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CA + CB = 1 .
dCA
UA /FA
CA
=
=
.
dFA UA =constant UA /CA
FA
Bettys MRS is
dCB
UB /FB
2 F B CB
2 CB
=
=
.
=
2
dFB UB =constant UB /CB
(FB )
FB
Equating the two, the efficiency condition is
CA / FA = 2 CB / FB .
To solve for the other three variables in terms of FA , begin with FB = 1 FA . Then the
efficiency condition gives
2 FA
CB .
CA =
1 FA
Therefore
1 + FA
2 FA
1 = CA + CB =
+ 1 CB =
CB .
1 FA
1 FA
Then
1 FA
CB =
,
1 + FA
and substituting into the above equation for CA in terms of CB , finally
CA =
2 FA
.
1 + FA
Figure 1 shows the graph of this, as the thick curve extending from OA to OB . It lies above
the 45-degree line. The reason is that Betty has a relatively stronger preference for food over
clothing than does Ann. Therefore it is efficient to give Betty an appropriately lower ratio
of clothing to food than is given to Ann (CB /FB < CA /FA ). In fact the mathematics gives
a more precise relationship: CA /FA is exactly two times CB /FB .
F
B
OC
A
OC
O
B
C
B
C
A
O
A
F
A
2 PC
2 PC
2 PC
=
=
2 + 1 PF
3 PF
3 PF
CB =
1 PC
1
= .
2 + 1 PC
3
Her price-consumption curve is found by eliminating PC /PF between these to leave a relationship between FB and CB ; here it becomes simply CB = 13 , a horizontal line in the
figure.
The reason is that in Anns demand for food, the income effect of a price change exactly
offsets the substitution effect, leaving a perfectly inelastic Marshallian demand. Similarly
for Bettys demand for clothing. (Note that a similar thing happens with the labor supply
of a consumer for whom wages are the only source of income, and whose utility function is
Cobb-Douglas in consumption and leisure.)