In a problem involving exchange, the contract curve shows:
A) all exchanges that make both parties better off.
B) the one exchange that makes both parties better off.
C) all possible allocations of goods between both parties.
D) all possible efficient allocations between both parties.

Question

Quizplus · Accepted Answer

The contract curve shows all possible efficient allocations between both parties, which means allocations where no party can be made better off without making the other party worse off. Therefore, D is the best choice. Choices A and B are incorrect because the contract curve represents efficient outcomes, not all possible outcomes where one or both parties benefit. Choice C is also incorrect because the contract curve only represents efficient allocations, not all possible allocations.

In a Problem Involving Exchange, the Contract Curve Shows