(Answered) Consider a consumer with preferences over current and

Management Studies

Consider a consumer with preferences over current and future consumption given by U(c1; c2) = (c1)1=2(c2)1=2 where c1 denotes the amount consumed in period 1 and c2 the amount consumed in period 2.

Suppose that period 1 income expressed in units of good 1 is m1 = 20000 and period 2 income expressed in units of good 2 is m2 = 30000.

Suppose also that p1 = p2 = 1 and let r denote the interest rate.

(a) Find the optimal consumption bundle when r = 0:15. Is the consumer a saver or a borrower?

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