The Edgeworth Box

The Edgeworth box is a traditional visualization of the benefits potentially available from trade. The idea is to take some starting allocation of goods between two individuals (A and B) and determine the set of reallocations that could benefit both of them. Shown in this Demonstration as a blue region, this set is known as "the core". The locus of allocations that are "Pareto optimal" is known as the "contract curve", shown here in green. Pareto optimal allocations are those for which no changes would benefit both individuals. You can set the preferences of both individuals and relocate the starting allocation by dragging it. For each Edgeworth box, this Demonstration also shows (in the bottom graph) the utility of A and B along the contract curve ("the Pareto frontier"), the utility they possess at the starting allocation, and a mapping of the core into the "utility space".

THINGS TO TRY

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Contributed by: Seth J. Chandler

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