The Edgeworth Box
The Edgeworth box looks at how two parties in a trade can come to an optimum agreement between themselves. One party uses the ordinary X-Y axes, and measures their utility of two goods spanning out from this. The concave curves above (that is, the two curves to the lower left) show two different utility bands. On each utility band, our consumer is receiving the same utility from the combinations of the two goods through which the band passes. Therefore, the consumer is indifferent between any point on the same utility band.
Our second party is represented by the axes along the top and to the right of the box. The axis along the top measures the same as the X-axis, except in reverse - since given a fixed amount of a good, anthing that party 1gets, party 2 doesn't. Similary for the vertical axes. Party 2's utility bands are represented by the convex curves above.
The optimum equilibrium position turns out to be where utility bands are tangential to each other. The actual positioning of this point will depend where the trading position starts at - if party 1 initially has a lot more goods than party 2, then the equilibrium position will be closer to party 2's zero-point. The set of all equilibrium optimum positions is shown on our graph by the dotted line.
Further details on the Edgeworth box can be found here.
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economic-truth is not the truth, it's just being economical with it