If the two individuals' indifference curves through their endowment bundles are tangent to one another at the endowment bundle (in the Edgeworth Box), then the endowment bundle is a competitive equilibrium allocation.

Question

Quizplus · Accepted Answer

When the indifference curves of both individuals are tangent to each other at the endowment bundle, it means that they both agree on the allocation of goods. This point is Pareto efficient and is a point of maximum satisfaction for both individuals. This implies that there is no other allocation that would make one of them better off without making the other worse off. Therefore, this endowment bundle is a competitive equilibrium allocation.

If the Two Individuals' Indifference Curves Through Their Endowment Bundles