The entire Pareto set is sometimes called the contract curve, while core for the section of the Pareto set which is at least as good for each consumer as the initial endowment.
12.
As with all points that are Pareto efficient, each point on the contract curve is a point of tangency between an indifference curve of one person and an indifference curve of the other person.
13.
In a competitive economy, any allocation over the utility possibility frontier is a Pareto optimum, as the UPF is a representation of the Pareto contract curve in a different dimension ( utilities versus goods ).
14.
Thus the contract curve, the set of points Octavio and Abby could end up at, is the section of the Pareto efficient locus that is in the interior of the lens formed by the initial allocations.
15.
In microeconomics, the "'contract curve "'is the set of points representing final allocations of two goods between two people that could occur as a result of mutually beneficial trading between those people given their initial allocations of the goods.
16.
He read von Neumann and Morgenstern s book : The Theory of Games and Economic Behavior, Edgeworth s analysis of the contract curve with two goods and two types of traders in his book : Mathematical Psychics, and Shubik s 1959 paper on this subject.
17.
Another equally appealing and natural outcome of the economic system was first proposed by Francis Edgeworth in his book " Mathematical Psychics ( 1881 ), and is now known as the core allocation ( in the case of two goods, it is any point in the contract curve of the Edgeworth box ).
18.
The people's initial endowments ( starting allocations of the two goods ) are represented by a point in the diagram; the two people will trade goods with each other until no further mutually beneficial trades are possible . ( Contrary to this claim neither the point of initial endowments, nor the contract curve is displayed in the actual diagram shown here . ) The set of points that it is conceptually possible for them to stop at are the points on the contract curve.
19.
The people's initial endowments ( starting allocations of the two goods ) are represented by a point in the diagram; the two people will trade goods with each other until no further mutually beneficial trades are possible . ( Contrary to this claim neither the point of initial endowments, nor the contract curve is displayed in the actual diagram shown here . ) The set of points that it is conceptually possible for them to stop at are the points on the contract curve.
20.
By varying the weighting parameter " b ", one can trace out the entire contract curve : If " b " = 1 the problem is the same as the previous problem, and it identifies an efficient point at one edge of the lens formed by the indifference curves of the initial endowment; if " b " = 0 all the weight is on person 2's utility instead of person 1's, and so the optimization identifies the efficient point on the other edge of the lens.
