utility function

Microeconomic Theory
12th Edition
ISBN:9781337517942
Author:NICHOLSON
Publisher:NICHOLSON
Chapter7: Uncertainty
Section: Chapter Questions
Problem 7.8P
icon
Related questions
Question
2. A society has to decide between allocating a sum of money I between the current
generation (A) and the future generation (B). Total social welfare is determined according
to a simple utilitarian aggregation of both generations' utilities. The utility of generation B
1
has to be discounted in order to be considered. The discount factor is
(1+i)"
where i is
the prevailing interest rate and n is the number of years in the future in which generation B
will be born. If both generations have the same utility function log (I) (where x=A or B),
find out the division of income between the generations for the following combinations of
the interest rate and n:
i. n 1 year and i = 5%.
ii. n=1 year and i = 10%.
iii. n = 2 year and i = 5%.
iv. n
2 year and i = 7%.
v. n 10 years and i = 0%.
=
Transcribed Image Text:2. A society has to decide between allocating a sum of money I between the current generation (A) and the future generation (B). Total social welfare is determined according to a simple utilitarian aggregation of both generations' utilities. The utility of generation B 1 has to be discounted in order to be considered. The discount factor is (1+i)" where i is the prevailing interest rate and n is the number of years in the future in which generation B will be born. If both generations have the same utility function log (I) (where x=A or B), find out the division of income between the generations for the following combinations of the interest rate and n: i. n 1 year and i = 5%. ii. n=1 year and i = 10%. iii. n = 2 year and i = 5%. iv. n 2 year and i = 7%. v. n 10 years and i = 0%. =
Expert Solution
steps

Step by step

Solved in 3 steps with 72 images

Blurred answer
Knowledge Booster
Utility Function
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Microeconomic Theory
Microeconomic Theory
Economics
ISBN:
9781337517942
Author:
NICHOLSON
Publisher:
Cengage