Inderscience Publishers

The Edgeworth Box beyond laissez-faire

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The standard economic theory assumes that laissez-faire markets can generate Pareto optimal situations, found on the contract curve in an Edgeworth Box. This paper attempts to show that the approach of laissez-faire market economics is based on obsolete epistemological conceptions and do not establish correspondence between theory and observations. In lieu of that, the representation of a simple exchange economy in an Edgeworth Box can be widened by the new concept of the social optima zone. It highlights the inconsistencies of Pareto optimality, which can occur outside the social optima zone where gains from trade are unequally distributed and in conflict with the social goals behind economic activities.

Keywords: laissez-faire market economics, correspondence principle, social sciences, Pareto optimality, Edgeworth Box, contract curve, social optima zone, green economics, exchange economy

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