(Chapter 9) Consider a two-period intertemporal model. Consumers have the preference U(c, c') = Vc+ BVc, where B = 0.95 is the discounting factor. A consumer's income in the current period is y = 150, and income in the future period is y' = 75. She pays lump-sum taxes t = 20 in the current period and t' = 10 in the future period. The real interest rate is 0.15 (or 15%). (Hint: recall that MRSd = MU5) a. Calculate the representative consumer's lifetime wealth and optimal choice of consumption each period. Show your work in a diagram with the consumer's budget constraint and indif- ference curve. b. Now assume the B drops to 0.90, redo part (a). c. Explain the difference between (a) and (b).

(Chapter 9) Consider a two-period intertemporal model. Consumers have the preference U(c, c') = Vc+ BVc, where B = 0.95 is the discounting factor. A consumer's income in the current period is y = 150, and income in the future period is y' = 75. She pays lump-sum taxes t = 20 in the current period and t' = 10 in the future period. The real interest rate is 0.15 (or 15%). (Hint: recall that MRSd = MU5) a. Calculate the representative consumer's lifetime wealth and optimal choice of consumption each period. Show your work in a diagram with the consumer's budget constraint and indif- ference curve. b. Now assume the B drops to 0.90, redo part (a). c. Explain the difference between (a) and (b).

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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How do sales taxes typically apply in a business environment?
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There is a bar on Off‐Main Street called the Rock‐n‐Roll Bar. All the people that go to that bar like to listen to rock‐n‐roll music, and they love live bands. If the bar owner brings bands in to play music on a Saturday night, she will make a lot of money. However there are tenants in this building who get annoyed by the loud music. The benefits/costs to the owner/tenants of having zero, one, two or three bands on a Saturday night are listed in the attached table. If the tenants have the right to be free of loud music enforced through a property rule, how many bands will play in Rock‐n‐Roll Bar on a Saturday night? A. Zero B. One C. Two D. Three E. It depends on transaction costs
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There is a bar on Off‐Main Street called the Rock‐n‐Roll Bar. All the people that go to that bar like to listen to rock‐n‐roll music, and they love live bands. If the bar owner brings bands in to play music on a Saturday night, she will make a lot of money. However there are tenants in this building who get annoyed by the loud music. The benefits/costs to the owner/tenants of having zero, one, two or three bands on a Saturday night are listed below. Assume the bar owner has the right to hire as many bands as she likes. Iftransaction costs were $90, split between the bar owner and the tenants, how manybands would play? What would social welfare be? A. Three bands would play and social welfare would be ‐100.B. Two bands would play and social welfare would be 75.C. Two bands would play and social welfare would be ‐15.D. No bands would play and social welfare would be 0.E. Three bands would play and social welfare would be ‐190