contract curve

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The locus of Pareto-efficient allocations in an exchange economy. In an Edgeworth box the contract curve is the set of tangency points between the indifference curves of the two consumers. It is termed the contract curve since the outcome of negotiation about trade between two consumers should result in an agreement (a ‘contract’) that has an outcome on the contract curve. The competitive equilibrium of an economy is always located on the contract curve.

Subjects: Economics.

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