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Offer curve


The locus of trading plans traced out as relative prices vary. For any set of relative prices there is an optimal trading plan. As relative prices vary the optimal plan changes. The offer curve is the locus of optimal plans and is constmcted by considering every feasible set of relative prices. An offer curve can be constructed for a single consumer. A set of relative prices determines a budget constraint and the optimal choice is the consumption plan that maximizes utility given the budget constraint. The offer curve of the consumer is the locus of utility maximizing choices as the budget constraint varies. In an Edgeworth box an equilibrium for a two-consumer two-good economy occurs at an intersection of the consumers' offer curves. An offer curve can also be constructed for a country. In this case it depicts the international trading plans as relative prices vary. An equilibrium in a two-country model of trade occurs at the intersection of the countries' offer curves.

Reference: Oxford Press Dictonary of Economics, 5th edt.