In this hypothetical economy, there are two consumers living over two periods of life. Ann’s incomes are $50,000 in both periods. Meanwhile, Bob earns nothing in the first period but $105,000 in the second period. Both of them can borrow or lend at the interest rate r. For simplicity, assume that there are no taxes. a) Assume that both Ann and Bob consume $50,000 in the first period and $50,000 in the second period. Write down the lifetime budget constraint for each consumer then calculate the interest rate r. Describe the economic behavior of each consumer. b) Suppose the interest rate increases. What will happen to Ann’s consumption in the first period? Is Ann better off or worse off than before the interest rate rises? Explain your answer using an appropriate diagram c) What will happen to Bob’s consumption in the first period when the interest rate increases? Is Bob better off or worse off than before the interest rate increases? Explain your answer using an appropriate diagram.

In this hypothetical economy, there are two consumers living over two periods of life. Ann’s incomes are $50,000 in both periods. Meanwhile, Bob earns nothing in the first period but $105,000 in the second period. Both of them can borrow or lend at the interest rate r. For simplicity, assume that there are no taxes. a) Assume that both Ann and Bob consume $50,000 in the first period and $50,000 in the second period. Write down the lifetime budget constraint for each consumer then calculate the interest rate r. Describe the economic behavior of each consumer. b) Suppose the interest rate increases. What will happen to Ann’s consumption in the first period? Is Ann better off or worse off than before the interest rate rises? Explain your answer using an appropriate diagram c) What will happen to Bob’s consumption in the first period when the interest rate increases? Is Bob better off or worse off than before the interest rate increases? Explain your answer using an appropriate diagram.

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter1: What Is Economics

Section1.3: What Do Economists Do?

Problem 5R

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In this hypothetical economy, there are two consumers living over two periods of life. Ann's incomes are $50,000 in both periods. Meanwhile, Bob earns nothing in the first period but $105,000 in the second period. Both of them can borrow or lend at the interest rate r. For simplicity, assume that there are no taxes. a)Assume that both Ann and Bob consume $50,000 in the first period and $50,000 in the second period. Write down the lifetime budget constraint for each consumer then calculate the interest rate r. Describe the economic behaviour of each consumer. b) Suppose the interest rate increases. What will happen to Ann's consumption in the first period? Is Ann better off or worse off than before the interest rate rises? Explain your answer using an appropriate diagram c) What will happen to Bob's consumption in the first period when the interest rate increases? Is Bob better off or worse off than before the interest rate increases? Explain your answer using an appropriate diagram.
Question In this hypothetical economy, there are two consumers living over two periods of life. Ann's incomes are $50,000 in both periods. Meanwhile, Bob earns nothing in the first period but $105,000 in the second period. Both of them can borrow or lend at the interest rate r. For simplicity, assume that there are no taxes. a) $50,000 in the first period and $50,000 in the second period. Write down the lifetime budget Assume that both Ann and Bob consume constraint for each consumer then calculate the interest rate r. Describe the economic behaviour of each consumer. b) Suppose the interest rate increases. What will happen to Ann's consumption in the first period? Is Ann better off or worse off than before the interest rate rises? Explain your answer using an appropriate diagram c) What will happen to Bob's consumption in the first period when the interest rate increases? Is Bob better off or worse off than before the interest rate increases? Explain your answer using an appropriate…
In this hypothetical economy. there are two consumers living over two periods of life. Ann's incomes are $50.000 in both periods. Meanwhile, Bob earns nothing in the first period but S105,000 in the second period. Both of them can borrow or lend at the interest rate r. For simplicity, assume that there are no taxes A) Ann and Bob consume $50,000 in the first period and $50,000 in the second period. Write down the lifetime budget constraint for each consumer then calculate the interest rate r. Describe the economic behaviour of each consumer. b) Suppose the interest rate increases. What will happen to Ann's consumption in the first period? Is Ann better off or worse off than before the interest rate rises? Explain your answer using an appropriate diagram
answer second question
Please explain thoroughly because I do not understand it.
Jason spends his entire budget on coffee and doughnuts. You have the following data on his choices: Table 1: Jason's consumption choice and budget Price / cup of coffee Price / doughnut cups purchased doughnuts purchased Income February 2 1 4 22 March 5/2 3/4 10 8 31 April 3 1/2 8 14 31 Assume Jason 's preferences are monotone, the same over the three months, and that he has no way to save or borrow across periods. Are Jason's choices consistent with utility maximization?
Suppose we wanted to investigate the saving and borrowing behavior of consumers. It’s not that difficult to extend our basic model. We can use the same framework as before, but define our two goods as “consumption in period 1” (horizontal axis) and “consumption in period 2” (vertical axis). a. Construct a budget constraint for a consumer who earns $100 in income in period 1 and $300 of income in period 2. Label this point E for the “Endowment” point. Assume that he can choose to save some income in period 1 to be used in period 2, or to borrow some income from period 2 to use in period 1. (Let’s imagine the consumer saves the money by putting it in a piggy bank and can borrow money from his parents, who don’t charge interest.)
H7. Consider an economy consisting of two consumers, Adam and Eve. There are two goods, apples and bananas. Adam likes apples and prefers more apples to less. He somewhat likes bananas: he prefers one banana to none, but is indifferent between having one banana and having more than one banana (i.e., he gets satiated with bananas after having one banana). Eve likes bananas and prefers more bananas to less; she is indifferent to apples. There are exactly 5 apples and 4 bananas available in this economy. Describe all Pareto optimal allocations in this economy. Explain.
Kenji is buying salad and pizza for a company lunch. Suppose that a bowl of salad costs $3.00, and a slice of pizza costs $4.00. Let E be the amount in dollars that Kenji spends on salad and pizza. If Kenji buys S bowls of salad and P slices of pizza, then the total amount of money he spends (E) can be represented by the equation Now rearrange the equation you wrote above so that P is written in terms of E and S. The quantity of pizza he buys can be represented by the equation Suppose Kenji has $48.00 to spend on salad and pizza; that is, E= $48.00. Complete the following table with the values of S or P that make the equation true. Hint: To complete the first row, determine the number of pizza slices Kenji can purchase with $48.00, when the number of salad bowls he purchases is 0. Pizza Budget Salad (Dollars) (Bowls) (Slices) 48.00 0 48.00 48.00 8 0
Columns 1 through 4 of the accompanying table show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving. Assume that the prices of A, B, C, and D are $18, $6, $4, and $24, respectively, and that Ricardo has an income of $105. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility? How many dollars will Ricardo choose to save? Check your answers by substituting them into the algebraic statement of the utility‑maximizing rule. In other words, show it works when using this rule.
b. Using Fisher's Intertemporal Choice model, consider the following scenario:i. Suppose Milo earns $1,750 in the first period and $2,500 in the second period. If he consumes $1,200 in the first period and $1,550 in the second period, what is the interest rate? ii. Now if Milo’s consumption changes to $1,800 in the first period and $2,000 in the second period, what is the new interest rate? c. Graphically depict and explain the Consumer’s optimum in the Fisher’s Intertemporal Choice Model.
b. Using Fisher's Intertemporal Choice model, consider the following scenario: Suppose Milo earns $1,750 in the first period and $2,500 in the second period. If he consumes $1,200 in the first period and $1,550 in the second period, what is the i. interest rate? ii. Now if Milo's consumption changes to $1,800 in the first period and $2,000 in the second period, what is the new interest rate?