Quick Answer: What Is Edgeworth Contract Curve?

What is a contract curve in economics?

In microeconomics, the contract curve is the set of points representing final allocations of two goods between two people that could occur as a result of mutually beneficial trading between those people given their initial allocations of the goods..

What is the difference between Pareto efficiency and Pareto improvement?

A Pareto improvement occurs when a change in allocation harms no one and helps at least one person, given an initial allocation of goods for a set of persons. … Conversely, when an economy is at Pareto efficiency, any change to the allocation of resources will make at least one individual worse off.

What is the meaning of indifference curve?

Definition: An indifference curve is a graph showing combination of two goods that give the consumer equal satisfaction and utility. Each point on an indifference curve indicates that a consumer is indifferent between the two and all points give him the same utility.

How do you tell if an allocation is Pareto efficient?

An allocation is Pareto efficient if there is no other allocation in which some other individual is better off and no individual is worse off. Notes: There is no connection between Pareto efficiency and equity! In particular, a Pareto efficient outcome may be very inequitable.

Why can free trade between two countries make consumers of both countries better off?

Free trade between two countries expands each country’s effective production possibilities frontier and allows each country to consume at a point above its original production possibilities frontier. … Therefore, specialization benefits consumers in both countries.

What is initial endowment?

An initial endowment ‘w’ represents the amount of commodities X & Y individuals A & B have available before trade. … One goal of general equilibrium analysis is to determine if it is possible to make individual ‘A’ and/or individual ‘B’ better off through the process of exchange given their initial endowments.

What is grand utility possibility frontier?

In welfare economics, a utility–possibility frontier (or utility possibilities curve), is a widely used concept analogous to the better-known production–possibility frontier. The graph shows the maximum amount of one person’s utility given each level of utility attained by all others in society.