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Use the Edgeworth Box diagram to explain how gains from trade arise. If the outcome of such trade is Pareto Optimal government intervention is unnecessary and undesirable.' Discuss.
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Use the Edgeworth Box diagram to explain how gains from trade arise. If the outcome of such trade is Pareto Optimal government intervention is unnecessary and undesirable.' Discuss. In a simple two-consumer economy, there is a possibility that both consumers can end up better off through trade with each other. If we model an economy with only two goods, and a given initial quantity of each of these goods, then we can represent the utility of the two consumers on the same diagram by using the Edgeworth Box model. If we call the consumers Abe and Boris, and a fixed initial quantity of two goods, say 100 bananas and 50 coconuts, and we assume that all the goods are distributed to just Boris and Abe, then we can represent this as follows: This diagram with one of the consumers axes inverted is an Edgeworth Box model. If we are at point X, then...
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