Econ.vision - Exchange Economy

Created by:

Developer Radi GS’23

Editor Kyla CC’24

Total Endowment X:

Total Endowment Y:

Sheila Utility:

\ln x+2\ln y

Bruce Utility:

\ln x+\ln y

Contract Curve:

Tangent Lines:

Bruce

Sheila

(10,10)

(5,5)

Total Endownment

Input the total endowment of good X and good Y. The length of the sides of the Edgeworth Box will adjust to reflect the total endowment of each good, with the horizontal sides of the Box corresponding to good X and the vertical sides corresponding to good Y.
Currently, the total endowment of good X is set at and the total endowment of good Y is set at

Tip

You can adjust the endowment in a few ways: by typing the number directly, using the up and down arrows to adjust the number, moving the slider, or pressing left and right arrows on the keyboard when the slider is selected.

Plug in Utility Functions

Input the utility functions for each person, Sheila and Bruce. The indifference curves corresponding to the respective utility functions will show up in the Edgeworth Box. Sheila’s indifference curve is in blue and Bruce’s in red.

Currently, Sheila’s utility curve is set at
Bruce’s utility curve is set at .

Display Tangents

Display the tangent lines by turning on the “tangent lines” switch. The tangent lines are tangent to the indifference curves of Sheila and Bruce at their respective currently-selected bundles. The line tangent to Sheila’s bundle is in blue, and the line tangent to Bruce’s bundle is in red. The slope of the tangent line equals the marginal rate of substitution (MRS) at that point of the indifference curve.

A Note on Theory: Marginal Rate of Substitution

The MRS is given by the value of the partial derivative of utility with respect to x divided by the partial derivative of utility with respect to y. The MRS tells us the maximum number of units of good y one is willing to give up for an extra unit of good x.

Display Contract Curve

Display the contract curve by turning on the “contract curve” switch. The contract curve shows the set of all Pareto Efficient feasible allocations in the exchange economy. At bundles along the contract curve, the two indifference curves are tangent to each other, i.e., the MRSs of both parties at their respective bundles are equal.