ECON 1011 Lecture Notes - Lecture 7: Edgeworth Box, Opportunity Cost, Autarky
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* all visuals are from online lecture notes, econ 1011. Production possibilities depend on his personal preferences, represented by his difference curves. Smith wants to do the best he can for himself. Anywhere he moves away from where indifference curve is tangent from the ppf midpoint, he will have lower utility. So we assume his baseline case is at this point, the most beneficial point. Smith would produce to the same point (on his ppf) Now, we put smith and jones together in a marketplace . Endowment points = midpoints of each of their ppf"s. Endowment point is found in the middle of the box, and the corresponding indifference curves create a lens. If there is a lens , it means they can now conceivably trade to a mutually beneficia l point if they trade within the lens. Neither individual would never trade at a ratio that"s worse than their ppf.
