Question

Biff is a consumer who lives for two periods and is endowed with some incomes (m1,...

Biff is a consumer who lives for two periods and is endowed with some incomes (m1, m2).

(a) Draw a picture of Biff’s intertemporal budget constraint. If the interest rate fell, would the slope of the budget line get steeper or flatter?

(b) If the interest rate were .05, Biff would borrow money in the first period. But Biff would lend money instead if the interest rate were .04. Could Biff’s preferences satisfy WARP? Explain.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Assume the representative consumer lives in two periods and his preferences can be described by the...
Assume the representative consumer lives in two periods and his preferences can be described by the utility function U(c,c′)=c1/3 +β(c′)1/3, where c is the current consumption, c′ is next period consumption, and β = 0.95. Let’s assume that the consumer can borrow or lend at the interest rate r = 10%. The consumer receives an income y = 100 in the current period and y′ = 110 in the next period. The government wants to spend G = 30 in...
Smith lives in a world with two time periods: current period and future period. His income...
Smith lives in a world with two time periods: current period and future period. His income in each period is $10,000. A) Draw his intertemporal budget constraint when the interest rate is 33%. B) If Smith consumes $10,000 in each period, show his best affordable bundle and the indifference curve that passes through it. C) Graphically show how Smith's current consumption changes when the interest rate falls to 0%.
3. Consider an individual who lives for two periods. His income in the first period is...
3. Consider an individual who lives for two periods. His income in the first period is !Y1 and his income in the second period is Y2. His consumption in the first period is !C1 and his consumption in the second period is C2. He can lend and borrow at zero real interest (!r = 0 ). (a) Write his budget constraint (again, assume !r = 0 ). (b) Assume that the government collects a lump sum tax of !T units...
Imagine an individual who lives for two periods. The individual has a given pattern of endowment...
Imagine an individual who lives for two periods. The individual has a given pattern of endowment income (y1 and y2) and faces the positive real interest rate, r. Lifetime utility is given by U(c1, c2)= ln(c1)+β ln(c2) Suppose that the individual faces a proportional consumption tax at the rate Ԏc in each period. (If the individual consumes X in period i then he must pay XԎc to the government in taxes period). Derive the individual's budget constraint and the F.O.C...
Mark lives for two periods, earning $50; 000 in income in period 1, which he divides...
Mark lives for two periods, earning $50; 000 in income in period 1, which he divides between current period consumption and saving for period 2. The interest rate on his saving is 10% per period. (a) The government is considering three tax proposals. Write down Mark's intertemporal budget constraint in each of the following case, draw the corresponding budge line, and label the intercepts and slope. (i) a 10% tax on labor income. (ii) a 10% tax on consumption in...
Emil has access to a perfect capital market1 with interest rate r ∈ (0, 1). He...
Emil has access to a perfect capital market1 with interest rate r ∈ (0, 1). He has preferences over bundles (x, y) ∈ R2+ of money for consumption in period 1 (x) and money for consumption in period 2 (y) that can be represented by the following utility function u(x, y) = x2 · y Emil has an endowment of E = (2000, 1200), that is his income in period 1 is m1 = 2000 and his income in period...
2.Consider the inter-temporal model of consumption studied in class, with two possible periods. Assume that initially...
2.Consider the inter-temporal model of consumption studied in class, with two possible periods. Assume that initially that an individual is a saver. If the interest rate rises, which statement is false? a. The individual will never become a borrower. b.The individual will necessarily increase their savings. c.The individual must remain a saver d. The individual could increase or decrease their savings, but she must remain a saver. 4. Consider the inter-temporal model of consumption studied in class, with two possible...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how...
Delta airlines case study Global strategy. Describe the current global strategy and provide evidence about how the firms resources incompetencies support the given pressures regarding costs and local responsiveness. Describe entry modes have they usually used, and whether they are appropriate for the given strategy. Any key issues in their global strategy? casestudy: Atlanta, June 17, 2014. Sea of Delta employees and their families swarmed between food trucks, amusement park booths, and entertainment venues that were scattered throughout what would...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT