This question analyzes the baseline economy consisting of two goods, two periods, and two representative consumers with endowments. Xavier has Cobb-Douglas preferences over consumption today (i.e., period 1) and tomorrow (i.e., period 2). U( C1 , C2 )=0.51ln( C1 )+ 0.49ln( C2 ) . Yuri’s utility function is. U( C1 , C2 )=0.52ln( C1 )+ 0.48ln( C2 ) . Everyone has an income (endowment) of $100,000 each year. Food (consumption) purchased today and delivered today costs $1. There is no inflation and thus food purchased tomorrow and delivered tomorrow also costs $1. The market interest rate is 5%. (a) Between Xavier and Yuri, who is (relatively) most impatient, and why? (b) What is the present value of Xavier’s income? (c) What share of income does Xavier spend on consumption t
This question analyzes the baseline economy consisting of two goods, two periods, and two representative consumers with endowments.
- Xavier has Cobb-Douglas preferences over consumption today (i.e., period 1) and tomorrow (i.e., period 2).
U( C1 , C2 )=0.51ln( C1 )+ 0.49ln( C2 ) .
- Yuri’s utility function is.
U( C1 , C2 )=0.52ln( C1 )+ 0.48ln( C2 ) .
Everyone has an income (endowment) of $100,000 each year.
Food (consumption) purchased today and delivered today costs $1.
There is no inflation and thus food purchased tomorrow and delivered tomorrow also costs $1.
The market interest rate is 5%.
(a) Between Xavier and Yuri, who is (relatively) most impatient, and why?
(b) What is the present value of Xavier’s income?
(c) What share of income does Xavier spend on consumption today?
(d) For period 1 (i.e., today), who bought, who sold, and why?
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