Which of the following statements is correct? a. The demand for future goods is derived from consumers’ utility maximization problems over current and future consumption goods. b. It is the present value of future consumption goods that enters into the budget constraint of a consumer’s utility maximization problem over current and future consumption goods. c. The solution to a consumer’s utility maximization problem over current and future consumption goods can be interpreted as wealth not currently consumed that is invested to yield future consumption. d. All of the above.

Which of the following statements is correct? a. The demand for future goods is derived from consumers’ utility maximization problems over current and future consumption goods. b. It is the present value of future consumption goods that enters into the budget constraint of a consumer’s utility maximization problem over current and future consumption goods. c. The solution to a consumer’s utility maximization problem over current and future consumption goods can be interpreted as wealth not currently consumed that is invested to yield future consumption. d. All of the above.

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter1: What Is Economics

Section1.3: What Do Economists Do?

Problem 5R

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Which of the following statements is correct? a. In a consumers’ utility maximization problems over current and future consumption goods, a higher rate of return r produces substitution and income effects that cause a decrease in quantity demanded of future consumption goods. b. In a consumers’ utility maximization problems over current and future consumption goods, a higher rate of return r produces substitution and income effects that cause an increase in quantity demanded of current consumption goods. c. In a consumers’ utility maximization problems over current and future consumption goods, a higher rate of return r produces substitution effects that favor more saving and income effects that favor less. d. All of the above.
1. 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?
You are looking to build a model of consumer choice between consumption today and consumption tomorrow. Explain what utility function you would use and the type of preferences that it would represent.
Q 1 5. Refer to the following intertemporal budget constraint of a respective consumer: a. How would this budget constraint change if individual becomes more presented oriented (he discounts future heavily)? b. How would this budget constraint change if individual faces a borrowing constraint in second period?
Jason spends his entire budget on coffee and doughnuts. You have the following data on his choices: Table 1: Jason's consumption choice and budget Price / cup of coffee Price / doughnut cups purchased doughnuts purchased Income February 2 1 4 22 March 5/2 3/4 10 8 31 April 3 1/2 8 14 31 Assume Jason 's preferences are monotone, the same over the three months, and that he has no way to save or borrow across periods. Are Jason's choices consistent with utility maximization?
For each of the following events, consider how you might react. What things might you consume more or less of? Would you work more or less? Would you increase or decrease your saving? Are your responses consistent with the discussion of household behavior in this chapter? a. You have a very close friend who lives in another city, a 3-hour bus ride away. The price of a round-trip ticket rises from $20 to $45. b. Tuition at your college is cut 25 percent. c. You receive an award that pays you $300 per month for the next 5 years. d. Interest rates rise dramatically, and savings accounts are now paying 10% interest annually. e. The price of food doubles. (If you are on a meal plan, assume that your board charges double.) f. A new business opens up nearby offering part-time jobs at $20 per hour.
Columns 1 through 4 in the following table 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, respectively, $18, $6, $4, and $24 and that Ricardo has an income of $106. a. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility? b. How many dollars will Ricardo choose to save? c. Check your answers by substituting them into the algebraic statement of the utility-maximizing rule.
25 Columns 1 through 4 in the following table 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, respectively, $9, $3, $2, and $6 and that Ricardo has an income of $71. Column 1 Column 2 Column 3 Column 4 Column 5 Units of Good A Units of Units of Units of MU MU MU MU Good B Good C Good D Number of Dollars Saved MU 1 72 1 24 1 15 1 36 1 5 2 54 2 15 2 12 2 30 2 4 3 45 3 12 3 8 3 24 3 3 4 36 4 9 4 7 4 18 4 2 5 27 5 7 5 5 5 13 5 1 6 18 6 5 6 4 6 7 6 0.50 7 15 7 2 7 3.5 7 4 7 0.25 8 12 8 1 8 3 8 2 8 0.13 Instructions: Enter your answers as a whole number. a. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility? 4 units of A 3 units of B units of C units of D b. How many dollars will Ricardo choose to save?
W 7 Ms. Bain maximizes 6. utility (given her budget constraint) at point X, skiing 2 days and spending 3 days horseback riding. Budget liņe Curve B U Y Curve A 1 Curve C V 1 2 3 4 5 6 7 Days of horseback riding per semester Part II Graph N 4. 3. Days of skiing per semester
Columns 1 through 4 of the accompanying table 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 $18, $6, $4, and $24, respectively, and that Ricardo has an income of $105. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility? How many dollars will Ricardo choose to save? Check your answers by substituting them into the algebraic statement of the utility‑maximizing rule. In other words, show it works when using this rule.
Suppose you have a monthly income of $1000, $850 in monthly expenses, and you can put money in a savings account that yields a monthly interest rate of 4%. Create a budget constraint showing the trade-off between present consumption (horizontal axis) and future consumption (vertical axis). How much will you have in the future if you choose to consume $850 now? Show this point on your budget constraint.
Columns 1 through 4 of the accompanying table 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 $18, $6, $4, and $24, respectively, and that Ricardo has an income of $105. Column 1 Column 2 Column 3 Column 4 Units Units Units Units of A MU of B MU of C MU of D MU 1 72 1 24 1 15 1 36 54 15 12 2 30 3 45 3 12 3 8. 3 24 4 36 4 7 4 18 27 7 5 5 13 6 18 6 5 6 4 6 7 7 15 7 2 7 3.5 7 8 12 8 1 8 3 8 2 а. What quantities of A, B, C, and D will Ricardo purchase in maximizing his utility? b. How many dollars will Ricardo choose to save? c. Check your answers by substituting them into the algebraic statement of the utility-maximizing rule. In other words, show it works when using this rule.

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	a.	The demand for future goods is derived from consumers’ utility maximization problems over current and future consumption goods.
	b.	It is the present value of future consumption goods that enters into the budget constraint of a consumer’s utility maximization problem over current and future consumption goods.
	c.	The solution to a consumer’s utility maximization problem over current and future consumption goods can be interpreted as wealth not currently consumed that is invested to yield future consumption.
	d.	All of the above.