Problem 4 - Costless Magical MacGuffin Consider a consumer that lives only for two periods. He works in period 1 (and gets income ₁) and moves up the corporate ladder in period 2 (and gets income 11 <12). This consumer has the usual preferences over time: u(C₁) + Bu(C₂) Assume this consumer cannot borrow. 1. What is the consumption in period 1 and period 2? Display graphically. Show the corresponding utility curve. Assume that now the consumer is allowed to save or borrow. 2. Write down the new budget constraint. What is the consumption in period 1 and period 2? Display graphically. Could the consumer be worse off? Could the consumer be better off? Draw budget constraints such that for one of them consumer prefers to borrow and for the other - prefers to save.

Problem 4 - Costless Magical MacGuffin Consider a consumer that lives only for two periods. He works in period 1 (and gets income ₁) and moves up the corporate ladder in period 2 (and gets income 11 <12). This consumer has the usual preferences over time: u(C₁) + Bu(C₂) Assume this consumer cannot borrow. 1. What is the consumption in period 1 and period 2? Display graphically. Show the corresponding utility curve. Assume that now the consumer is allowed to save or borrow. 2. Write down the new budget constraint. What is the consumption in period 1 and period 2? Display graphically. Could the consumer be worse off? Could the consumer be better off? Draw budget constraints such that for one of them consumer prefers to borrow and for the other - prefers to save.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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