Intermediate Microeconomics · free preview
The Edgeworth Box and Pareto Efficiency
Two consumers and two goods with fixed totals fit in one diagram, the Edgeworth box, A measured from one corner and B from the opposite, Pareto efficiency defined as no reallocation helping one without hurting the other, the efficient set the contract curve where the indifference curves are tangent, the diagonal in the worked identical-tastes case.
1. The box
The box
2. The improvement lens
The improvement lens
3. Efficiency and the contract curve
Efficiency and the contract curve
4. Reading efficiency
Reading efficiency
5. Reading the box
How are B's quantities measured in the Edgeworth box?
6. The lens of improvement
What does the lens between the two endowment indifference curves contain?
7. The tangency condition
What characterizes a Pareto-efficient allocation in the box?
8. The diagonal contract curve
Why is the contract curve the diagonal with identical homothetic tastes?
9. Endowment utilities
Compute A's utility at the endowment, 8 times 2, and write the number.
10. The equal split
Compute each consumer's utility at the equal split (5, 5), 5 times 5, and write the number.
11. The other side's utility
What is B's utility at the endowment bundle of 2 and 8?
12. A point up the diagonal
At t of 6 on the contract curve, A holds 6 of each good. What are the utilities?
13. The trade the lens suggests
From the endowment, which trade moves the pair into the lens toward efficiency?
14. Marginal rates at the start
What are the two consumers' MRS at the endowment, for u equal xy?
15. A's marginal rate of substitution
For u equal xy, compute A's MRS as y over x at the endowment (8, 2), and write the number to two decimals.
16. Utility at t of 2
On the contract curve at t of 2, compute A's utility as 2 squared, and write the number.
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