13. (Use this information to answer qustion 13 - 16) Suppose a householdsolves the following two-period consumption-savings problemmax u(c₁) + Bu(c2){C1,C2}s.t. aw Y1 - C1C2y2(1+r)awith u(c) = √c where c₁ is consumption at time 1, c2 is consumption attime 2, y₁ is houshold income at time 1, 2 is houshold income at time2 and w is the initial wealth. Suppose the incomes of the household are$50 in time 1 and $210 in time 2. The initial wealth is $100, the discountfactor is 0.975 and interest rate is 5%. Solve for the household's choice ofC1.(a) 125.12(b) 126.58(c) 175.16(d) 341.8814. Now a government wants to introduce income tax in both time 1 and time2 {1, 2} to finance a construction project that costs $50 in time 1 andanother $52.5 in time 2. Which ones of the following are the householdintertemporal budget constraints.(a) y1 + 1/2 =C1+1+1Y2(b) w+y1 + = C₁ +1+r1+r(c) wy1T1 +Y2T21+rY21+r= €1 + 121+r(d) wy171 + =C1+1+rC2 (1+72)1+r15. Solve for the household's choice of consumption in time 1 (c₁) if tax intime 1 (71) is $30.(a) 100.76(b) 125.12(c) 160.97(d) 175.1616. Solve for the private saving.(a) 19.24(b) -5.76(c) -40.97(d) -75.76

Let's go through the questions step-by-step.Question 16

Answered: 13. (Use this information to answer…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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3. Consider a society of identical individuals who live for two periods. They have the following utility: In co + 3 5 In ci Each individual earns $600 when young, in period 0, and no income in period 1, when old. They can borrow and lend at interest rate r, and the price of consumption is 1. (a) Write down this individual's lifetime budget constraint (b) Solve for this individual's consumption in period, and savings, as a function of r. (c) Suppose now that there is a Social Security program. The gov- ernment collects $ 60 from this individual in period 0, and gives it back with interest r in period 1. i. What kind of social security system is this? ii. What is the new amount of savings? iii. What is the impact of this program on the individual's wel- fare? (d) Suppose some individuals have utility 1 In co +In c₁ 9 The social security system still forces them to save $60. i. If they are still free to borrow and lend at r, what will their optimal choice of consumption and savings be,…
37- What is the ratio of the change in savings to the change in income called? a) MRI B) APS NS) MPS D) NS TO) cY
3. Consider a parent who is altruistic towards her child, but also cares about her own consumption. The parent's utility over her own consumption and that of her child is up = log(co) +a log(ci) where c is the child's consumption, and a > 0 is the degree of parental altruism. Suppose that the parent can invest in the child's human capital by spending money (e) on her education; education generates human capital h /() and human capital is paid at rate w. The parent has a total income of (a) Write down an expression for the child's future consumption in terms of the parent's choice of e. (b) Now write down the Lagrangian for the parent's decision problem.
1. Assume you must choose between two mutually exclusive alternatives: A or B. The explicit benefit you receive from alternative A, bª, is equal to $100. And, the explicit cost of choosing alternative A, c*, is $80. Also, the explicit benefit to choosing alternative B, b", is $120. What is the accounting return for choosing alternative A, r^? Given r and b", what is the explicit cost that you are willingness to pay (WTP) for alternative B, WTP"? Please include the formulas from class in your answer. How would WTPB change ifr^ increased by $5? Explain. your Using the original set of values for explicit costs and benefits, what would be your economic return to choosing alternative How does this relate to the concept of consumer surplus? if the price that you were charged was $95? Please interpret.
6
Garfield enjoys pizzas and hanging out (leisure). He sleeps 8 hours per day. Of the remaining16 hours, for each hour he chooses to work he gets paid 2 pizzas. Garfield must pay 6 pizzas intaxes but receives dividends equivalent to 6 pizzas.1. Draw Garfield’s budget constraint (put consumption on the vertical axis and leisure of thehorizontal). Make sure to show the vertical and horizontal intercepts as well as the slope.b. Now suppose that Garfield chooses to work 10 hours per day. Find how many hoursof leisure and how many pizzas he will consume.c. Using your answer from b, show Garfield’s optimal point on the budget line and drawthe indifference curve passing from that point.4. Suppose that Garfield’s wage falls to 1 pizza per hour. Draw Garfield’s new budgetconstraint. Make sure to show the value of any intercept that has changed.5. Suppose that in response, Garfield decides to work for 6 hours per day. How much leisurewill he take, and how much pizza will he consume?6. Use an…
2. (All right, this one IS tricky. Use the hints and do the best you can!) Suppose there are 2 brothers - Cain and Abel. Cain has a utility function U(L,R) 2min {L,R}, where L and R are left and right shoes respectively. Abel's utility function for shoes is U(L,R)-3L+3R. Further, suppose Cain's endowment is (4 left, 8 right) while Abel's endowment is (7 left, 2 right). a. b. C. d. e. Carefully construct the Edgeworth Box for this exchange economy being careful to label everything and to indicate the box's dimensions. Label the endowment point as well as the initial indifference curves for both Cain and Abel. Label the Contract Curve. (Hint: they cannot trade ½ a shoe.) What are the possible equilibria in this economy? Describe how those equilibria would occur.
1---consider a consumer who earns income each month. person has to spend each month on essential goods, such as food and personal. person has no access to reliable savings, so person must spend her entire income each month. The consumer is interested in taking a loan to finance a large purchase. The cost of capital for banks is fixed at each month and the monthly interest rate charged to borrowers is . Both and are equal to one plus the interest rate as we are used to seeing it – e.g., if a loan charges 5% monthly interest, then = 1.05 2---What is the largest nonessential purchase that the consumer can make each month without borrowing? Express it as a function of y c 3--Under the zero profit condition for lenders (i.e. banks), what will the interest rate charged to borrowers be? Assume there is no risk of default and no fixed costs and express it as a function of(capital k), y,c 4--What is the borrower’s monthly disposable income (exclusive of essential purchases) with a loan, under…
9. Behavioral economics Indicate whether each of the following examples of behavior is consistent with the way the traditional economic framework suggests people should act, or if it is reserved for behavioral economists to examine. Example Some people would be willing to pay money to lower the incomes of others. Some people treat $60 they earn differently from $60 they win in a random drawing. Some people sacrifice disposable income to help their children pay for college. Some people would turn down a new, higher-paying job if it meant spending less time with their family. Consistent with the Predictions of Traditional Economic Models Reserved for Behavioral Economics
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Q 1 5. Refer to the following intertemporal budget constraint of a respective consumer: a. How would this budget constraint change if individual becomes more presented oriented (he discounts future heavily)? b. How would this budget constraint change if individual faces a borrowing constraint in second period?
（D）Detailed calculation steps

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