An individual has an intertemporal utility functi monotonic, and strictly convex. She can borrow/lend at the interest rate, r, but does not have access to human capital. She is currently consuming a bundle such that MRS×₁x2 >1+r. How many of the following statements COULD BE true? [HINT: try drawing a picture] 0 0 0 The bundle is optimal (i.e. maximizes her utility). X If the individual is consuming both goods, she could do better by consuming less today and consuming more tomorrow. She is at a corner solution in which she only consumes tomorrow.
An individual has an intertemporal utility functi monotonic, and strictly convex. She can borrow/lend at the interest rate, r, but does not have access to human capital. She is currently consuming a bundle such that MRS×₁x2 >1+r. How many of the following statements COULD BE true? [HINT: try drawing a picture] 0 0 0 The bundle is optimal (i.e. maximizes her utility). X If the individual is consuming both goods, she could do better by consuming less today and consuming more tomorrow. She is at a corner solution in which she only consumes tomorrow.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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