Flexible felix views present and future consumption as, Ask an Expert

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Flexible Felix views present and future consumption as imperfect substitutes and he discounts future consumption by a bit to reflect the uncertainties of his life. His utility function is given by U(C_0,C_1 )=3C_0+(4C_1) ⁄ ((1+δ) ) where δ (which is a small positive number) is the discount rate he applies to C_1.

Graph Felix’s indifference curve map.

Show that if 3δ=1+4r, (r= the real interest rate), then Felix is indifferent between C_0 and C_1.

What do you conclude about the relationship between a person’s savings behavior and his or her “impatience”?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M92202290

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