Pure exchange with two agents

This Simulation

This simulation models a pure exchange economy involving two agents, A and B, and two goods, X and Y, each with fixed total quantities of 1000 units.

These goods are visually represented on the Edgeworth Box to the right. In this chart, the quantity of good X for agent A is measured from left to right, while the quantity of good Y for agent A is measured from bottom to top. Agent B's holdings are determined by the remaining units (total units in the economy minus agent A's allocation).

To interact with the simulation, you can click and drag on the chart to select any allocation of goods between agents A and B. Once your desired allocation is set, pressing the 'Run Trade' button will initiate the trading process. Agents will engage in trade based on their utility functions—mathematical representations of their preferences that reflect how much satisfaction or utility they derive from various combinations of goods. Trading continues until no further mutually beneficial exchanges can be made, signifying a state of equilibrium.

Additionally, by using the 'Random Trades' option, the simulation will execute multiple iterations, starting with different random initial allocations. This helps in understanding the range of possible outcomes given varied starting conditions, and can illustrate the principles of Pareto efficiency—where resources cannot be reallocated to make one individual better off without making another worse off.

In equilibrium, you'll observe a curve known as the contract curve. It represents the set of allocations where no further beneficial trades are possible for either agent. Essentially, it shows the boundary of optimal trades, where both agents' utilities are maximized given their constraints.

At the bottom right of the chart, the simulation displays the proportion of good Y traded per unit of good X, reflecting the price of good X in terms of good Y—this is the price ratio X:Y. Two specific ratios are highlighted: the spot price and the average price. The spot price is the ratio for the most recent trade, showing the current market rate, while the average price is calculated across all trades from the initial endowment, giving an indication of overall trading behavior.