Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Microeconomics Expert

Assumptions: Pip=s income in the current Year 1 is $500, but after he comes into his inheritance his income in Year 2 will be $5,000. This is a two-period problem, so you do not need to assume anything about his income in future years after Year 2. (If you want to be morbid about it, assume he dies after Year 2.) Pip can borrow and lend (save) money at an interest rate = 0.2.

a) What is the present discounted value of Pip=s income? If he decides to consume nothing in Year 2, what is the maximum amount that Pip can consume in Year 1? describe how he can consume that amount; i.e., describe how much he has to borrow and how much he pays back in principal and in interest in Year 2.

b) If Pip decides to consume nothing in Year 1, what is the maximum amount he can consume in Year 2? describe how he can consume that amount; i.e., describe how much he has to save (lend) and how much he receives in principal and interest in Year 2.

c) Draw Pip=s budget line showing his opportunities to consume C1 in Year 1 (on the horizontal axis) and C2 in Year 2 (on the vertical axis). On your budget line, show the Polonius point (where Pip is neither a borrower nor a lender) and the points you find outd in a) and b).

d) Suppose Pip=s optimal choice of consumption in Year 1 is $2,545.45. describe how much he borrows in Year 1 and how much he has to pay back in principal and interest in Year 2. How much does he consume in Year 2?

e) Draw an indifference curve consistent with the facts in d). What do we know about Pip=s marginal rate of time preference at his optimal choice? What do we know about Pip=s marginal rate of time preference at his Polonius point?

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M938908

Have any Question? 


Related Questions in Microeconomics

Question 1 - read the following passage carefully and

Question 1 - Read the following passage carefully and answer questions The beverages industries in which Pepsi operate are highly competitive. They compete with major international beverage companies in multiple geograph ...

Assignmentone responsibility of an information assurance

Assignment One responsibility of an information assurance professional is to work with the organization's security team to explain risk assessment and report findings to executives. The report is likely to involve sensit ...

Economics and quantitative analysis assignmenttopic -

ECONOMICS AND QUANTITATIVE ANALYSIS ASSIGNMENT TOPIC - REGRESSION ANALYSIS Instructions - Background One of the biggest challenges in the higher education sector has been the recent growth of online universities. The Onl ...

Assignment 1 -i watch the videos on demand and supplythere

Assignment 1 - I) Watch the videos on Demand and Supply There are 5 changes in Demand that shift the demand curve to the right or left.  They are Change in Tastes and Preferences Change in Income Change in Population Cha ...

Questionsexercisesseminar 11nbsp discuss what you

Questions/Exercises Seminar 1 1.  Discuss what you understand by the following: a) the law of demand b) the conditions of demand c) a demand curve d) a normal good e) an inferior good f) a Giffen good G) the law of suppl ...

Discussion questionplease read thoroughly and provide

Discussion Question Please read thoroughly and provide references • Manufactures of smartphones design products to be interactive with consumers. To remain competitive, designers are focused on getting a new product to m ...

Assignment questionsque1 why validation of the software

Assignment Questions: Que.1 Why validation of the software requirement is necessary? List some conditions that should be checked in the validation phase of software requirement. Que.2 Six Sigma is used to reduce the defe ...

Economics assignment1 multiple product pricinganswer the

Economics Assignment 1. Multiple Product Pricing: Answer the following about the pricing of multiple products: a. Icarus Medical Supplies produces adhesives that are used to reassemble broken bones. Pindrop Medical Produ ...

Need someone to help with the belowthe theory of market

Need someone to help with the below The theory of market economies emphasizes freedom of choice and limited government intervention. The classic argument for government intervention is market failure - the inability of t ...

Project-listen to this video asafter you work on your graph

Project- Listen to this video as/after you work on your graph. The lecture is on the 'Aftermath of the Financial Crisis' given by Ben Bernanke in March 29 th 2012. https://www.c-span.org/video/?305198-1/ben-bernanke-lect ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro