A family of four has an income of $15,000 today and will earn $24,000 tomorrow. i). If the family consumes $11,500 in the first period and $15,000 in the second period, what is the interest rate? ii). If the family consumes $15,000 in the first period and $13,500 in the second period, what is the interest rate? iii). Explain the income and substitution effects and discuss which effect dominated after the interest rate change from part (a.) to part (b.).

A family of four has an income of $15,000 today and will earn $24,000 tomorrow. i). If the family consumes $11,500 in the first period and $15,000 in the second period, what is the interest rate? ii). If the family consumes $15,000 in the first period and $13,500 in the second period, what is the interest rate? iii). Explain the income and substitution effects and discuss which effect dominated after the interest rate change from part (a.) to part (b.).

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter6: Consumer Choice Theory

Section6.A: Indifference Curve Analysis

Problem 1SQP

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