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Suppose Ann has preferences given by the Constant Elasticity of Substitution utility function over two goods u(a, b) = (a ? + b ? )
Suppose Ann has preferences given by the Constant Elasticity of Substitution utility function over two goods u(a, b) = (a ? + b ? ) 1/? with ? ? (0, 1). Ann faces the usual budget constraint px = m. By forming the maximisation/minimisation problem, and solving through the Lagrangian, show that:
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