In an Edgeworth Box Diagram, the contract curve is not:
A)the set of Pareto optimal allocations.
B)the set of points where indifference curves are tangent.
C)the diagonal of the box.
D)the set of allocations such that Pareto- improving trades do not exist.

Question

Quizplus · Accepted Answer

The contract curve is the set of Pareto optimal allocations and can also be represented as the set of points where indifference curves are tangent. It is not the diagonal of the box, which represents the equal division of endowments. The set of allocations such that Pareto-improving trades do not exist is represented by the points outside the contract curve.

In an Edgeworth Box Diagram, the Contract Curve Is Not