Laffer curve response to the tax rate: either they lose their incentive to work, or they find a way to avoid paying taxes. Thus, the "economic effect" of a 100% tax rate is to decrease the tax base to zero. If this is the case, then somewhere between 0% and 100% lies a tax rate that will maximize revenue. Graphical representations of the curve sometimes appear to put the rate at around 50%, if the tax base reacts to the tax rate linearly, but the revenue-maximizing rate could theoretically be "any" percentage greater than 0% and less than 100%. Similarly, the curve
Contract curve the initial allocations. The analysis cannot say which particular point along the contract curve they will end up at — this depends on the two people's bargaining skills. In the case of two goods and two individuals, the contract curve can be found as follows. Here formula_1 refers to the final amount of good 2 allocated to person 1, etc., formula_2 and formula_3 refer to the final levels of utility experienced by person 1 and person 2 respectively, formula_4 refers to the level of utility that person 2 would receive from the initial allocation without trading at all, and formula_5