An Edgeworth box is a core microeconomic tool showing resource allocation between two people (or countries) with two goods, using a rectangle whose dimensions are total goods, where each point represents a distribution and indifference curves show preferences, helping visualize gains from trade and find Pareto-efficient outcomes (where one person can't improve without harming the other) at the tangency points of their curves.
The Edgeworth Box shows all possible allocations and helps identify points of Pareto efficiency, where no individual can improve their situation without making the other worse off. These efficient outcomes form the foundation for analyzing market interactions and equilibrium.
Edgeworth's limit theorem is an economic theorem, named after Francis Ysidro Edgeworth, stating that the core of an economy shrinks to the set of Walrasian equilibria as the number of agents increases to infinity.
Example. Suppose two companies, A and B, sell an identical commodity product, and that customers choose the product solely on the basis of price. Each company faces capacity constraints, in that on its own it cannot satisfy demand at its zero-profit price, but together they can more than satisfy such demand.
In the model of competitive equilibrium in the Edgeworth Box, we'll start from an assumption that both agents are price takers: that is, they believe that they can buy and sell goods from their endowment at given, market prices.
The Marshall Edgeworth Method for the index number, credited to Marshall (1887) and Edgeworth (1925), is a weighted relative of the current period to base period sets of prices. This index uses the arithmetic average of the current and based period quantities for weighting.
The box diagram makes its first appearance on pages 28 and 113 of Francis Edgeworth's 1881 Mathematical Psychics. Motivated by a problem in micro- economic theory, Edgeworth invented the diagram and its constituent indifference-map and contract-curve components to solve the problem.
Sperner's theorem, in discrete mathematics, describes the largest possible families of finite sets none of which contain any other sets in the family. It is one of the central results in extremal set theory. It is named after Emanuel Sperner, who published it in 1928.
The four properties of indifference curves are: (1) indifference curves can never cross, (2) the farther out an indifference curve lies, the higher the utility it indicates, (3) indifference curves always slope downwards, and (4) indifference curves are convex.
What are the three basic assumptions of market equilibrium?
Three characteristics of market equilibrium are equilibrium price, quantity and the absence of shortages and surpluses. The quantity supplied by sellers equals the quantity demanded by buyers at the equilibrium price. Neither buyers nor sellers have an incentive to change from this price.
What is the relationship between indifference curve and budget line?
- Indifference curves represent combinations of goods that provide equal utility or satisfaction to a consumer. Higher indifference curves indicate greater satisfaction. - A budget line shows the combinations of goods that can be purchased given prices and income. It represents the consumer's constraints.
The Edgeworth box is used to model what is known as an exchange economy, where there are no production activities and all goods are divisible. Each individual in the exchange economy has an initial allocation of goods, and the main question is how these goods can be reallocated to improve both individuals' well-being.
An Edgeworth box (named after Irish philosopher and economist Francis Ysidro Edgeworth, 1881) is a two-dimensional representation of a simple, closed economy consisting of two individuals and two items (or resources) that are finite in supply.
In the Edgeworth Box, there are two markets simultaneously equilibrating. The prices of the two goods are displayed by a single line, which is the budget constraint faced by the two consumers. The slope of the price line, also known as the price vector, is − p 1 p 2 .
Edgeworth box , named after F.Y. Edgeworth, is a powerful tool of economic analysis used for representing various distributions of resources. In its elementary form it was presented by Edgeworth in 1881, improved upon by Pareto and Bowley. The modern version is referred to as Edgeworth-Bowley box.
The Edgeworth model highlights the complexity of duopoly competition when firms have the freedom to adjust both price and quantity, leading to strategic interactions that can drive prices down or allow firms to coordinate their actions.
A duopoly is a market structure in which there are only two firms or sellers. In a duopoly, each firm has some control over the price of the goods or services they offer, because the other firm is the only other option for consumers.
Graphically, and in a two-agent economy (see Edgeworth Box), the core is the set of points on the contract curve (the set of Pareto optimal allocations) lying between each of the agents' indifference curves defined at the initial endowments.
The four key assumptions underlying production possibilities analysis are: (1) resources are used to produce one or both of only two goods, (2) the quantities of the resources do not change, (3) technology and production techniques do not change, and (4) resources are used in a technically efficient way.
