edgeworth box

In economics, an Edgeworth box, named after Francis Ysidro Edgeworth, is a way of representing various distributions of resources. Imagine two people (Octavio and Abby) with a fixed amount of resources between the two of them — say, 10 liters of water and 20 hamburgers. If Octavio takes 5 hamburgers and 4 liters of water, then Abby is left with 15 hamburgers and 6 liters of water. The Edgeworth box is a rectangular diagram with Octavio's origin on one corner (represented by the O) and Abby's origin on the opposite corner(represented by the A). The width of the box is the total amount of one good, and the height is the total amount of the other good. Thus, all possible distributions of the goods between the two people can be represented as a point in the box. center The curve connecting points O and A is often called the contract curve. Edgeworth's original two axis depiction was developed into the now familiar box diagram by Pareto in 1906 and was popularised in a later exposition by Bowley. The modern version of the diagram is commonly referred to as the Edgeworth-Bowley box.

Edgeworth Box

See also