Asked by Bruno Vieira on Jun 16, 2024
Verified
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.
Contract Curve
In economics, a curve that represents the set of optimal allocations of resources or goods for which both parties can be no better off with any other division.
Efficient Allocations
The process of distributing resources in a way that optimally utilizes them to achieve maximum productivity and utility without any wastage.
- Determine the best allocation of resources in trade economies utilizing the Edgeworth box and contract curve for analysis.
Verified Answer
AS
andrei santosJun 17, 2024
Final Answer :
D
Explanation :
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.
Learning Objectives
- Determine the best allocation of resources in trade economies utilizing the Edgeworth box and contract curve for analysis.