Figure 15.7 Closing In on Pareto Efficiency for Elaine and Jerry
A Pareto-efficient allocation of pancakes and bowls of cereal occurs at a tangency between Jerry and Elaine’s indifference curves, where Jerry’s marginal rate of substitution MRScp equals Elaine’s MRScp. In this case, the Pareto-efficient allocation is point D, where Elaine’s indifference curve UE5 is tangent to Jerry’s indifference curve UJ5. Here, Jerry and Elaine each consume 5 bowls of cereal and 4 pancakes.