In economics, an Edgeworth box, sometimes referred to as an Edgeworth-Bowley box, is a graphical representation of a market with just two commodities, X and Y, and two consumers.
- The dimensions of the box are the total quantities Ωx and Ωy of the two goods.
- Any feasible allocation of the items between the individuals is included as a dot in the box.
- The individuals’ preferences over the items are represented through indifference curves.
- Convex indifference curves are considered to be the usual case.
- They correspond to diminishing returns for each good relative to the other.
- Exchange within the market starts from an initial allocation known as an endowment.
- The main use of the Edgeworth box is to introduce topics in general equilibrium theory in a form in which properties can be visualised graphically.
- It can also show the difficulty of moving to an efficient outcome in the presence of bilateral monopoly.
- In the latter case, it serves as a precursor to the bargaining problem of game theory that allows a unique numerical solution.
- Francis Ysidro Edgeworth presented it in his book Mathematical Psychics: An Essay on the Application of Mathematics to the Moral Sciences, 1881.
