Question 9 [8]

9.1. What do you understand Pareto efficient allocation to be? (2)

9.2. Explain what a contract curve is in terms of economic efficiency. (1)

9.3. With reference to the Edgeworth box theory, draw a typical contract curve between two consumers, Karen and James, to illustrate all possible efficient allocations of food and clothing for each.

Tip: In the diagram, you must show the points of tangency between each of their

indifference curves to derive the contract curve. (5)