. Therefore, C (x) = 10x + b.
g.
Since the total cost to produce 100 units is $1500,
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C (100) = 1500 =⇒ 10 × 100 + b = 1500 =⇒ b = 500.
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The cost function is C (x) = 10x + 500.

(b) The fixed costs are
C (0) = 10 × 0 + 500 = $500.
Linear Functions - Application
In a linear cost function C (x) = mx + b, the marginal cost is m
(the slope of the cost line) and the fixed cost is b (the y -intercept
of the cost line). The marginal cost is the cost of producing one
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more item.
Similarly, in a linear revenue function R(x) = kx + d, the marginal
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revenue is k (the slope of the revenue line), which is the revenue
from selling one more item.
T.
Ex. The cost function in produc-
g. ing a good is given by
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C (x) = 250x + 213, 000$.
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The good is sold at the price 550$

per item. The revenue function is
R(x) = 550x$.
Polynomials
Definition.
A function P is called a polynomial if
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P(x) = an x n + an−1 x n−1 + . . . + a1 x + a0
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where n is a nonnegative integer, and a0 , a1 , . . . , an are coefficients.
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The domain of P is R = (−∞, ∞). If an 6= 0, the degree of P is n.
Example.
g.
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A linear function y = ax + b is a polynomial of degree 1,
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A polynomial of degree 2 has the form y = ax 2 + bx + c and is

called a quadratic function,
A polynomial of degree 3 has the form y = ax 3 + bx 2 + cx + d and
is called a cubic function.
Polynomials - Application
In business, the revenue from the sales of an item is given by
Revenue = (price per item) X (number of items sold).
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The cost to manufacture and sell these items is given by
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Cost = Fixed Costs + Variable Costs,
T.
where the fixed costs include such things as buildings and machinery
g.
(which do not depend on how many items are made) and variable
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costs include such things as labor and materials (which vary,
depending on how many items are made).
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Then
Profit = Revenue - Cost
Polynomials - Application
Ex. A manufacturer of scientific calculators sells calculators for $12 each
(wholesale) and can produce a maximum of 150,000. The variable cost
of producing x thousand calculators is 6995x − 7.2x 2 dollars, and the
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fixed costs for the manufacturing operation are $230,000. If thousand
calculators are manufactured and sold, find expressions for the revenue,
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cost, and profit.
Sol. If x thousand calculators are sold at $12 each, then
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Revenue = price per item × number of items sold
g.
R = 12 × 1000x = 12000x, where x ≤ 150.
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The cost of making x thousands item is
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Cost = fixed costs + variable costs

C = 230000 + (6995x − 7.2x 2 ), x ≤ 150.
The profit is P = R − C = 12000x − (230000 + 6995x − 7.2x 2 )
P = 7.2x 2 + 5005x − 230000, x ≤ 150.
Polynomials Applied Example -Supply-Demand Function
Definition.
A demand equation expresses the relationship between the unit price
and the quantity demanded. The graph of the demand equation is
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called a demand curve
A demand function defined by p = f (x) , where p measures the unit
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price and x measures the number of units of the commodity in
question, is generally characterized as a decreasing function of x; that
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is, p = f (x) decreases as x increases.
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Definition.
The equation that expresses the relation between the unit price and
the quantity supplied is called a supply equation, and its graph is
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called a supply curve.
A supply function defined by p = f (x) is generally characterized as an
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increasing function of x; that is, p = f (x) increases as x increases.
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Definition.
Market equilibrium corresponds to the point at which the demand
curve and the supply curve intersect.
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x0 represents the equilibrium quantity, and p0 represents the
equilibrium price.
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Example. The demand function for a certain brand of Bluetooth wireless
headsets is given by
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p = d(x) = −0.025x 2 − 0.5x + 60
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and the corresponding supply function is given by
p = s(x) = 0.02x 2 + 0.6x + 20
T.
where p is expressed in dollars and x is measured in units of a thousand.
g.
Find the equilibrium quantity and price.
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Ans. The equilibrium quantity and price satify

(
p = −0.025x 2 − 0.5x + 60
p = 0.02x 2 + 0.6x + 20
Substituting the first equation into the second yields
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0.02x 2 + 0.6x + 20 = −0.025x 2 − 0.5x + 60
0.45x 2 + 1.1x − 40 = 0
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⇐⇒
400
⇐⇒ x = 20 or x = − (rejected) - Why ?
T.
9
Therefore, the equilibrium quantity is 20,000 headsets.
g.
The equilibrium price is given by
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p = 0.02(20)2 + 0.6(20) + 20 = 40.
or $40 per headset
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Figure: The supply curve and the demand curve intersect at the point (20, 40)
Power Functions
A function of the form y = x α where α is a constant is called a power

function.
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Remark: Note here that α is a real number.
If α = n where n is a positive integer, then y = x n is a polynomial
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of degree n;
The domain of y = x n is R.
T.
If α = 1/n where n is a positive integer, then y = x 1/n is called a
root function.
√
g.
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Note: y = n x ⇒ y n = x and
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(
√n
R+ = [0, ∞) if n is even
domain of y = x is
R if n is odd
Power Functions
√
n
y= x
y √
y
y= 3
x
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√
y= x
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x
T.
x
1
y = x −1 = ; g.
domain is R\{0}
x
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Exponential Functions
Definition.
Exponential functions are the functions of the form f (x) = ax where
a > 0.
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The domain = R
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The range = {positive numbers}
T.
y y
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x
1
y = 2x y=
2
x x
Exponential Functions -Application
Exponential Growth Function

Under normal conditions, growth can be described by a function of
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the form
f (t) = y0 e kt or f (t) = y0 b t ,
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where f (t) is the amount present at time t, y0 is the amount present
at time t = 0, and k and b are constants that depend on the rate of
T.
growth.
g.
When f (t) = y0 e kt , and k > 0, we describe f (t) as modeling
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exponential growth, and when k < 0, we describe f (t) as modeling
exponential decay.
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When f (t) = y0 b t , and b > 1, we describe f (t) as modeling

exponential growth, and when 0 < b < 1, we describe f (t) as
modeling exponential decay.
Example. Since the early 1970s, the amount of the total credit market
(debt owed by the government, companies, or individuals) as a percentage
of gross domestic product (GDP) can be approximated by the exponential
function
f (t) = y0 e 0.02t ,
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where t is time in years, t = 0 corresponds to the year 1970, and f (t) is
a percent. (Data from: Federal Reserve.)
PH
Ques. If the amount of total credit market was 155% of the GDP in 1970,
find the percent in the year 2005.
T.
Ans. Since y0 represents the percent when t = 0 (that is, in 1970) we
have y0 = 155. So the growth function is f (t) = 155e 0.02t . To find the
g.
percent of the total credit market in the year 2005, evaluate f (t) at t = 35
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(which corresponds to the year 2005):
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f (t) = 155e 0.02t

f (35) = 155e 0.02(35) ≈ 312.
Hence, the percent of the total credit market in the year 2005 was
approximately 312% of GDP.
Logarithmic Functions
Definition.
The logarithmic functions f (x) = loga x, where the base a is a positive
constant, are the inverse functions of the exponential functions.
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Domain = (0, ∞)
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Range = (−∞, ∞)
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g.
on
y = log2 x
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Functions Concavity, Convexity
Definition.
The function f is concave if
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f (x̄) ≥ λf (x 0 ) + (1 − λ)f (x 00 )
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where x̄ = λx 0 + (1 − λ)x 00 and λ ∈ [0, 1]. It is stricly concave if the
strict inequality holds when λ ∈ (0, 1).
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Functions Concavity, Convexity
Definition.
The function f is convex if
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f (x̄) ≤ λf (x 0 ) + (1 − λ)f (x 00 )
PH
where x̄ = λx 0 + (1 − λ)x 00 and λ ∈ [0, 1]. It is stricly convex if the strict
inequality holds when λ ∈ (0, 1).
T.
g.
on
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Additional Exercises in the book Mathematics for
Economics 3rd edition by M. Hoy et al.
AM
PH
1 Pages 21–23
T.
2 Pages 56–58
g.
on
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Chapter 1: Review of Fundamentals

Definition (Sets and Elements).

B = A means that A and B have the same elements. The order in

Let W = {Amazon, eBay, Apple}. Then {Amazon, eBay} ⊆ W

have finitely many elements.

Examples: {1, 2, 3, 4} is finite set. It has 4 elements.

The set N = {1, 2, 3, . . . } is an infinite set.

Some economic examples

The set of output quantities a firm is technologically capable of

The elements of A are the points inside the region.

Example. Let A = {a, b, c, d} and B = {c, d, e, f }. Then

Example. In the universal set R, the complement of the set (−1, 1) is

(−1, 1)0 = (−∞, −1] ∪ [1, ∞)

R − (−2, 3) = (−∞, −2] ∪ [3, ∞)

[−5, 5] − (0, 2] = [−5, 0] ∪ (2, 5]

NobelBooks.com maintains a database of customers and the types of

mysteries, yields the subset

B = {Bohr, Heisenberg, Schrödinger}.

A = {Einstein, Bohr, Heisenberg, Dirac}

A ∪ B = {Einstein, Bohr, Heisenberg, Schrödinger, Dirac}

S = {Einstein, Bohr, Millikan, Heisenberg, Schrödinger, Dirac} → universal set

Hai 2 {1, 2, 3, 4, 5} = codomain

Whenever x increases by 1, the value

The cost function is C (x) = 10x + 500.

The good is sold at the price 550$

A polynomial of degree 2 has the form y = ax 2 + bx + c and is

In business, the revenue from the sales of an item is given by

Revenue = (price per item) X (number of items sold).

Cost = fixed costs + variable costs

p = s(x) = 0.02x 2 + 0.6x + 20

Ans. The equilibrium quantity and price satify

Substituting the first equation into the second yields

p = 0.02(20)2 + 0.6(20) + 20 = 40.

or $40 per headset

A function of the form y = x α where α is a constant is called a power

Exponential Growth Function

When f (t) = y0 b t , and b > 1, we describe f (t) as modeling

f (t) = 155e 0.02t

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