ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
Please answer a,b
In the current period, a consumer gets an endowment y and pays lump-sum tax t. In the future period, the consumer is endowed with y' and faces the lump-sum tax of t. The consumer can borrow at rate r2 and lend at the rate r1, where r1<r2. A) Derive the consumer's lifetime budget constraint. B) Show the consumer's lifetime budget constraint and indifference curve in a diagram (illustrate both type of consumers, borrowers and lenders).
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Transcribed Image Text:In the current period, a consumer gets an endowment y and pays lump-sum tax t. In the future period, the consumer is endowed with y' and faces the lump-sum tax of t. The consumer can borrow at rate r2 and lend at the rate r1, where r1<r2. A) Derive the consumer's lifetime budget constraint. B) Show the consumer's lifetime budget constraint and indifference curve in a diagram (illustrate both type of consumers, borrowers and lenders).
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