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utility function

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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2. A society has to decide between allocating a sum of money I between the current generation (A) and the future generation (B). Total social welfare is determined according to a simple utilitarian aggregation of both generations' utilities. The utility of generation B 1 has to be discounted in order to be considered. The discount factor is (1+i)" where i is the prevailing interest rate and n is the number of years in the future in which generation B will be born. If both generations have the same utility function log (I) (where x=A or B), find out the division of income between the generations for the following combinations of the interest rate and n: i. n 1 year and i = 5%. ii. n=1 year and i = 10%. iii. n = 2 year and i = 5%. iv. n 2 year and i = 7%. v. n 10 years and i = 0%. =
Transcribed Image Text:2. A society has to decide between allocating a sum of money I between the current generation (A) and the future generation (B). Total social welfare is determined according to a simple utilitarian aggregation of both generations' utilities. The utility of generation B 1 has to be discounted in order to be considered. The discount factor is (1+i)" where i is the prevailing interest rate and n is the number of years in the future in which generation B will be born. If both generations have the same utility function log (I) (where x=A or B), find out the division of income between the generations for the following combinations of the interest rate and n: i. n 1 year and i = 5%. ii. n=1 year and i = 10%. iii. n = 2 year and i = 5%. iv. n 2 year and i = 7%. v. n 10 years and i = 0%. =
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