Q1. Consider a consumer with a lifetime utility function U(c, c') = u(c) + Bu(c) that satisfies all the standard assumptions listed in the book. The period 1 and 2 budget constraints are c+s=y c+sy+(1+r)s (a) What is the optimal value of s'? Impose this optimal value and derive the life-time budget constraint.
Q1. Consider a consumer with a lifetime utility function U(c, c') = u(c) + Bu(c) that satisfies all the standard assumptions listed in the book. The period 1 and 2 budget constraints are c+s=y c+sy+(1+r)s (a) What is the optimal value of s'? Impose this optimal value and derive the life-time budget constraint.
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter20: Consumer Choice: Maximizing Utility And Behavioral Economics
Section20.1: Utility Theory
Problem 2ST
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Transcribed Image Text:Q1. Consider a consumer with a lifetime utility function
U(c, c') = u(c) + Bu(c)
that satisfies all the standard assumptions listed in the book. The period 1 and 2 budget
constraints are
c+s=y
c+sy+(1+r)s
(a) What is the optimal value of s'? Impose this optimal value and derive the life-time
budget constraint.
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