uppose the Super Bowl is this week, and Raphael is in need of a television to watch the big game. As a college student, Raphael knows that he can ther buy his flat-screen television at the local electronics store, or he can shop online for a better deal but have to wait four days for the television to mive. The following problem uses the economic concept of rate of time preference to help determine which decision is better for Raphael. hroughout the question, assume that Raphael pays for the good the day he buys it, so his wealth is affected in the initial time period no matter where buys the good. Also, assume the shipping cost and cost to travel to the store are incorporated into their respective given prices. Finally, assume the pods are identical, and there's no cost to gaining information about prices-in other words, he knows the best price online and in the store without ving to search. uppose Raphael receives a utility of 35.11 utils once he actually receives his television. Let indicate Raphael's patience level; that is represents e discount rate between consuming something today versus tomorrow. or each value of 8 in the following table, compute the present value of Raphael's utility from receiving the television when he purchases his television the store (and receives it today) and when he purchases it online (and receives it four days from now). Where Purchased Store (received today) 8=0.8 Present When... B=0.7 B=0.4
uppose the Super Bowl is this week, and Raphael is in need of a television to watch the big game. As a college student, Raphael knows that he can ther buy his flat-screen television at the local electronics store, or he can shop online for a better deal but have to wait four days for the television to mive. The following problem uses the economic concept of rate of time preference to help determine which decision is better for Raphael. hroughout the question, assume that Raphael pays for the good the day he buys it, so his wealth is affected in the initial time period no matter where buys the good. Also, assume the shipping cost and cost to travel to the store are incorporated into their respective given prices. Finally, assume the pods are identical, and there's no cost to gaining information about prices-in other words, he knows the best price online and in the store without ving to search. uppose Raphael receives a utility of 35.11 utils once he actually receives his television. Let indicate Raphael's patience level; that is represents e discount rate between consuming something today versus tomorrow. or each value of 8 in the following table, compute the present value of Raphael's utility from receiving the television when he purchases his television the store (and receives it today) and when he purchases it online (and receives it four days from now). Where Purchased Store (received today) 8=0.8 Present When... B=0.7 B=0.4
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose the Super Bowl is this week, and Raphael is in need of a television to watch the big game. As a college student, Raphael knows that he can
either buy his flat-screen television at the local electronics store, or he can shop online for a better deal but have to wait four days for the television to
arrive. The following problem uses the economic concept of rate of time preference to help determine which decision is better for Raphael.
Throughout the question, assume that Raphael pays for the good the day he buys it, so his wealth is affected in the initial time period no matter where
he buys the good. Also, assume the shipping cost and cost to travel to the store are incorporated into their respective given prices. Finally, assume the
goods are identical, and there's no cost to gaining information about prices-in other words, he knows the best price online and in the store without
having to search.
Suppose Raphael receives a utility of 35.11 utils once he actually receives his television. Let 8 indicate Raphael's patience level; that is, ♬ represents
the discount rate between consuming something today versus tomorrow.
For each value of B in the following table, compute the present value of Raphael's utility from receiving the television when he purchases his television
in the store (and receives it today) and when he purchases it online (and receives it four days from now).
Where Pur
Store (received today)
Online (received in four days)
8=0.8
Present Value When...
B=0.7
0.4
Transcribed Image Text:If Raphael buys his television in the store, it costs $500; whereas if he buys it online, it costs only $380. Suppose the utility Raphael receives as a
function of his wealth can be expressed in the following way: U(W) = Was, If Raphael's level of wealth is $1.300 before purchasing a television, his
utility from wealth will be
utils if he purchases his television in the store, or
utils if he purchases it online.
Assume Raphael's total utility from purchasing a television is the sum of the present value of his utility from consumption and the utility from his
remaining wealth.
For each level of B, complete the following table with Raphael's total utility.
Total Utility When...
B=0.7
Where Purchased
Store
Online
B=0.8
B=0.4
From the previous analysis, you can conclude that as decreases, consumers become
consumers are more likely to purchase the good
patient. This indicates that as B approaches zero,
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