The exchange theory is most vital and practical theory in Advanced Microeconomics. Such theory is firstly formulated by F.Y. Edgeworth. He has assumed that there are two individuals and they exchange two commodities with each other. In the market, there are many commodities supplied and many commodities are exchanged. Two individuals bargain with each other to exchange commodities. Every individual [...]
The first theorem of welfare economics is based on the two assumptions: 1. In the economy, all commodities are competitive. The equilibrium in the economy is Pareto efficient. 2. There is market for all commodities. Each commodity is produced in the economy and consumption of commodity ads to utility function. In an economy, all markets are competitive. Consumers and producers [...]
Edgeworth diagram is divided into two types. The horizontal side of the box measures a fixed total output of good 1 and the vertical side measures a fixed total output of good 2. Individual 1's consumption of good 1 is measured horizontally from the origin at o1. His/ her consumption of good 2 is vertical from o1. In the diagram, [...]