Question 3: Consider the two-period model. The consumer has an asset, which is worth A in the current period. The current and future incomes are y and y'. There are no taxes. The maximum amount that the consumer can borrow in the current period is A. The market interest rate is r and the consumer's asset will be worth (1 + r) A in the future period. The consumer's indifference curves are linear with slope steeper than 1+r. 1. Illustrate the consumer's budget constraint and equilibrium in a graph with current consumption (c) on x axis and future consumption (c') on y axis. Clearly mark the consumer's endowment point (y, y').

Question 3: Consider the two-period model. The consumer has an asset, which is worth A in the current period. The current and future incomes are y and y'. There are no taxes. The maximum amount that the consumer can borrow in the current period is A. The market interest rate is r and the consumer's asset will be worth (1 + r) A in the future period. The consumer's indifference curves are linear with slope steeper than 1+r. 1. Illustrate the consumer's budget constraint and equilibrium in a graph with current consumption (c) on x axis and future consumption (c') on y axis. Clearly mark the consumer's endowment point (y, y').

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter5: Income And Substitution Effects

Section: Chapter Questions

Problem 5.15P

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