Assume that there are N individuals, indexed by i=1,...,N. One of them, individual i, derives positive utility from her own consumption (denote by c), from her consumption in relation to the average consumption of everybody else (the other N-1 individuals), and from her charitable donations (denote by d). Assume an exogenous income level I. a) Write down a utility function that can represent individual's preferences. b) Write down (without solving) the consumer's maximization problem. c) Discuss (in brief) whether you think that this utility function is preferable to the standard one and justify your answer.

Assume that there are N individuals, indexed by i=1,...,N. One of them, individual i, derives positive utility from her own consumption (denote by c), from her consumption in relation to the average consumption of everybody else (the other N-1 individuals), and from her charitable donations (denote by d). Assume an exogenous income level I. a) Write down a utility function that can represent individual's preferences. b) Write down (without solving) the consumer's maximization problem. c) Discuss (in brief) whether you think that this utility function is preferable to the standard one and justify your answer.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter4: Utility Maximization And Choice

Section: Chapter Questions

Problem 4.12P

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