Ch29-Exchange.ppt

Chapter Twenty-Nine,Exchange,Exchange,Two consumers,A and B.Their endowments of goods 1 and 2 are E.g.The total quantities available,and,and,units of good 1,units of good 2.,and,are,Exchange,Edgeworth and Bowley devised a diagram,called an Edgeworth box,to show all possible allocations of the available quantities of goods 1 and 2 between the two consumers.,Starting an Edgeworth Box,Starting an Edgeworth Box,Width=,Starting an Edgeworth Box,Width=,Height=,Starting an Edgeworth Box,Width=,Height=,The dimensions ofthe box are thequantities availableof the goods.,Feasible Allocations,What allocations of the 8 units of good 1 and the 6 units of good 2 are feasible?How can all of the feasible allocations be depicted by the Edgeworth box diagram?,Feasible Allocations,What allocations of the 8 units of good 1 and the 6 units of good 2 are feasible?How can all of the feasible allocations be depicted by the Edgeworth box diagram?One feasible allocation is the before-trade allocation;i.e.the endowment allocation.,Width=,Height=,The endowmentallocation is,and,The Endowment Allocation,Width=,Height=,The Endowment Allocation,OA,OB,6,8,The Endowment Allocation,OA,OB,6,8,4,6,The Endowment Allocation,OA,OB,6,8,4,6,2,2,The Endowment Allocation,OA,OB,6,8,4,6,2,2,Theendowmentallocation,The Endowment Allocation,More generally,The Endowment Allocation,The Endowment Allocation,OA,OB,Theendowmentallocation,Other Feasible Allocations,denotes an allocation to consumer A.denotes an allocation to consumer B.An allocation is feasible if and only if,and,Feasible Reallocations,