A simple exchange economy

1
A simple exchange economy
2
An Edgeworth box

• Two consumers and two goods
• An allocation is an assignment of the total
  amounts of these goods between the two consumers
• Initial endowments are the initial quantities of
  the goods assigned to the two consumers
• Starting from an initial allocation show how the
  two consumers will exchange the two products to
  increase their utility

3

• The lens-shaped area
• A Pareto preferred allocation at least one
  consumer prefers it and the other is at least as
  well off
• A Pareto optimal allocation it is not possible
  to make one consumer better off without making
  the other one worse off
• The contract curve a set of all Pareto optimal
  points