The Edgeworth Box, introduced by Francis Edgeworth, is a graphical tool used to analyze the efficient allocation of resources between two entities, such as consumers or producers. It focuses on the distribution of two goods between two individuals within a controlled framework, offering insights into exchange efficiency and market equilibrium.

The box's dimensions are determined by the total quantities of the two goods being analyzed. For instance, if two individuals, Jamie and Morgan, share 12 bananas and 10 pears, the Edgeworth Box will map all possible ways to distribute these goods between them. The horizontal axis represents bananas, while the vertical axis represents pears. Each corner signifies an extreme allocation, with one individual possessing all goods at one end and the other individual at the opposite corner.

The Edgeworth Box assumes goods are perfectly divisible. This divisibility allows for precise and flexible allocations. Every possible distribution of goods is represented within the box. A point within the box indicates a specific distribution of goods, with each individual's share represented by the distance from the respective axes. For example, a point halfway along the horizontal axis indicates both individuals have six bananas. The vertical position of the point shows how the 10 pears are distributed between them.

Allocations change as points move along the edges or within the box. For instance, if Jamie gains more bananas, Morgan’s share decreases. This highlights trade-offs, where redistributing goods between individuals involves balancing gains and losses.

The Edgeworth Box shows all possible allocations and helps identify points of Pareto efficiency, where no individual can improve their situation without making the other worse off. These efficient outcomes form the foundation for analyzing market interactions and equilibrium. This foundation supports further analysis of market interactions and equilibrium.