Problem 3 - Should I become professional athlete? Suppose a consumer who has to decide if she wants to go to pro or not. If she does NOT go, she will get a low income in both periods, Y., Y. If she goes pro, she will get a higher wage in the first period r> T:. In the second period, she will have NO income (Y = 0) and, in addition, she will have to pay and extra amount S to sustain her fancy lifestyle in the second period. She has increasing and concave preferences over consumption in the two periods (C1 and C:) Consider first that she does not go pro 1. Write down the dynamic budget constraints 2. Derive the intertemporal budget constraint 3. Show graphically the budget constraint and the optimal consumption point in period 1 and 2. 1 If she decides to go pro, 4. Write down the dynamic budget constraints 5. Derive the intertemporal budget constraint 6. In your previous graph, draw the new budget constraint and the new optimal consumption point. 7. Is it good for her to go pro? Under what conditions will she be better off by going pro rather than not going pro? Explain. S. If the govermment subsidizes the retired athletes in the second period, and the consumer has to pay this social security in the first period (discounted by the interest rate), it is more likely that she optimally chooses to go pro?. Discuss the validity of this statement.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

Problem 3 - Should I become professional
athlete?
Suppose a consumer who has to decide if she wants to go to pro or not. If she does NOT go, she will get a low
income in both periods, Y., Y. If she goes pro, she will get a higher wage in the first period
r> T:. In the second period, she will have NO income (Y = 0) and, in addition, she will have to pay
and extra amount S to sustain her fancy lifestyle in the second period. She has increasing and concave
preferences over consumption in the two periods (C1 and C:)
Consider first that she does not go pro
1. Write down the dynamic budget constraints
2. Derive the intertemporal budget constraint
3. Show graphically the budget constraint and the optimal consumption point in period 1 and 2.
1
If she decides to go pro,
4. Write down the dynamic budget constraints
5. Derive the intertemporal budget constraint
6. In your previous graph, draw the new budget constraint and the new optimal consumption point.
7. Is it good for her to go pro? Under what conditions will she be better off by going pro rather than not
going pro? Explain.
S. If the govermment subsidizes the retired athletes in the second period, and the consumer has to pay this
social security in the first period (discounted by the interest rate), it is more likely that she optimally
chooses to go pro?. Discuss the validity of this statement.

Expert Solution

Introduction

The budget constraint is the total number of bundles that a consumer can afford based on their income. We presume the customer has a budget — a set amount of money set out for bundle purchases. For the time being, we don't care where this money or income comes from; instead, we presume that a consumer has a budget.

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Methods For Reducing Risk And Uncertainty

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions