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

Microeconomics assignmentdiscussion forumnote the video has

Microeconomics Assignment DISCUSSION Forum Note: The video has Closed Captioning. To activate it, start the video, mouse over the bottom of the video and click on the CC icon, then select from the menu. This week's discu ...

Assignment voluntourism-go to httpwwwvoluntourismorgreview

Assignment: VolunTourism- Go to http://www.voluntourism.org Review the home page to understand the resources available on this web site and to get a feeling for what VolunTourism is.On the menu (left screen) under "Who A ...

Assignmentselect and review an inspection report posted on

Assignment Select and review an inspection report posted on the OSHA website. The inspection reports can be searched by industry group or establishment name by accessing the reports through the OSHA's Statistics & Data P ...

Problem setthis problem set is due on monday october 24th

Problem Set This problem set is due on Monday, October 24th in class. Consider the specific factors model (2 goods, 3 factors, where labor is the flexible factor) for a given small country with the following Cobb-Douglas ...

Assignmentwhat are the most important knowledge assets at

Assignment What are the most important knowledge assets at Dirt Bikes? What functions and employee positions are responsible for creating, distributing, and using these knowledge assets? Are all of these assets explicit ...

Assignmentresearch a company of your choosing that has

Assignment Research a company of your choosing that has global presence. The World's Most Reputable Companies website has a list of 100 multinational businesses with global presence. Feel free to pick a company from this ...

Application evaluation of research resultsno research

Application: Evaluation of Research Results No research project or study is perfect. Studies that contain errors can produce unreliable or misleading results. As a consumer of research, you must be able to determine the ...

Assignmentscenario summarya kansas city based supplier of

Assignment Scenario Summary A Kansas City based supplier of health care information technology (HCIT) solutions has recently hired you as a Human Resource Manager. You are in charge of hiring new medical consultants for ...

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 ...

Economics assignmentcontentselect a news article with

Economics Assignment Content: Select a news article with economic implications within the previous six months and explain, analyze and expand the issue using the economic concepts and theory learned in this class. Includ ...

  • 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