Book contents
- Frontmatter
- Contents
- List of illustrations
- Introduction to the second edition
- Preface to the second edition
- Preface to the first edition
- Table of notation
- Table of assumptions
- A General equilibrium theory: Getting acquainted
- 1 Concept and history of general equilibrium theory
- 2 An elementary general equilibrium model: The Robinson Crusoe economy
- 3 The Edgeworth box
- 4 Integrating production and multiple consumption decisions: A 2 × 2 × 2 model
- 5 Existence of general equilibrium in an economy with an excess demand function
- B Mathematics
- C An economy with bounded production technology and supply and demand functions
- D An economy with unbounded production technology and supply and demand functions
- E Welfare economics and the scope of markets
- F Bargaining and equilibrium: The core
- G An economy with supply and demand correspondences
- H Standing on the shoulders of giants
- Bibliography
- Index
3 - The Edgeworth box
from A - General equilibrium theory: Getting acquainted
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- List of illustrations
- Introduction to the second edition
- Preface to the second edition
- Preface to the first edition
- Table of notation
- Table of assumptions
- A General equilibrium theory: Getting acquainted
- 1 Concept and history of general equilibrium theory
- 2 An elementary general equilibrium model: The Robinson Crusoe economy
- 3 The Edgeworth box
- 4 Integrating production and multiple consumption decisions: A 2 × 2 × 2 model
- 5 Existence of general equilibrium in an economy with an excess demand function
- B Mathematics
- C An economy with bounded production technology and supply and demand functions
- D An economy with unbounded production technology and supply and demand functions
- E Welfare economics and the scope of markets
- F Bargaining and equilibrium: The core
- G An economy with supply and demand correspondences
- H Standing on the shoulders of giants
- Bibliography
- Index
Summary
The Robinson Crusoe model in Chapter 2 describes the price system of a simple economy as a means of making efficient decentralized choices. That model focuses on the relationship of the production side of the market to the consumption side. The market in equilibrium allocates resources between competing productive uses (consumption and leisure) so as to use the available production technology to efficiently satisfy consumer demands. It is a model of the decentralized market arranging the allocation of resources in production to satisfy households. Another aspect of efficient allocation is to arrange efficient allocation of goods among consumers. Efficient allocation of resources requires both an efficient mix of outputs and an efficient allocation among consumers. In this section, we'll ignore the production decision and concentrate on the interpersonal allocation of a fixed mix of available goods. The production and consumption sides are considered together in Chapter 4.
The modeling technique we will use for this allocation decision is the brilliant and brilliantly simple device due to F. Y. Edgeworth, known as the Edgeworth box. Suppose we have fixed positive quantities of two goods, X and Y, and two households, 1 and 2. We would like to know how to allocate the fixed supplies of X and Y between the two households. Three allocation schemes will be developed: efficient allocation, a bilateral bargaining allocation, and a market equilibrium allocation.
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- Information
- General Equilibrium TheoryAn Introduction, pp. 31 - 43Publisher: Cambridge University PressPrint publication year: 2011