ECON482 Midterm: ECON 482 UofA E482A211
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This assignment will be marked out of 165. The maximum number of marks that can be earned on a question is given in brackets next to the question. Your answers should be concise and to the point. Utility is a function of consumption (c) in the two periods: c,cu. Subject to an intertemporal budget constraint, the individual can borrow or lend at the exogenous interest rate r, where r . The individual has exogenous income y1 in the first period and y2 in the second period and has no initial assets. Set up the lagrangean for the consumer"s optimization problem and find the first order conditions. Explain using the first order condition from (a). That is, the optimal choice of c1 as a function of exogenous variables and parameters only. Show how a change in y1 affects period 1 consumption. Consider an individual who lives for two periods. Utility is a function of consumption (c) and leisure (5) (5) (5)
