The textbook has developed the Edgeworth box diagram and the concept of the production efficiency locus or contract curve in the context of the production of two goods with two factors. Apply the Edgeworth box apparatus to the context of consumption of two goods by two consumers, and, in particular, explain how welfare for the two consumers as a whole when on the contract curve relates to welfare when the consumers are not on the contract curve.

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The Answer is The Edgeworth box diagram can also be applied to the context of consumption of two goods by two consumers. In this scenario, the two consumers are represented by the two vertices of the box, and the allocation of the two goods between them is represented by a point within the box. The contract curve in this context represents the set of points where the two consumers have reached an efficient allocation of the two goods, such that no further reallocation can make one consumer better off without making the other worse off.

When the two consumers are on the contract curve, it means that they have reached a Pareto efficient allocation, where it is not possible to make one consumer better off without making the other worse off. In this case, the welfare for the two consumers as a whole is maximized, as they are already at the most efficient allocation of the two goods.

On the other hand, when the consumers are not on the contract curve, it means that there is potential for Pareto improvement, where it is possible to reallocate the two goods in a way that makes one consumer better off without making the other worse off. In this case, the welfare for the two consumers as a whole is not maximized, as there is still potential for a more efficient allocation of the two goods.

Therefore, the relationship between welfare for the two consumers as a whole when on the contract curve and when not on the contract curve is that being on the contract curve represents the most efficient allocation of the two goods, where welfare is maximized. When not on the contract curve, there is potential for further welfare improvement through reallocation of the two goods to reach a Pareto efficient allocation.

The Textbook Has Developed the Edgeworth Box Diagram and the Concept