Mathematics for Doctoral Economics I Scott Hacker © 2023

Introduction to Topology and Its Use in Economics 1

Topology investigates the properties of sets and mappings between sets.

An introduction to topology often discusses distance measures, an issue already covered
in the matrix algebra material for this course. The issue of set convexity is also typically
covered in introducing topology, and this issue was previously covered in this course
with the discussion of quasiconcavity/quasiconvexity.

I. Set types: open/closed, bounded/not bounded, compact/not compact

A. Open and closed ε-balls

An open ball set is one in which all members of the set have a distance from some center
point that is less than some given value, ε.
A closed ball set is one in which all members of the set have a distance from some center
point that is less than or equal some given value, ε.
See the examples below. 2

Open epsilon balls Closed epsilon balls

(2 examples directly below) (2 examples directly below)

( ∙ ) [
∙ ]
{

{
{

ε ε ε ε

ε ε

∙ ∙

1
This document has borrowed extensively from the sources in the references, including wording, so do not
quote from this document, but go to those original sources instead.
2
Note that dashed lines, “(“, or “)” are used on the edge of a graphed set (which are balls on this page) to
indicate the edge of that set is not included in the set, and that solid lines, “[“, or “]” are used on the edge of
a graphed set to indicate the edge of that set is included in the set.

1
B. Open sets in ℝn and theorems on opens sets

An open set, S ⊂ ℝn, is a set in which all elements of the set are within open balls of any
radius.
The left graph below is an example of an open set. The right graph below is the same
open set with various open balls included within it; we could continue to add open balls
of various radiuses to the right graph to completely cover the whole space of elements
included in the open set.

Note the following are open sets in ℝn :

1. The empty set, ∅

2. The entire ℝn space
3. The union of open sets
4. The intersection of a finite number of open sets.

2
 C. Closed sets in ℝn and theorems on closed sets

A closed set, S ⊂ ℝn, is a set which has an open complement set, SC.

The set shown to the left below is open ….so the outer set (its complement) is
closed. 3

The set shown to the left below is open … so the inner set (its complement) is closed.

Note the following are closed sets in ℝn :

1. The empty set, ∅

2. The entire ℝn space
3. The union of a finite number of closed sets
4. The intersection of closed sets.

3
Note that for a graphed set in this document, a ragged edge without a dashed- or solid-line shown on the
edge indicates the set continues infinitely beyond that ragged edge.

3
D. Bounded sets

A bounded set is a set that can be entirely contained within some ε-ball (open or
closed) with finite radius.

Both of the sets shown below are bounded, since each fits within a finite-radius.

Neither of the sets shown below are bounded, since for each there is no finite-radius ball
that can contain the entire set.

4
E. (Heine-Borel) Compact sets

A compact set is a set that is both closed and bounded.

Examples of set type combinations

Not closed closed
Not bounded
( > [ >
y
y

k x k x

(x,y) such that x > k (x,y) such that x ≥ k

bounded
( ) [ ]

compact

Note: Each cell shows two examples.

5
II. Functional continuity

There is continuity at a point along a function if a small change in one of its function’s
arguments results in only small changes in function’s value. If this is true throughout the
domain of the function, then it is a continuous function.
The figure to the left below demonstrates a continuous function. The figure to the right is
not a continuous function, since when x is near 𝑥𝑥0 , a small change in x can result in a
change in f(x) that is not small.

f(x) f(x)
f(x)

∙a

x x0 x

III. Sequences

A sequence in ℝn is a function mapping some infinite subset I of positive integers into

ℝn. We shall denote a sequence by {xk}k∊I, where xk ∊ ℝn for every k ∊ I.
1 2 3 4 5…
↓ ↓ ↓ ↓ ↓…
x1 x2 x3 x4 x5 …
A convergent sequence is a sequence that converges to a single x ∊ ℝn:
lim 𝐱𝐱 𝑘𝑘 = 𝐱𝐱
𝑘𝑘→∞

which occurs only if for every ε > 0, there is a 𝑘𝑘� such that 𝐱𝐱 𝑘𝑘 ∈ 𝐵𝐵𝜀𝜀 (𝐱𝐱) for all k ∊ I
exceeding 𝑘𝑘�. [𝐵𝐵𝜀𝜀 (𝐱𝐱) represents an ε-ball around 𝐱𝐱 with radius ε and I is the set of positive
integers.]
A bounded sequence is a sequence{xk}k∊I, in which there some M ∊ ℝ such that
||xk|| ≤ M for all k ∊ I.
Every convergent sequence is bounded and every bounded sequence has a convergent
subsequence. [A subsequence is a subset of the original sequence in the same order but
with some members of the sequence removed.]

6
Example:
Let 𝑥𝑥𝑘𝑘 = (−1)𝑘𝑘 for k = 1, 2, 3, …
In this case, {xk}k∊I, is a bounded sequence as 𝑥𝑥𝑘𝑘 takes on only the values -1 and 1, but it
is not a convergent sequence. However, the subsequence
𝑥𝑥𝑘𝑘 = (−1)𝑘𝑘 for k = 2, 4, 6, … is convergent, since lim 𝑥𝑥𝑘𝑘 = 1.
𝑘𝑘→∞

IV. Existence and Maximum Theorems

A. (Weierstrass) Existence of Extreme Values

Let f: S → S be a continuous real-valued mapping where S is a non-empty compact

subset of Rn.
Then there exists a vector x* ∊ S and a vector 𝐱𝐱� ∊ S such that

𝑓𝑓(𝐱𝐱�) ≤ 𝑓𝑓(𝐱𝐱) ≤ 𝑓𝑓(𝐱𝐱 ∗ )

(a) Continuous f(x) given x ∊ [1,4] (b) Continuous f(x) given x ∊ (1,4)
A maximum must exist, as A maximum may not exist, as
demonstrated with a particular demonstrated with a particular
f(x) in the figure. f(x) in the figure.

7
B. The Maximum Theorem: The Simplest Case (p. 481 in Sydsaeter et al., 2008)

For discussing the maximum theorem, consider y as a choice variable to maximize the f
function, which is a function of both x (a vector of constants) and y.

Suppose that f is a continuous function from X × Y to ℝ, where X ⫅ ℝn and Y ⫅ ℝn, and Y

is compact, with X, Y ≠ ∅. Then:

(a) The value function V(x) = maxy∊Y f(x, y) is a continuous function of x.

(b) If the maximization problem has a unique solution y = y(x) for every x, then y(x)
is a continuous function of x.

Example: Let X = ℝ and Y ∊ [-1, 2]. Suppose that f: X × Y → ℝ is defined by f(x,y) = xy2.
If we have the optimization of maxy∊Y f(x,y) subject to -1 ≤ y ≤ 2, then the value function
is
0 if 𝑥𝑥 < 0
𝑉𝑉(𝑥𝑥) = �
4𝑥𝑥 if 𝑥𝑥 ≥ 0
which is continuous for all x, and the maximum point y(x) is unique for all x ≠ 0, so y(x)
is a continuous function for the intervals (-∞,0) and (0,∞).

8
V. Fixed-Point Theorems

A. Brouwer Fixed-Point Theorem

Let S ⊂ Rn be a non-empty compact and convex set. Let f: S → S be a continuous

function. Then there exists at least one fixed point of f in S. That is, there exists at least
one x* ∊ S such that x* = f(x*).

Example: Suppose f(x) is a continuous function that maps x from the set [0,1] to the set
[0,1]. The f(x) must cross the vertical axis somewhere in the range [0,1], e.g. at point a in
the figure, and it must cross the vertical line shown above 1 on the horizontal axis also
somewhere in the range [0,1]. Wherever the function crosses the 45-degree line f(x) = x,
there is a fixed point. Since f(x) is a continuous, it must cross the 45-degree line at some
point to get from point a to point b.

f(x)
1

f(x)
∙b
a ∙
00 x
1

Example: Consider the difference equation 𝑥𝑥𝑡𝑡 = 𝑓𝑓(𝑥𝑥𝑡𝑡−1 ), where t is a time index, and
𝑥𝑥𝑡𝑡 , 𝑥𝑥𝑡𝑡−1 ∊ [p, q] for p < q and f is a continuous function. Since [p, q] is a non-empty
convex and compact set, there must be at least one x value, x*, that is an equilibrium
value, i.e. where 𝑥𝑥 ∗ = 𝑓𝑓(𝑥𝑥 ∗ ).
[In the case of 𝑥𝑥𝑡𝑡 = 𝑎𝑎𝑥𝑥𝑡𝑡−1 + 𝑏𝑏, where a≠1 and b are constants and 𝑥𝑥𝑡𝑡 , 𝑥𝑥𝑡𝑡−1 ∊ [p, q] for
p < q , there is one equilibrium; what would it be?]

Example: With a stationary spinning disk, there must be one point on the disk that is not
moving. That is because the possible positions where points on the disk can be in space
are from a non-empty convex and compact set, and the position of a point on the disk is
continuous function of its previous position and time. However, a stationary spinning
hula hoop does not have a point on the hoop that is not moving, since the possible
positions where points on the hoop can be in space are from a set that is not convex.

9
Example: Suppose that we have a one period game in which Player 1 can move up or
down, Player 2 can move left or right, and they have the following payoff matrix, where
the 1st element in (.,.) is the payoff to Player 1 and the 2nd element is (.,.) is the payoff to
Player 2.
Player 2
Left Right
Player Up (5,3) (4,8)
1 Down (0,8) (6,3)

In this case there is no pure strategy set of the players that results in a Nash equilibrium.
However, there is a mixed strategy set (where Player 1 has a random probability of
choosing Up rather than Down, and Player 2 has a random probability of choosing Left
rather than Right). How do we know that such a mixed strategy set exists? That is due to
the Brouwer Fixed-Point Theorem. If Player 1 chooses Up with probability x ∊ [0,1] and
Player 2 chooses Left with probability y ∊ [0,1], then there must be a combination
{x, y}={x*,y*} such that no other x (given y = y*) can provide a higher payoff for Player
1, and there is no other y (given x = x*) that can provide a higher payoff for Player 2.
These results are due to the Brouwer Fixed Point Theorem: the possible {x,y}
combinations are from a set that is convex and compact (why?), and at least one of those
combinations {x*,y*} must therefore be the best response by both players:
{x*, y*} = BR({x*,y*}),
where BR is a continuous “best response function” that gives the best response x to the y
(2nd element) in BR function and the best response y to the x (1st element) in the BR
function.

In general, we can say that, due the Brouwer Fixed Point Theorem, every finite game
has at least one Nash Equilibrium if mixed strategies are allowed.

B. Kakutani’s Fixed Point Theorem

The Kakutani Fixed Point Theorem generalizes the Brouwer Fixed Point Theorem to
deal with correspondences. [p. 519 in Sydsaeter et al. (2008)].

References

Sydsaeter, K, Hammond P, Seierstad A. and Strøm. A. (2008) Further Mathematics for

Economic Analysis, 2nd ed. Harlow England: Pearson.
Jehle, G.A. and Reny, P. J. (2011) Advanced Microeconomic Theory, 3rd ed. Harlow England:
Pearson.
Sundaran, Rangarajan, K. (1996) A First Course in Optimization Theory. Cambridge, England:
The Press Syndicate of the University of Cambridge

10