Efficiency and Equity Concepts

In Intermediate Microeconomics there are two differenct efficiency concepts that are
introduced. One is from the Supply and Demand (partial equilibrium) model and is
called Social Surplus. The other is from the Edgeworth Box (general equilibrium)
model and is called Pareto Optimality. In general, these different approaches give
different implications.
Intuitively, efficiency is about making the pie as big as possible. Equity is about who gets
what slice of the pie. The issue is whether the efficient solution can be obtained
independent of how the equity issues are resolved. The partial equilibrium approach
suggests that indeed you can look at efficiency first and then look at equity second.
This enables economists to focus on efficiency, where they are most comfortable,
and leave equity concerns to philosophers or sociologists. You've probably guessed
by now that the general equilibriium approach says the two must be considered
together.
In this spreadsheet we'll review each approach separately and then look at special
assumptions on preferences (assumptions that M&R employ) which bring the
two approaches together and give the same conclusion.
Enter your NetID in the box below.
Choose your class alias from the list below.

1
We begin by looking at a linear demand curve. Suppose the quantity demanded is
denoted by Qd and the demand price is denoted by Pd. The equation for the
demand curve is given by: Pd = A - Qd.
When A =
283
and Pd =
241.5 then Qd =
When you get the question above correct, this is plotted in the graph below.
Allocating Surplus
QI
P
r
i
c
e
62
0
0
0
0
Quantity
The area under the demand curve but above the demand price up to the quantity
demanded is called the Consumer Surplus (CS). In this case the value of the CS is?
0
As before, when you get the question right the CS is plotted in the graph above.
Now we want to proceed to the supply side, but since this is review instead of an
initial derivation, we'll proceed in a somewhat non-standard way.
Suppose the quantity supplied is denoted by Qs and the supply price is denoted
by Ps. The equation of the supply curve is given by: Ps = C + Qs
When C =
62
and Ps =
241.5 then Qs =
When you get this question right the supply curve is plotted in the same graph.
Evidently when the prevailing market price is 241.5 there is excess supply.
Suppose trade actually occurs at this price though it is an out of equilibrium
situation. Since buyers are on the short side of the market, it is reasonable to
conclude that all buyers who want to buy at this price can. It's on the long side where
we must do some hand waving, since some sellers will be rationed at this price.
Let's assume that the rationing is efficient - the lower cost sellers get to sell
but the higher cost sellers who could still profit at this price do not get to sell.
The marginal seller who does sell then has cost equal to 62.
Then the Producer Surplus (PS) is the area under the price and above the
supply curve up to the quantity traded. So in this case the value of
the PS is?
0
In this case the PS is both the traditional producer surplus, the triangle below
the supply price and above the supply curve, as well as a rectangle between
the transaction price and the supply price, representing a rent to sellers because
they are receiving revenues in excess of what they require to bring forth that supply.
For convenience, the above graph is reproduced below. When the PS has been
calculated correctly, that area is filled in as well.
Allocating Surplus
QI
P
r
i
r
i
c
e
62
0
0
Quantity
The Social Surplus (SS) measures the size of the pie. SS = CS + PS. Observe that if the actual
transaction price were 62, which would produce excess demand, if there were efficient
rationing of the buyers at this price then the Social Surplus would not change but buyers
would capture the rectangular area as a rent because they'd pay a lower price. In this sense
the Social Surplus can be transferred from sellers to buyers without altering its magnitude.
This is what we mean when we say efficiency considerations can be separated from
equity considerations.
The allocation we have focused on is actually not efficient. There is a loss in Social Surplus
compared to the maximum possible, referred to as the Deadweight Loss (DWL). To compute
the DWL one must know the competitive equilibrium quantity, which in this case is?
0
When the competitive equilibrium quantity is computed correctly it is plotted in the graph above.
Knowing the correct amount for the competitive equilibrium quantity, the magnitude of the DWL
is then determined by the area of the white triangle, with base given by the difference between
the demand price and the supply price at the actual allocation and height equal to the difference
between the competitive equilibrium quantity and the quantity at the actual allocation.
So in the case the DWL is?
0
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
0
0
62
62
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
The are two consumers, A and B, and there are two Goods, Good X and Good Y. There is a
total endowment of each good for the economy. In this case the endowment is given by
X
Y
123
150
(These coordinates are not explicitly plotted.)
The initial endowment has been previously divided up between A and B. Below is what A
has received. You can determine what B got by subtracting A's allocation from the total.
X
Y
50
105
(There coordinates are shown in the graph.)
The way to read this in the graph below is that A's origin is the lower left corner of the box.
A gets more Good X moving right and gets more Good Y moving up. B's origin is
the upper right corner of the box. B get more Good X moving left and gets more Good Y
moving down. Points within the box are feasible for both A and B.
G
o
o
d
50, 105
Initial Allocation
Edgeworth Box
Good X
A and B engage in trade. The assumption here is that they trade only for their own consumption.
They do not engage in speculative trade. So now it's time to talk about the preferences of these
consumers. We'll keep things simple and assume both have the same Cobb-Douglas utility function
u(x,y) =x*y. An important fact to know about these sort of preferences is that the formula for
the marginal rate of substitution (MRS) is given by MRS = y/x. The MRS measures how much
Good Y the consumer is willing to give up to get an additional unit of Good X. (It is the absolute
value of the slope of the indifference curve through the allocation.)
So A's MRS at the initial allocation is given by?

0
When the above is correct A's indifference curve through the initial allocation is plotted in the
graph. Also plotted in the graph are points in A's Upper Counter Set. Therse are allocations
that are better for A than the initial allocation.
We'll now do the same sort of calculation for B. Remember that to get B's allocation subtract
A's allocation from the total endowment. So B's MRS at the initial allocation is given by?
0
When the above is correct B's indifference curve through the initial allocation is plotted in the
graph as is B's Upper Contour Set. That A and B have different marginal rates of substitution
at the initial allocation indicates there are gains from trade. Allocations that make both A and
B better off are in the intersection of the two upper Contour Sets. A move from the initial
allocation to one of thes other allocations is called a Pareto improvement. With a Pareto
improvement at least one consumer is made off and no consumer is made worse off.
For your convenience the above graph is reproduced below.
G
o
o
d
Initial Allocation
50, 105
Edgeworth Box
Good X
Select a proposed alternative allocation for A that represeents a Pareto Improvement over
the initial allocation.
X
Y
If either consumer blocks the trade it can't work. Otherwise the trade is a Pareto Improvement.
When the trade does go through it is plotted in the graph above.
An allocation is Pareto Optimal if there is no other allocation that represents a Pareto Improvement
from it. Alternatively, an allocation is Pareto Optimal if to make one consumer better off you
must make the other consumer worse off. Pareto Optimality is the efficiency concept used
in general equilibrium analysis. For the example we are looking at here, what must be true about
the MRS of the two consumers at a Pareto Optimal allocation?
Use that fact to identify A's allocation in a Pareto Optimal allocation. (This requires a bit of algebra.)
X
Y
0
The set of Pareto Optimal allocations is called the Contract Curve. Once a point on the Contract
Curve is reached, it is stable from further trade, meaning all the gains from trade have been
exhausted. When a Pareto Optimal allocation has been correctly identified, the contract curve
is plotted in the above graph.
In this case the Contract Curve is upward sloping from A's origin to B's origin. (In fact, it is a
straight line but we don't need that fact for the next point.) This is precisely the situation when
efficiency concerns can't be separated from equity concerns. Any division of Good X
can be compatible with efficiency, but only if there is an appropriate division of Good Y
as well.
al Allocation
eworth Box
al Allocation
mprovement
of algebra.)
Endowment
X
Y
123
150
Edgeworth Box
0
123
123
0
0
0
0
150
150
0
Initial Allocation
50
105
UA =
5250
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
UB =
3285
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
133
-10
-10
-10
-10
133
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
133
-10
-10
-10
-10
133
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
133
-10
-10
-10
-10
133
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
-10
-10
-10
-10
133
133
-10
-10
-10
-10
We now focus on a special case for the utility function where it is linear in Good Y
so that it can be written as u(x,y) = v(x) + y. Note that in this case MRS = v'(x) and does
not depend on the amount of y. When both A and B have utility that is linear in Good Y
(the utility functions don't have to be the same) then there is an efficient division of
Good X that is independent of the division of Good Y. In this case the Contract Curve
is a vertical line at this efficient division of Good X. The division of Good Y is then used
for equity purposes. Good Y is sometimes referred to as transferable utility because:
(a) it is measure in the same units as utility and (b) taking some good Y from consumer
A and giving it to consumer B is just like transfering utility from A to B.
If you have entered your NetID and selected your alias and if
you have gottten all answers correct then you should see
your key below.
0
Copy your key and go to the form to enter it. Complete the
rest of the form as instructed.
form

Efficiency and Equity Concepts

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Efficiency and Equity Concepts

Uploaded by

Copyright:

Available Formats

In Intermediate Microeconomics there are two differenct efficiency concepts that are

Choose your class alias from the list below.

So A's MRS at the initial allocation is given by?

You might also like