PRINCIPLES OF MICROECONOMICS (OER)
PRINCIPLES OF MICROECONOMICS (OER)
2nd Edition
ISBN: 9781947172340
Author: Timothy Taylor, Steven A. Greenlaw
Publisher: OpenStax
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Chapter B, Problem 5RQ

Exercise B5

How can you tell which indifference calves represent higher or lower levels of utility?

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Increase in the price of insulin doesn't effect its Qd whereas a slight increasein price of perfume drops its Qd to zero. Explain.
Exercise 3 An individual lives two periods, 0 and 1. The income is 14,000 in period 0 and 5,000 in period 1. The individual's marginal utility is: K- Co in period 0 and d8(K – C1) in period 1, where C is the consumption in period 0, C1 the consumption in period 1 and d a discount rate. K is a constant (higher than the consumption in each period). Suppose that the person can save or borrow from the bank from period 0 to period 1 with a 25% interest rate. Set the discount rate & to 0.8. a) How much will the individual consume in the two periods? How much will she save? b) A National Insurance scheme (pension system) is established. The individual must pay 4,500 in period 0 and receives the same amount with interests in addition to her income in period 1. What will the consumption and savings be in the two periods if the National Insurance scheme uses the same interest rate as the bank?
Consumer's Utility: U=2Y2-16Y What is the utility maximizing level of income?

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