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Contract curve

The graphical representation of the set of outcomes of exchange between two people, having the properties. that (af neither party is worse off than he was before the exchange, and (b) neither party can be made better off without the other being made worse off. The concept was first introduced by F. Y. Edgeworth, who argued that if the parties to the exchange were rational in always accepting an exchange which made at least one of them hetter off, then the outcome of the exchange process would in fact be a point on the contract curve. Since it can be shown that resource allocations on the contract curve satisfy the definition of pareto optimality, the concept of the contract curve is also useful in that part of welfare economics concemed with assessing the optimality of the market mechanism.