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Edgeworth Box Pareto Efficient Equilibrium via Competition

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An initial endowment point b located elsewhere than the Pareto-efficient equilibrium point a can lead to competitive exchange resulting in point a, if point b allows both individuals to benefit from trade. Trading portions of their initial endowments can make both individuals better off by reaching point a.

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6. (10 points) In an Edgeworth box, illustrate that a Pareto-efficient equilibrium, point a, can be obtained by competition, given an appropriate endowment. Do so by identifying an initial endowment point, b, located somewhere other than at point a, such that the competitive equilibrium (resulting from competitive exchange) is a. Explain.

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