Thursday
April 17, 2014

Homework Help: Economics

Posted by Wesley on Sunday, September 30, 2012 at 9:25pm.

Here goes...

1. Consider a model in which an individual lives two periods: this period (time one) and next period (time two). This period his budget constraint requires that his consumption, c1; plus his saving, s; equals his income, y1:

c1 + s = y1:

Next period his budget constraint requires that his consumption, c2; equals his income, y2; plus the value of his saving from the initial period:

c2 = y2 + (1 + r)s

where r is a known interest rate.

The individual's problem is to maximize is

U(c1) + βU(c2)

by choices of c1; c2; and s subject to his budget constraints. What are his optimal choices ofconsumption (in both periods) and saving when
U(c) = -1/2c^2
y1 = 1000
y2 = 200
r = 0:03;
and β = 0.97

NOTE: For this utility function, MU(c)= 1/c^3

Answer this Question

First Name:
School Subject:
Answer:

Related Questions

Questions on economics - 1 what do economic model assume? 2 in what way are ...
ECONOMICS 205 - what assumptions does the perfect model make? are the realistic...
Economics - The table below shows annual demand (in 1,000,000 units per year) ...
basic economics - The U.S. capitalist system relies on a theoretical model, the ...
economics - My final question, I hope you can understand it. If all the values ...
Economics - In running a regression model with three variables, two of the three...
Math - Consider the regression through the origin model y = bx Assume that there...
Math - Consider the regression through the origin model y = bx Assume that ...
Econometric -SAS - I am having trouble figuring out the correct code. I am ...
statistics - I'm trying to work through the proof for SST = SSM + SSE MEAN = &#...

Search
Members