EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 8220100605932
Author: Blinder
Publisher: Cengage Learning US
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Chapter 12, Problem 2DQ
To determine
Identify the products that are widely advertised on television.
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Musashi is a tenured faculty member who teaches particle physics at a university where he earns an annual salary of $200,000. He intends to take the next year off to focus on writing a new undergraduate physics textbook, so he will not earn any income next year. He is currently deciding how much of this year's salary he should save for next year. Assume that there are no tax implications associated with the decision, and ignore what happens after next year. Therefore, next year Musashi will consume whatever he saves this year plus interest, and he is not concerned with the future beyond next year.
The following graph shows Musashi's preferences for consumption this year and next year. Suppose initially Musashi cannot earn interest on the money he saves.
Use the green line (triangle symbol) to plot Musashi's budget constraint (BC1BC1) on the following graph. Then use the black point (plus symbol) to show his optimum consumption bundle.
Note: Dashed drop lines will automatically…
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