Explain how does adecrease in the current income y affect the consumer’s consumption-saving decision. In particular,explain: 1) How will current consumption c, future consumption c′, and savings s change; 2) Arethere any substitution effect or income effect. Make sure you draw two figures, one for the borrowersand one for the lenders
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Explain how does a
decrease in the current income y affect the consumer’s consumption-saving decision. In particular,
explain: 1) How will current consumption c, future consumption c′, and savings s change; 2) Are
there any substitution effect or income effect. Make sure you draw two figures, one for the borrowers
and one for the lenders
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- 3rian earns income equal to $82,000 in the first period, but his income will drop to $19,170 in the second period. a Sketch his intertemporal budget constraint, ansuming a 6.5% interest rate. Add an indifference curve that assumes he optimally chooses to save $40,000 in the first period. Be sure to CLEARLY graph your answer, with labeln on the axes and any other important points. Also show work for any calculations done. b. Show the offect of a 50% tax on interest income, assuming the substitution and income effects cancel each other out. Again, be sure to clearly graph your answer and show work for any calculations done.Jien is just bored all the time; no amount of success makes him happy, it seems. Below is a list of his income for the last several years and the utility he experienced per dollar of income: Year Yearly Income Utility per Dollar Earned 2017 $60,000 2 utils 2018 $70,000 1.8 2019 $100,000 1.5 2020 $120,000 1 2021 $145,000 0.40 From the above, we can say that Jien most likely is different from most people economists study in terms of risk attitudes is "risk loving" will not take a fair bet has a utility of wealth curve that is a straight lineIf we have money, we buy goods and services to satisfy our needs. In economics, thesatisfaction that we get from the consumption of goods and services is called utility. Usea utility graph to explain what happen to the utility when you keep on increasing thenumber of units consumed. Also explain what happens to the utility when you keep onincreasing the number of units consumed. Also explain what happens to the additionalutility (i.e. additional satisfaction) when you increase your consumption by one unit
- ceriuppose that Isaiah has a weekly fixed budget and spends it all on haircuts and ice cream. At his current combination arof consumption, the marginal utility of the last dollar spent on haircuts is greater than the marginal utility of the last dollar spent on ice cream. Has Isaiah maximized his utility? A C E Yes, because changing his current consumption combination will reduce his total utility B No, because he can increase his total utility by purchasing more haircuts and D fewer ice creams Yes, because he has purchased 2 goods in proportion so that he can get- the maximum utility from each Yes, because he purchased the maximum possible with a limited budget No, because he can increase his total utility by purchasing fewer haircuts and more ice creamsQuèstion 16 Which of the following is NOT the goal of the consumer? O maximize utility O be on the highest indifference curve spend more income in the current time period than in the future O maximize satisfaction1. Complete the following table and answer the questions below: Units consumed Total utility Marginal utility 1 10 10 2 8. 25 4 30 5 6. 34 2. Columns 1 through 4 in the table below show the marginal utility, measured in utils, that Ricardo would get by purchasing various amounts of products A, B, C, and D. Column 5 shows the marginal utility Ricardo gets from saving. Assume that the prices of A, B, C, and D are P18, 6, 4, and 24, respectively, and that Ricardo has an income of 106. Column 1 Column 2 Column 3 Column 4 Column 5 Unit Unit Unit Unit No. of MU MU MU MU P saved MU of A of B of C of D || || || || | 1 72 1 24 1 15 1 36 1 2 54 2 15 12 2 30 2 3 45 3 12 8 3 24 3 36 4 18 2 27 5 7 5 13 5 1 18 6. 7 6. 1/2 7 15 7 7 3.5 7 4 7 1/4 8 12 8. 1 8 2 8. 1/8 a. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility? b. How many pesos will Ricardo choose to save?
- Garfield enjoys pizzas and hanging out (leisure). He sleeps 8 hours per day. Of the remaining16 hours, for each hour he chooses to work he gets paid 2 pizzas. Garfield must pay 6 pizzas intaxes but receives dividends equivalent to 6 pizzas.1. Draw Garfield’s budget constraint (put consumption on the vertical axis and leisure of thehorizontal). Make sure to show the vertical and horizontal intercepts as well as the slope.b. Now suppose that Garfield chooses to work 10 hours per day. Find how many hoursof leisure and how many pizzas he will consume.c. Using your answer from b, show Garfield’s optimal point on the budget line and drawthe indifference curve passing from that point.4. Suppose that Garfield’s wage falls to 1 pizza per hour. Draw Garfield’s new budgetconstraint. Make sure to show the value of any intercept that has changed.5. Suppose that in response, Garfield decides to work for 6 hours per day. How much leisurewill he take, and how much pizza will he consume?6. Use an…Garfield enjoys pizzas and hanging out (leisure). He sleeps 8 hours per day. Of the remaining16 hours, for each hour he chooses to work he gets paid 2 pizzas. Garfield must pay 6 pizzas intaxes but receives dividends equivalent to 6 pizzas.1. Draw Garfield’s budget constraint (put consumption on the vertical axis and leisure of thehorizontal). Make sure to show the vertical and horizontal intercepts as well as the slope.b. Now suppose that Garfield chooses to work 10 hours per day. Find how many hoursof leisure and how many pizzas he will consume.c. Using your answer from b, show Garfield’s optimal point on the budget line and drawthe indifference curve passing from that point.4. Suppose that Garfield’s wage falls to 1 pizza per hour. Draw Garfield’s new budgetconstraint. Make sure to show the value of any intercept that has changed.5. Suppose that in response, Garfield decides to work for 6 hours per day. How much leisurewill he take, and how much pizza will he consume?6. Use an…If people do not have a complete mental picture of total utility for every level of consumption, how can they find their utility-maximizing consumption choice?
- Would you expect total utility to rise or fall with additional consumption of a good? Why?Law of Diminishing Marginal UtilityIndicate whether each of the following statements is true or false. Explain why.A.The law of diminishing marginal utility states that as an individual increases consumption of a given product within a set period of time, the utility gained from consumption eventually declines.B.Marginal utility measures the added satisfaction derived from a one-unit increase in consumption, holding consumption of other goods and services constant.C.When goods are relatively scarce, the law of diminishing marginal utility means that the added value of another unit of goods will be small in relation to the added value of another unit of services.D.The law of diminishing marginal utility gives rise to a downward-sloping demand curve for all goods and services.If the budget line rotates from blue to red. Consumption Next Year C B Consumption Today O The interest rate has increased. O The interest rate has decreased. O The interest rate has not changed. O If the person borrowed a $1 today they would owe more in the future. O If the person borrowed a $1 today they would owe less in the future. O If the person saved a $1 today they would have more money in the future on the red budget line compared to the blue budget line. O If the person saved a $1 today they would have less money in the future on the red budget line compared to the blue budget line.