Answer
An Edgeworth Box diagram is a two-dimensional graph that is used to analyze the production and consumption of two goods in an economy. It consists of two axes representing two goods, and a line representing the production possibilities of the two goods. Each point on the line represents a potential allocation of the two goods, and the points outside the line represent potential Pareto Optimal (P.O.) allocations that are not feasible.
P.O. Allocations Belonging to the Core
The core of the Edgeworth Box diagram consists of all the potential allocations of the two goods that are both Pareto Optimal and Pareto Superior to the endowment. Allocations that are Pareto Optimal (P.O.) belong to the core, but not all allocations that are P.O. and Pareto Superior to the endowment belong to the core.
Allocations that are P.O. and Pareto Superior to Endowment
The allocations that are P.O. and Pareto Superior to the endowment, but not in the core, are those that are P.O. but not Pareto Superior to the endowment. These allocations are outside the core and on the production possibility frontier.
Diagrammatic Representation
In a diagrammatic representation, the core is represented by the shaded area. Any points outside the core, but inside the production possibility frontier, are those allocations that are P.O. but not Pareto Superior to the endowment.
Related Questions
- What is an Edgeworth Box diagram?
- What is the core of the Edgeworth Box diagram?
- What are the allocations that are P.O. but not Pareto Superior to the endowment?
- How is the core of the Edgeworth Box diagram represented diagrammatically?
- What is a Pareto Optimal (P.O.) allocation?
- What is a Pareto Superior allocation?
- How do you analyze the production and consumption of two goods in an economy?
- What is the production possibility frontier?
- What is the difference between P.O. and Pareto Superior allocations?
- How do you identify Pareto Optimal allocations?