This edgeworth box describes the optimal allocation (pareto efficient) of inputs for the Cobb-Douglas production functions of two countries/regions (A and B). In addition, it shows the initial endowments of inputs and the resulting area of patero improvements. Parameters that can be changes: capital intensity parameter region A/B, total amount of labour and capital in A and B, and initial endowment K and L in A.
Edit and compile if you like:% Edgeworth box - Optimal allocation of inputs for two economies % Author: Thomas de Graaff \documentclass[border=10pt]{standalone} \usepackage{pgfplots} \pgfplotsset{width=7cm, compat=1.10} \usetikzlibrary{calc, intersections} %allows coordinate calculations. \begin{document} \begin{tikzpicture}[scale=1,thick] % Define parameters \def\alpha{0.7} % Capital intensity parameter for region A. \def\beta{0.3} % Capital intensity parameter for region B. \def\L{2} % Total amount of labour in economy. \def\K{2} % Total amount of capital in economy. \def\PK{0.5} % Percentage K in A in initial endowment. \def\PL{0.5} % Percentage L in A in initial endowment. % Define isoquants \def\InitYA{((\PL*\L)^(1-\alpha))*((\PK*\K)^(\alpha))} \def\InitYB{(((1-\PL)*\L)^(1-\beta))*(((1-\PK)*\K)^(\beta))} \def\La{0.2*\L} \def\Lb{0.4*\L} \def\Lc{0.6*\L} \def\Ld{0.8*\L} \def\Ka{% \alpha*(1-\beta)*\K*\La/((1-\alpha)*\beta*(\L-\La)+\alpha*(1-\beta)*\La)} \def\Kb{% \alpha*(1-\beta)*\K*\Lb/((1-\alpha)*\beta*(\L-\Lb)+\alpha*(1-\beta)*\Lb)} \def\Kc{% \alpha*(1-\beta)*\K*\Lc/((1-\alpha)*\beta*(\L-\Lc)+\alpha*(1-\beta)*\Lc)} \def\Kd{% \alpha*(1-\beta)*\K*\Ld/((1-\alpha)*\beta*(\L-\Ld)+\alpha*(1-\beta)*\Ld)} \def\YAa{((\La)^(1-\alpha)*((\Ka)^\alpha)} \def\YAb{((\Lb)^(1-\alpha)*((\Kb)^\alpha)} \def\YAc{((\Lc)^(1-\alpha)*((\Kc)^\alpha)} \def\YAd{((\Ld)^(1-\alpha)*((\Kd)^\alpha)} \def\YBa{((\L-\La)^(1-\beta)*((\K-\Ka)^\beta)} \def\YBb{((\L-\Lb)^(1-\beta)*((\K-\Kb)^\beta)} \def\YBc{((\L-\Lc)^(1-\beta)*((\K-\Kc)^\beta)} \def\YBd{((\L-\Ld)^(1-\beta)*((\K-\Kd)^\beta)} \begin{axis}[ restrict y to domain=0:\K, samples = 100, xmin = 0, xmax = \L, ymin = 0, ymax = \K, xlabel = $L_A$, ylabel = $K_A$, axis y line = left, axis x line = bottom, y axis line style = {-}, x axis line style = {-} ] \def\LineA{(\InitYA/\x^(1-\alpha))^(1/\alpha))}; \def\LineB {\K-(\InitYB/(\L-\x)^(1-\beta))^(1/\beta)}; % color the area with all pareto improvements \addplot [fill=orange!40, opacity=0.5, draw=none,domain=0:\L] {\LineB} \closedcycle; \addplot [fill=white, draw=none,domain=0:\L] {\LineA} |- (axis cs:0,0) -- (axis cs:0,\K)--cycle; %Draw isoquants \addplot[thin, dotted, mark=none, domain=0:\L] {(\YAa/\x^(1-\alpha))^(1/\alpha)}; \addplot[thin, dotted, mark=none, domain=0:\L] {(\YAb/\x^(1-\alpha))^(1/\alpha)}; \addplot[thick, mark=none, domain=0:\L] {(\LineA}; \addplot[thin, dotted, mark=none, domain=0:\L] {(\YAc/\x^(1-\alpha))^(1/\alpha)}; \addplot[thin, dotted, mark=none, domain=0:\L] {(\YAd/\x^(1-\alpha))^(1/\alpha)}; \addplot[thin, dotted, mark=none, domain=0:\L] {\K-(\YBa/(\L-\x)^(1-\beta))^(1/\beta)}; \addplot[thin, dotted, mark=none, domain=0:\L] {\K-(\YBb/(\L-\x)^(1-\beta))^(1/\beta)}; \addplot[thick, mark=none, domain=0:\L] {\LineB}; \addplot[thin, dotted, mark=none, domain=0:\L] {\K-(\YBc/(\L-\x)^(1-\beta))^(1/\beta)}; \addplot[thin, dotted, mark=none, domain=0:\L] {\K-(\YBd/(\L-\x)^(1-\beta))^(1/\beta)}; % Draw contractcurve \addplot[mark=none, domain=0:\L, color=blue,thick] {\alpha*(1-\beta)*\K*\x/((1-\alpha)*\beta*(\L-\x)+\alpha*(1-\beta)*\x)}; % Draw initial endowments \addplot[thick, mark=*, fill=red!50] coordinates {(\L*\PL,\K*\PK)}; \end{axis} % Draw mirrored axis \begin{axis}[ restrict y to domain = 0:\K, minor tick num = 1, xlabel = $L_B$, ylabel = $K_B$, xmin = 0, xmax = \L, ymin = 0, ymax = \K, axis y line = right, axis x line = top, x dir = reverse, y dir = reverse, y axis line style = {-}, x axis line style = {-} ] \end{axis} \end{tikzpicture} \end{document}