the edgeworth box

the edgeworth box - 17.b. The Edgeworth Box The Edgeworth...

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17.b. The Edgeworth Box The Edgeworth Box is a graphical tool that allows its users to examine how trade between two individuals would work. The basic idea behind the Edgeworth Box is that there are two consumers, Consumer A and Consumer B, both endowed with two goods, Good X and Good Y. Now suppose that both consumers have the following indifference curves: Figure 17.b.1: Consumer A Consumer B Y A Y B IC 2 A IC 2 B IC 1 A IC 1 B X A X B

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Figure 17.d. 2 : Now in order for us to create an Edgeworth Box for Consumer A and Consumer B, we must place them within the same market. To do this, we simply take one of the consumers, say Consumer B, reflect their indifference curves about the x and y axes, and place them on the same graph as the other consumer, Consumer A. Figure 17.b.2: Y A X B 0 B IC 2 A IC 1 A IC 1 B IC 2 B 0 A X A Y B Figure 17.b. 3 : Let’s take the Edgeworth Box one step further to show the endowments of Consumer A and Consumer B. Assume that Consumer A is endowed with 35 units of good X and 70 units of
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This note was uploaded on 05/05/2010 for the course ECON 303 taught by Professor Cheng during the Spring '07 term at USC.

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the edgeworth box - 17.b. The Edgeworth Box The Edgeworth...

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