, where c₁ is her consumption in period 1 and c2 is her consumption in period 2. Her income in period 1 is 3 times as large as her income in period 2. At what interest rate will she choose to consume the same amount in period 1 as in period 2?

, where c₁ is her consumption in period 1 and c2 is her consumption in period 2. Her income in period 1 is 3 times as large as her income in period 2. At what interest rate will she choose to consume the same amount in period 1 as in period 2?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Patience has a utility function
where c₁ is her consumption in period 1 and c2 is her consumption in period 2. Her
income in period 1 is 3 times as large as her income in period 2. At what interest rate
will she choose to consume the same amount in period 1 as in period 2?
20%
13%
25%
1/2
1/2
U(c1, c2) = ¹/² +0.80c¹/²
0%
80%

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