RSM332H1 Lecture 2: Class 2

53 views5 pages
School
Department
Course
Professor

Document Summary

Case 1: no capital market; no production opportunity(farm or firm and you can produce) This consumer can consume y0 on date 0 and y1 on date 1. In case 1, c0 = y0 and c1 = y1. Set of consumption plans are broadened: at t = 0, the consumer can save from y0. C0 < y0 = (y0 - c0)(1+r: at t = 0, the consumer can borrow from y1. Expression is same, just the sign is different. C0 + c1/1+r = y-hat (cid:894)wealth (cid:373)easure if you"re ri(cid:272)h, y-hat is high) Present value of all consumption equals to present value of income. Effect if y-hat is 3 instead of 2 -> graph shifts out (better choices) Indifference curve utility is fixed on each curve. First, assume we start at y1,y0, as you move up the line, the utility curve is higher than the first indifference. Line tangent to indifference curve is the highest point of utility.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents