Contract Curve

The contract curve connects all points of tangency for the indifference curves of the two consumers.

Figure 1    Contract Curve

Moreover, once an allocation is on the contract curve and is therefore Pareto-efficient, we cannot determine which production scheme is most efficient along a contract curve since movements along this curve increase the utility of one consumer at the expense of the other.

References

The Open University of Hong Kong (1998) 'General equilibrium and Pareto efficiency' in EC301 Economic Analysis of Business and Public Policies, Hong Kong: OUHK.

Pashigian, P B (1998) Price theory and application, New York: Worth.

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