Thursday, January 12, 2006

 

Help me out

When I was reading "economic truth's" explanation of the Edgeworth box, I couldn't help but notice they failed to match the two parties with their proper indifference curves. I may be wrong, but I read it to mean that party 1's indifference curves are the lower two curves (concave to party 1's origin) and party 2's indifference curves are the upper two curves (concave to party 2's origin). Here's the problem: indifference curves are convex to the origin!

If you don't believe me, I think Wikipedia got it right: "The curves are convex, which is a consequence of the assumption that as consumers have less and less of one good, they require more of the other good to compensate (corresponding to the law of diminishing marginal utility)."

Comments:
Nice point, but I guess to the Austrians we're just being stupid anyway....
 
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