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Buzz is a chicken farmer. His earnings will be $100 this year and $100 next year....
Suppose you earn $10,000 this summer and expect to earn $20,000 next summer. The interest rate...
Suppose you earn $10,000 this summer and expect to earn $20,000 next summer. The interest rate is 10%. (You don't have to submit a graph) a) Write down the slope of the budget constraint, horizontal intercept, vertical intercept and the X-Y coordinates for the endowment. b) Write your intertemporal budget constraint in the equation. c) With the same incomes, now suppose the bank pays you an interest rate of 10% on anything you save but will lend you money only...
Christopher has an income of K200 this year and he expects an income of K110 next year. He can borrow and lend money at an interest rate of 10%. Consumption goods cost K1 and there is no inflation....
Christopher has an income of K200 this year and he expects an income of K110 next year. He can borrow and lend money at an interest rate of 10%. Consumption goods cost K1 and there is no inflation. What is the present value of Christopher’s endowment? What is the future value of Christopher’s endowment? Suppose that Christopher has the utility function U =C1C2. Write down Christopher’s marginal rate of substitution. Set this slope equal to the slope of the budget...
Gerald is a CEO in Brainies Consulting, Inc. His income in the first year is m1...
Gerald is a CEO in Brainies Consulting, Inc. His income in the first year is m1 = $200 and in the second m2 = $200. Assume that the interest rate is r = 100%. His time horizon is limited to these two years. (a) Find PV and FV of Gerald’s income (b) Show on the graph (C1; C2) Gerald’s budget set. Mark PV, FV, and the slope of his budget line. (c) Explain what borrowing/lending strategy gives Gerald each of...
Quick intuition check via True or False Questions 1. 2. If all prices double and income...
Quick intuition check via True or False Questions 1. 2. If all prices double and income triples, then the budget line will become steeper There are two goods. You know how much of good 1 a consumer can afford if she spends all of her income on good 1. If you knew the ratio of the prices of the two goods, then you could draw the consumer's budget line without any more information. lf good l is on the horizontal...
3. A consumer lives for two periods. His income in period 1 is Y, and his...
3. A consumer lives for two periods. His income in period 1 is Y, and his income in period 2 is Y.,. The consumer is free to lend and borrow at zero interest rate (r=0 and R=1+r=1). Y, = Y, = 10. (a) What is the price of consumption in period 1 in terms of consumption in period 2? (How many units of period 2 consumption must the consumer give up to get an additional unit of consumption in period...
3. In an isolated mountain village, the only crop is corn. Good harvests al ternate with...
3. In an isolated mountain village, the only crop is corn. Good harvests al ternate with bad harvests. This year the harvest will be 1,000 bushels. bushels. There is Corn can be stored from one year to the next, but rats will eat 25% of what is stored in a year. The villagers have Cobb-Douglas utility functions U(c1, C2) c1 c2, where C1 1s consumption this, and сг is consumption next year (a) Draw a "budget line," showing consumption possibilities...
1) Noah likes hot dogs and Coca-Cola. Hot dogs cost $1 each and Cokes cost $.50...
1) Noah likes hot dogs and Coca-Cola. Hot dogs cost $1 each and Cokes cost $.50 per bottle There is a special promotion for Coke that will last for one month. If Noah sends in the bottle tops from the Cokes he drinks during the next month, he will get a refund of $.20 for every bottlecap beyond the first 12 that he returns. For example, if he returns 25 bottle caps he will get back $2.60 $.20(25 12). Noah...
John spends all his money on his car and clothes. Every month he has $1000 to...
John spends all his money on his car and clothes. Every month he has $1000 to spend, and each time he takes the car to the garage, it costs him $200, while each article of clothing he buys costs him $250. What is the opportunity cost of one car trip to the garage? Briefly show your math. In the space below, draw John’s budget constraint, making sure to label every axis, line, intercept, and slope. John’s grandmother gave him a...
2. Todd earns $100/week, and spends all of his money on coffee and pizza. Coffee costs...
2. Todd earns $100/week, and spends all of his money on coffee and pizza. Coffee costs $5/cup and pizza costs $3/slice. He initially consumes 8 cups of coffee and 20 slices of pizza per week. a) Draw Todd's budget constraint and the indifference curve on which he is currently consuming b) the cost of coffee decreases to 2.50/ cup and pizza increases in price to $4/slice. Draw Todd's new budget constraint c) Is Todd better off or worse off? Explain.
4. Your income for this year is $50,000 and expect it will increase by 20% next...
4. Your income for this year is $50,000 and expect it will increase by 20% next year. . a) Assume the interest rate is 20%. Draw budget constraint. Please indicate the slope, intercepts and the endowment point. b) Suppose you plan to consume $60,000 this summer, what is your consumption bundle? Do you borrow or save? c) Based on b), now suppose that you have found a new investment opportunity that will get you a higher annual return. Draw the...
Suppose you earn $10,000 this summer and expect to earn $20,000 next summer. The interest rate is 10%. (You don't have to submit a graph) a) Write down the slope of the budget constraint, horizontal intercept, vertical intercept and the X-Y coordinates for the endowment. b) Write your intertemporal budget constraint in the equation. c) With the same incomes, now suppose the bank pays you an interest rate of 10% on anything you save but will lend you money only...
Quick intuition check via True or False Questions 1. 2. If all prices double and income triples, then the budget line will become steeper There are two goods. You know how much of good 1 a consumer can afford if she spends all of her income on good 1. If you knew the ratio of the prices of the two goods, then you could draw the consumer's budget line without any more information. lf good l is on the horizontal...
3. A consumer lives for two periods. His income in period 1 is Y, and his income in period 2 is Y.,. The consumer is free to lend and borrow at zero interest rate (r=0 and R=1+r=1). Y, = Y, = 10. (a) What is the price of consumption in period 1 in terms of consumption in period 2? (How many units of period 2 consumption must the consumer give up to get an additional unit of consumption in period...
3. In an isolated mountain village, the only crop is corn. Good harvests al ternate with bad harvests. This year the harvest will be 1,000 bushels. bushels. There is Corn can be stored from one year to the next, but rats will eat 25% of what is stored in a year. The villagers have Cobb-Douglas utility functions U(c1, C2) c1 c2, where C1 1s consumption this, and сг is consumption next year (a) Draw a "budget line," showing consumption possibilities...
1) Noah likes hot dogs and Coca-Cola. Hot dogs cost $1 each and Cokes cost $.50 per bottle There is a special promotion for Coke that will last for one month. If Noah sends in the bottle tops from the Cokes he drinks during the next month, he will get a refund of $.20 for every bottlecap beyond the first 12 that he returns. For example, if he returns 25 bottle caps he will get back $2.60 $.20(25 12). Noah...
2. Todd earns $100/week, and spends all of his money on coffee and pizza. Coffee costs $5/cup and pizza costs $3/slice. He initially consumes 8 cups of coffee and 20 slices of pizza per week. a) Draw Todd's budget constraint and the indifference curve on which he is currently consuming b) the cost of coffee decreases to 2.50/ cup and pizza increases in price to $4/slice. Draw Todd's new budget constraint c) Is Todd better off or worse off? Explain.
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