Description
This video explains how to build an Edgeworth box, and how to analyse it. We start from two sets of indifference curves, then build the Edgeworth box and, finally, introduce the contract curve.
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In 1881, Francis Y. Edgeworth came up with a way of representing, using the same axis, indifference curves and the corresponding contract curve. He developed this model in his book “Mathematical Psychics: an Essay on the Application of Mathematics to the Moral Sciences”. However, the representation given, using as an example the work being done by Friday and wages being paid by Robinson Crusoe, is not the one we commonly know nowadays.
It was Vilfredo Pareto, in his book “Manual of Political Economy”, 1906, who developed Edgeworth’s ideas into a more understandable and simpler diagram, which today we call the Edgeworth box.
This diagram is widely used in welfare economics, game theory, or general equilibrium theory, to name a few subjects. It is easy to draw and can be easily explained.
Learn more by reading the dictionary entry.
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