Hello, i am struggling to understand the point of the diagram, especially the last line pf the last picture, they consume different amounts? please elaborate, thanks!

consumption next period - that is, 1 + r. Thus the optimal consumption/savings decision is characterized by the following condition: u'(C1) u' (C2) / (1 + p) =1+r. In order to see the implications of this condition, it is useful to divide by 1 + p on both sides: u (C) 1+r u' (C2) 1+ p If the subjective discount rate is equal to the market rate of interest, the right- hand side is equal to unity, which means that the left-hand side must also be equal to unity. This can only be true if consumption is equal in the two periods. Thus we see that, if the subjective discount rate is equal to the market rate of inter- est, the consumer will plan for consumption to be constant over time. This is a consequence of the preference for smooth consumption. Independent of how much income the individual gets in different periods, she wants to save (or bor- row) so as to smooth consumption over time. This is illustrated in Fig. 4.5 where the tangency points illustrate optimal consumption choice for two consumers with different incomes in the two periods. Two different consumers with different incomes in the two periods, here given by points A and B, will consume different amounts, but each will consume the same amount in both periods.4. CONSUMPTION AND THE NATURAL RATE OF INTEREST 93 Fig. 4.5 Consumption choice when the subjective rate of discount equals the real interest rate C2 45 C1 Y1 But suppose the consumer is more impatient than the market, so he discounts the future more - that is, p > r. In this case, the right-hand side is smaller than one and, since marginal utility is a decreasing function of consumption, this must imply that the consumer will consume more today than tomorrow. This makes sense: a more impatient consumer will consume more today than tomorrow and his consumption will decrease over time