Using Fisher's Intertemporal Choice model, consider the following scenario: Suppose Milo earns $1,750 in the first period and $2,500 in the second period. If he consumes $1,200 in the first period and $1,550 in the second period, what is the interest rate?
Q: Sanna lives for two time periods. She receives income in both and can consume in both. Her utility…
A: This is a problem of intertemporal budget constraint. It shows that there is a tradeoff between…
Q: Since she has to borrow and pay interest if she wants to consume in the first period, she can…
A: It is known that: Julia has to borrow to consume in period 1
Q: If preferences for pizza increase and the price of labor to produce pizza decreases, the equilibrium…
A: "Since you have asked multiple questions, we will solve first question for you .. If you want any…
Q: Consider the two-period endowment economy we discussed in class. In this economy, a household lives…
A: Since you have asked multiple questions, we will answer the first two parts for you. If you want any…
Q: The diagram depicts Julia's choice of consumptions in periods 1 and 2. She has no income in period 1…
A: As can be seen that for any consumption level in period 2 lower interest rate led to more…
Q: A family of four has an income of $15,000 today and will earn $24,000 tomorrow. If the family…
A: Intertemporal choice considers how the decision of the present affects the decisions of the future.…
Q: Suppose a consumer lives in two periods, with his income in period 1 as $100 and his income in…
A: In two period consumption optimal consumption at that point where Slope of Indifference curve and…
Q: If TP = 8L2-0.2L3 based on this function; A. Find the value of L that maximizes output B. How many…
A: Answer- Given in the question- TP = 8L2-0.2L3 based on this function Need to find- Find the value of…
Q: How much does this person earn per hour? $ At point A, how many hours of labor are selected?…
A: Labor leisure constraint of an income earning individual shows the trade off between income earning…
Q: With the use of graphs state how the Consumer’s optimum in the Fisher’s Intertemporal Choice Model.
A: In Fisher’s model the ability to borrow enables a consumer to consume more than what his current…
Q: Discuss the assumptions of the Fisher’s Intertemporal Choice Model
A: Hi. Since there are multiple questions, we will answer only the first one. The intertemporal choice…
Q: Given the utility function: U = ln c + l + ln c’ + l’ and the budget constraint:…
A: given utility function: U = ln c + l + ln c’ + l’ budget constraint:…
Q: Empirical evidence suggest that many consumers tend to spend all of their current disposable income…
A: Current disposable income: The disposable income of a consumer is that part of his income which…
Q: Suppose that John Smith gets promoted to a job that causes two changes to occur simultaneously: John…
A: Healthy living must be a part of a daily routine. It helps to avoid chronic diseases and long-term…
Q: If the consumer's non-labor income increases while wages remain unchanged, what will happen to the…
A: D) Budget line shifts outward without a change in slope Due to the effect in the change of the…
Q: For each of the following events, consider how you might react. What things might you consume more…
A: The budget constraint, which is that the frontier of the chance set, illustrates the range of…
Q: Suppose a person can work up to 80 hours per week at a pre-tax wage of $20 per hour but faces a…
A: To answer this, we need to find the budget intercept.
Q: Consider an individual who receives utility from consumption, c, and leisure, l. The individual has…
A: We have the objective function to maximize the utility function, Max U = ln(c) +θl We have two…
Q: Solve all questions otherwise I will give you downvote
A: Hi! Thank you for the question, As per the honor code, we are allowed to answer one question at a…
Q: Consider a consumer that lives only for two periods. He works in period 1 (and gets income Y1) and…
A:
Q: Suppose we are considering a hungry individual in the Gross-man model deciding what to have for…
A: Hi, thanks for the question. Since you posted multiple questions, we will answer first three…
Q: The diagram depicts Julia's choice of consumption in periods 1 and 2. She has no income in period 1…
A: The consumption function, also known as the Keynesian consumption function, is an economic formula…
Q: Consider the 2-period household model that you have seen in class. Suppose the household wants to…
A: A Two-period Model is defined as a model where there are two periods: the first period represents…
Q: Assume you define your permanent income as the average of your income from this and the past four…
A: Permanent income for last five years (including this year's) = (40000 + 38000 + 34000 + 32000 +…
Q: Assume that we are referring to a typical consumer named Just Trudeau. If money income increases in…
A: The intercepts of a consumer's budget line are given by M/PA and M/PB, where M is the money income…
Q: Derive with the help of indifference curves and the budget constraint the optimal consumption plan.…
A: The optimal consumption plan from budget constraints and indifference curve firstly we take Price…
Q: Consider a consumer that lives only for two periods. He works in period 1 (and gets income Y1) and…
A: "Since you have asked multiple questions ,we will solve first question for you.If you want any…
Q: 1. Consider a two-period model in which you work and save in the initial period (period 0) and live…
A: Since you have asked a multi-part question and according to the policy, we can only solve the first…
Q: emperical evidence suggests that consumers tend to spend their current disposable income immediately
A: Disposable personal income is the income left with an individual after deducting all the taxes and…
Q: Consider a consumer that lives only for two periods. He works in period 1 (and gets income Y1) and…
A: Concerning two commodities, an indifference curve is a graph that shows which combinations of the…
Q: A family of four has an income of $15,000 today and will earn $24,000 tomorrow. i). If the family…
A: Income and distribution effet is the changiñg of the faste and preference of an induolial on the…
Q: u (x₁, x₂) = x²x² If the price of good 1 is $6/unit, the price of good 2 is $8/unit, and income…
A: Optimum Consumption Level:- MUx1MUx2=Px1Px2 where; MUx1= Marginal…
Q: xplain the economic reason for which consumption decisions are graphically represented as a straight…
A: A production possibility frontier represents the combinations of two goods that a producer can…
Q: According to economists, the satisfaction people get from their consumption activities is called:
A: Microeconomics is a branch of economics that investigates how individuals and firms make decisions…
Q: Assume you can work as many hours you wish at £12 per hour (net of tax). If you do not work, you…
A: The value or pleasure a consumer can obtain from a service or commodity is referred to as utility in…
Q: Consider a person who is endowed with 10 units of P and 10 units of G. If you observe the person not…
A: since this is a multipart question and according to our policy we can only solve the first 3 parts.…
Q: How would you demonstrate part c) diagramatically 6. Assume you can work as many hours you wish at…
A: The study of labour economics aims to better understand how paid labour markets work and how they…
Q: In this hypothetical economy, there are two consumers living over two periods of life. Ann’s incomes…
A: Since the question you have posted consists of multiple parts, we will answer the first two parts…
Q: A pirate is about to set sail on a 2-period journey (trip). He has 100 bags of barley (food). He…
A:
Q: Using Fisher's Intertemporal Choice model, consider the following scenario: i. Suppose Milo earns…
A: The intertemporal choice model involves choices among the periods at various levels of income in…
Q: not taking into account consumers' ability to substitute toward goods that become relatively cheaper…
A: CPI deals with fixed basket of goods and services. CPI measures the total cost of goods and services…
Q: The graph below shows David’s preferences for leisure and consumption. Draw three budget…
A: Budget constraint: It represents all the different combinations of services and goods that an…
Q: Assume that consumption when young and consumption when old are both normal goods. The income effect…
A: Income effect means a change in the quantity demanded for a good or a service due to change in the…
Q: Mark can work up to 80 hours each week at a pre-tax hourly wage of $20 but faces a constant 20…
A: The budget line is downward sloping, indicating a tradeoff between income earned and the amount of…
Q: In this hypothetical economy, there are two consumers living over two periods of life. Ann's incomes…
A: c1 = Consumption in period 1 Y1 = Income in period 1 c1 = Y1 Now in period 2 : c2 = consumption in…
Q: Consider an economy with two goods, consumption c and leisure I, and a representative consumer. The…
A: GIVEN The consumer's preferences over consumption and hours of work can be represented by the…
Using Fisher's Intertemporal Choice model, consider the following scenario:
- Suppose Milo earns $1,750 in the first period and $2,500 in the second period. If he consumes $1,200 in the first period and $1,550 in the second period, what is the interest rate?
- Now if Milo’s consumption changes to $1,800 in the first period and $2,000 in the second period, what is the new interest rate?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
- b. Using Fisher's Intertemporal Choice model, consider the following scenario: Suppose Milo earns $1,750 in the first period and $2,500 in the second period. If he consumes $1,200 in the first period and $1,550 in the second period, what is the i. interest rate? ii. Now if Milo's consumption changes to $1,800 in the first period and $2,000 in the second period, what is the new interest rate?b. Using Fisher's Intertemporal Choice model, consider the following scenario:i. Suppose Milo earns $1,750 in the first period and $2,500 in the second period. If he consumes $1,200 in the first period and $1,550 in the second period, what is the interest rate? ii. Now if Milo’s consumption changes to $1,800 in the first period and $2,000 in the second period, what is the new interest rate? c. Graphically depict and explain the Consumer’s optimum in the Fisher’s Intertemporal Choice Model.Suppose Jane has $100$100 and is going to have a birthday party. She wants to order pizza and sushi. The price of a pizza is $6$6, and the price of one package of sushi is $8$8. Considering that she decided to spend $60$60 on pizza, how many pizzas and packages of sushi can Jane order? Enter your answer in the box below and round down to the nearest whole number if necessary; rounding your answer up may cause Jane to exceed her budget.
- Scenario: Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he is willing to trade 3 fish for every 1 coconut. The slope of budget line from trading with Friday is -0. 5. This shows for every coconut you give up, Friday must give up 2 fish. -The slope of budget line from trading with Kwame is -0. 3. So for every coconut you give up, Kwame must give up three fish. 1) Which budget line features a larger set of attainable combinations of coconuts and fish?Paolo enjoys consuming both soda and coffee. Each can of soda costs Ps = $1, and each cup of coffee costs Pc = $2. Suppose that Paolo buys 75 cans of soda and 50 cups of coffee per month. The following graphs show his marginal utility curves for soda and coffee. At his current consumption level, Paolo's marginal utility from consuming the last can of soda he bought is MUS = 12 utils per can, and his marginal utility from consuming the last cup of coffee he bought is MUC = 12 utils per cup. 24 20 20 16 25 50 75 100 125 150 25 50 75 100 125 150 SODA (Cans) COFFEE (Cups) Is Paolo currently maximizing his utility? O No; he likes coffee and soda more than other goods, so he should buy more of both. O No; he could buy less soda and more coffee, not spend any more money, and be better off. O Yes; the marginal utility he receives from his last can of soda equals that of his last cup of coffee. O No; he could buy more soda and less coffee, not spend any more money, and be better off. MU OF SODA…Suppose that your family has just decided to adopt a cat named Hailey. You have a monthly budget of $40 that you can choose to spend on either cat food or other consumption goods. Assume the price of a can of cat food is $5 for the first 2 cans, but then it drops to only $3 per can for each additional can. All other consumption goods will be treated as a composite good, so you can think of this as simply the cash left over to spend on other items after buying cat food. On the following graph, use the green points (triangle symbol) to graph your family's budget constraint. Note: Plot your points in the order in which you would like them connected. Line segments will connect the points automatically. OTHER CONSUMPTION (Amount per month) 50 45 40 35 30 25 20 15 10 5 Budget Constraint ?
- In 2005, suppose a typical U.S. owner of a home theater (a television and a DVD player) bought 8 music CDs (q₁) per year and 24 top-20 movie DVDs (9₂) per year. The average price of a CD was about p₁ = $15, the average price of a DVD was roughly p₂ = $20, and the typical consumer spent $600 on these entertainment goods. We'll call this typical consumer Barbara. We estimate her Cobb-Douglas utility function as 0.2 0.8 U(91, 92)=91 9₂ Use the 3-point curved line drawing tool to draw Barbara's annual demand curve for CDs, using prices of $15, $30, and $60 as your control points. Carefully follow the instructions above, and only draw the required object. Explain the shape of the price-consumption curve for changes in the price of good q₁. The equation for Barbara's price-consumption curve for changes in the price of good q₁ is |91 92 = (Properly format your expression using the tools in the palette. Hover over tools to see keyboard shortcuts. E.g., a subscript can be created with the_…The graph below shows David’s preferences for leisure and consumption. Draw three budget constraints in the graph below. One if David’s wage is $10 per hour (BC1), another if his wage is $20 per hour (BC2) and a third for if his wage is $30 per hour (BC3). Show the optimal combination of leisure and consumption for each of the three budget constraints. Label the optimal amount of Leisure, L1, L2 & L3, and label the optimal amounts of consumption C1, C2 & C3.Juan is currently working in a job that pays $25 an hour and he chooses to work 8 hours per day. Assume that Juan can work a maximum of 16 hours a day, and he has complete flexibility in how many hours a day he works. Illustrate Juan’s budget constraint and his optimal choice of consumption and leisure. What is the slope of his budget constraint? What does this slope represent? (As on any graph you draw, make sure that you label the axes, the intercepts and the optimal choice.) Juan begins receiving a government transfer payment of $100 per day. Add his new budget constraint to your graph in (a) and show his new optimal choice. Does he choose more or less consumption? More or less leisure? Explain why for both goods. The government imposes a tax of 25% on Juan’s earnings from work and increases his government transfer to $150 per day (the government transfer payment is not taxed.) Redraw the budget constraint from part (b) (omit the part (a) budget constraint), and add a new budget…
- Bottles of water sell for 1 euro and slices of chocolate cake sells for 3 euros. Suppose Jack, whose preferences satisfy all of the basic assumptions of consumer choice theory, buys 5 bottles of water and one slice of chocolate cake every day. At this consumption bundle, his MRS of bottles of water for slices of chocolate cake is 3 (i.e. he is willing to give up 3 bottles of water to get an additional slice of cake). Which of the following is true? (Hint: draw this situation with bottles of water on the vertical axis and slices of cake on the horizonal axis). A. Jack could increase his utility by buying fewer bottles of water and more slices of cake. B. Jack could increase his utility by buying more bottles of water and less chocolate cake. C. Jack could not increase his utility because it is already at a maximum level. D. Jack could increase his utility by buying more bottles of water and more chocolate cake.Sanna lives for two time periods. She receives income in both and can consume in both. Her utility function is increasing in both period 1 and period 2 consumption. Any income saved from Period 1 must be consumed in Period 2 and earns interest (at interest rate r); in contrast, if Sanna borrows in Period 1 she must pay this back (at interest rate r) from her income in Period 2. Suppose that initially Sanna's optimal bundle makes her a lender in Period 1. If the interest rate increases, which of the following is true? O None of the other answers are correct Sanna might become a borrower and will be made better off Sanna might become a borrower and might be made better off OSanna will remain a lender and will be made better off Sanna will remain a lender but might be made worse offBottles of water sell for 1 euro and slices of chocolate cake sells for 5 euros. Suppose Jack, whose preferences satisfy all of the basic assumptions of consumer choice theory, buys 5 bottles of water and one slice of chocolate cake every day. At this consumption bundle, his MRS of bottles of water for slices of chocolate cake is 3 (i.e. he is willing to give up 3 bottles of water to get an additional slice of cake). Which of the following is true? (Hint: draw this situation with bottles of water on the vertical axis and slices of cake on the horizontal axis). Jack could not increase his utility because it is already at a maximum level. Jack could increase his utility by buying more bottles of water and less chocolate cake. Jack could increase his utility by buying more bottles of water and more chocolate cake. Jack could increase his utility by buying fewer bottles of water and more slices of cake.