1907 10-11 10F Efficiency in Exchangooa 6C Is B efficient? Hint:is the MRS equal at B? James's Karen's Clothing Clothing Is C efficient? and D? Ux3 UK2 6C 0 James's Food 10F Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 10-11 A Karen’s Clothing Karen’s Food UK U 1 K U 2 K3 James’s Clothing James’s Food UJ1 UJ2 UJ3 B C D Efficiency in Exchange 10F 0K 0J 6C 10F 6C Is B efficient? Hint: is the MRS equal at B? Is C efficient? and D?
10-12 0 Efficiency in Exchange Efficient Allocations Any move outside the shaded 10F Karen's Food area will make one person worse off(closer to their origin). B is a mutually beneficial mes's Karen's trade--higher indifference Clothing curve for each person. Trade may be beneficial but U,1 311 not efficient. 0 James's Food 10F MRS is equal when indifference curves are tangent and the allocation is efficient. Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 10-12 Efficiency in Exchange A Karen’s Clothing Karen’s Food UK U 1 K U 2 K3 James’s Clothing James’s Food UJ1 UJ2 UJ3 B C D 10F 0K 0J 6C 10F 6C • Efficient Allocations – Any move outside the shaded area will make one person worse off (closer to their origin). – B is a mutually beneficial trade--higher indifference curve for each person. – Trade may be beneficial but not efficient. – MRS is equal when indifference curves are tangent and the allocation is efficient
190 10-13 Efficiency in Exchange ·The Contract Curve -To find all possible efficient allocations offood and clothing between Karen and James,we would look for all points of tangency between each of their indifference curves. Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 10-13 Efficiency in Exchange • The Contract Curve – To find all possible efficient allocations of food and clothing between Karen and James, we would look for all points of tangency between each of their indifference curves
10-14 E,F,&G are The Contract Cuaves Food Pareto efficient.If a change improves efficiency,everyone benefits. Contract Curve James's Karen's Clothing Clothing 0 James's Food Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 10-14 The Contract Curve 0J James’s Clothing Karen’s Clothing 0K Karen’s Food James’s Food E F G Contract Curve E, F, & G are Pareto efficient . If a change improves efficiency, everyone benefits