File:Edgeworthprocess3.svg

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Summary

Description
English: An Edgeworth box showing exchange between two people. The new limits of the contract curve. If trade were to occur at point C one of the B's (say B(1)) would receive all the gains from trade. The one A who trades with B(1) (say A(1)) now has a mix of goods X and Y which he is able to trade with A(2). As the two A's are identical, they will agree to split their post-trade endowments equally between them, placing them at point P in Figure 2 which gives them a higher utility than they would otherwise receive (indifference curve U'(a) instead of U(a)). B(2) now has an opportunity and strong incentive to offer the A's a better price for their goods and trade with them at this price, leaving B(1) out in the cold. This process of B's competing against one another to offer the A's a better price will continue until the A's are indifferent between trading at P and trading on the contract curve.
Date
Source Own work based on: Edgworthprocess3.JPG and Creedy, John (1999) Development of the Theory of Exchange
Author AzaToth
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Date/TimeThumbnailDimensionsUserComment
current00:54, 14 March 2007Thumbnail for version as of 00:54, 14 March 2007550 × 386 (14 KB)wikimediacommons>AzaTothRemake of Image:Edgworthprocess3.JPG

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