diagram depicts Marco ice of consumptions in periods 2. He has $100 worth of grain in period 1 and no income in period 2. Marco has two choices. In scheme 1, he can sell the grain that he does not consume and lend the money at 10%. In scheme 2, he can invest the grain that he does not consume (e.g. planting as seed) for a return of 50%. Which of the following statements is correct? Consumption later, $ 150 110 60 39 FF(lend at 10%) FF (invest at 50%) 60 68 Consumption now, $ 100 O Going from scheme 1 to scheme 2, the substitution and income effects have opposite effects on period 2 consumption. O Marco can do better than consumption choice B by investing all of his grain and borrowing against his period 2 output. O Marco is less impatient at B than at A. O Marco can do better than consumption choice B by investing all of his grain and consuming the output in period 2.

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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The diagram depicts Marco's choice of consumptions in periods 1 and
2. He has $100 worth of grain in period 1 and no income in period 2.
Marco has two choices. In scheme 1, he can sell the grain that he does
not consume and lend the money at 10%. In scheme 2, he can invest
the grain that he does not consume (e.g. planting as seed) for a return
of 50%. Which of the following statements is correct?
Consumption later, $
150
110
60
39
0
0
FF(lend at 10%)
FF (invest at 50%)
B
60 68
Consumption now, $
100
Going from scheme 1 to scheme 2, the substitution and income effects have opposite effects
on period 2 consumption.
Marco can do better than consumption choice B by investing all of his grain and borrowing
against his period 2 output.
O Marco is less impatient at B than at A.
Marco can do better than consumption choice B by investing all of his grain and consuming
the output in period 2.
Transcribed Image Text:The diagram depicts Marco's choice of consumptions in periods 1 and 2. He has $100 worth of grain in period 1 and no income in period 2. Marco has two choices. In scheme 1, he can sell the grain that he does not consume and lend the money at 10%. In scheme 2, he can invest the grain that he does not consume (e.g. planting as seed) for a return of 50%. Which of the following statements is correct? Consumption later, $ 150 110 60 39 0 0 FF(lend at 10%) FF (invest at 50%) B 60 68 Consumption now, $ 100 Going from scheme 1 to scheme 2, the substitution and income effects have opposite effects on period 2 consumption. Marco can do better than consumption choice B by investing all of his grain and borrowing against his period 2 output. O Marco is less impatient at B than at A. Marco can do better than consumption choice B by investing all of his grain and consuming the output in period 2.
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