Consider a consumer with preferences over current and future consumption given by U (c1, c2) =...
Consider a consumer with preferences over current and future consumption given by U (c1, c2) = c1c2 where c1 denotes the amount consumed in period 1 and c2 the amount consumed in period 2.
Suppose that period 1 income expressed in units of good 1 is m1 = 20000 and period 2 income expressed in units of good 2 is m2 = 30000. Suppose also that p1 = p2 = 1 and let r denote the interest rate.
1. Find the optimal consumption bundle when r=0.15. Is the consumer a saver or a borrower?
2. Let p1 = p2 = 1 and r = 0:2. Suppose the consumer is asked to choose between two bundles, (c1; c2) = (25; 16) and (c1; c2) = (9; 36): Which one would she choose?
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Consider a consumer with preferences over current and future
consumption given by U (c1, c2) =...
2. Consider a consumer with preferences over current and future consumption given by U (C1, C2)...
2. Consider a consumer with preferences over current and future consumption given by U (C1, C2) = (c1)1/(c2)1/2 where c1 denotes the amount consumed in period 1 and ch the amount consumed in period 2. Suppose that period 1 income expressed in units of good 1 is m1 = 20000 and period 2 income expressed in units of good 2 is m2 = 30000. Suppose also that P1 = P2 = 1 and let r denote the interest rate. (a)...
2. Consider a consumer with preferences over current and future consumption given by U(C1, C2) = (c1)1/2 (c2)1/2 where...
2. Consider a consumer with preferences over current and future consumption given by U(C1, C2) = (c1)1/2 (c2)1/2 where cı denotes the amount consumed in period 1 and c2 the amount consumed in period 2. Suppose that period 1 income expressed in units of good 1 is mı = 20000 and period 2 income expressed in units of good 2 is m2 = 30000. Suppose also that p1 = P2 = 1 and let r denote the interest rate. (a)...
A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: u(c1,c2) =...
A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: u(c1,c2) = ccm, where Ct = consumption in period t and a + b = 1. Her income in period one is I1 = 500 and 12 = 400, and she can lend or borrow at interest rate r = 0.2. (a) Find the optimal consumption demand. (b) What values of a, if any, makes the consumer a borrower? Interpret this result. (c) Suppose now that...
5. A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: u(C1,C2)...
5. A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: u(C1,C2) = ccm, where Ct = consumption in period t and a + b = 1. Her income in period one is 1 = 500 and 12 = 400, and she can lend or borrow at interest rate r = 0.2. (a) Find the optimal consumption demand. (b) What values of a, if any, makes the consumer a borrower? Interpret this result. (c) Suppose now...
Sally consumes two goods, X and Y. Her preferences over consumption bundles are repre- sented by the utility function r...
Sally consumes two goods, X and Y. Her preferences over consumption bundles are repre- sented by the utility function r, y)- .5,2 where denotes the quantity of good X and y denotes the quantity of good Y. The current market price for X is px 10 while the market price for Y is Pr = $5. Sally's current income is $500. (a) Write the expression for Sally's budget constraint. (1 point) (b) Find the optimal consumption bundle that Sally will...
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Suppose Sansa lives for two periods. Her preferences are represented as follows: u(c1, c2) = (1+0.8VC2...
Suppose Sansa lives for two periods. Her preferences are represented as follows: u(c1, c2) = (1+0.8VC2 where cı is today's consumption level and c2 is tomorrow's consumption level. Suppose Bob's income today is yı = 100 and his income tomorrow is y2 = 190. Interest rate is denoted by r. 1. Write down Sansa's optimization problem including the budget set. 2. Determine Sansa's optimal consumption bundle (Cl*, C2*) as a function of r.
5. A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: u(C1,C2)...
5. A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: u(C1,C2) = ccm where ct = consumption in period t and a + b = 1. Her income in period one is 11 = 500 and 12 = 400, and she can lend or borrow at interest rate r = 0.2. (a) Find the optimal consumption demand. (b) What values of a, if any, makes the consumer a borrower? Interpret this result. (c) Suppose now...
Consider the typical individual in Fisher’s two-period model, who chooses between current and future consumption (C1...
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2.Consider the inter-temporal model of consumption studied in class, with two possible periods. Assume that initially that an individual is a saver. If the interest rate rises, which statement is false? a. The individual will never become a borrower. b.The individual will necessarily increase their savings. c.The individual must remain a saver d. The individual could increase or decrease their savings, but she must remain a saver. 4. Consider the inter-temporal model of consumption studied in class, with two possible...
2. Consider a consumer with preferences over current and future consumption given by U (C1, C2) = (c1)1/(c2)1/2 where c1 denotes the amount consumed in period 1 and ch the amount consumed in period 2. Suppose that period 1 income expressed in units of good 1 is m1 = 20000 and period 2 income expressed in units of good 2 is m2 = 30000. Suppose also that P1 = P2 = 1 and let r denote the interest rate. (a)...
2. Consider a consumer with preferences over current and future consumption given by U(C1, C2) = (c1)1/2 (c2)1/2 where cı denotes the amount consumed in period 1 and c2 the amount consumed in period 2. Suppose that period 1 income expressed in units of good 1 is mı = 20000 and period 2 income expressed in units of good 2 is m2 = 30000. Suppose also that p1 = P2 = 1 and let r denote the interest rate. (a)...
A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: u(c1,c2) = ccm, where Ct = consumption in period t and a + b = 1. Her income in period one is I1 = 500 and 12 = 400, and she can lend or borrow at interest rate r = 0.2. (a) Find the optimal consumption demand. (b) What values of a, if any, makes the consumer a borrower? Interpret this result. (c) Suppose now that...
5. A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: u(C1,C2) = ccm, where Ct = consumption in period t and a + b = 1. Her income in period one is 1 = 500 and 12 = 400, and she can lend or borrow at interest rate r = 0.2. (a) Find the optimal consumption demand. (b) What values of a, if any, makes the consumer a borrower? Interpret this result. (c) Suppose now...
Sally consumes two goods, X and Y. Her preferences over consumption bundles are repre- sented by the utility function r, y)- .5,2 where denotes the quantity of good X and y denotes the quantity of good Y. The current market price for X is px 10 while the market price for Y is Pr = $5. Sally's current income is $500. (a) Write the expression for Sally's budget constraint. (1 point) (b) Find the optimal consumption bundle that Sally will...
Suppose Sansa lives for two periods. Her preferences are represented as follows: u(c1, c2) = (1+0.8VC2 where cı is today's consumption level and c2 is tomorrow's consumption level. Suppose Bob's income today is yı = 100 and his income tomorrow is y2 = 190. Interest rate is denoted by r. 1. Write down Sansa's optimization problem including the budget set. 2. Determine Sansa's optimal consumption bundle (Cl*, C2*) as a function of r.
5. A consumer who lives for two periods has a standard Cobb-Douglas utility func- tion: u(C1,C2) = ccm where ct = consumption in period t and a + b = 1. Her income in period one is 11 = 500 and 12 = 400, and she can lend or borrow at interest rate r = 0.2. (a) Find the optimal consumption demand. (b) What values of a, if any, makes the consumer a borrower? Interpret this result. (c) Suppose now...
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