Reference no: EM131098373
Dave and Christy both follow the life-cycle hypothesis: they smooth consumption as much as possible. They each live for five periods, the last two of which are retirement. Here are their incomes earned during each period:
Period 1: Dave 100,000, Christy 40,000
Period 2: Dave 100,000, Christy 100,000
Period 3: Dave 100,000, Christy 160,000
Period 4: Dave 0, Christy 0
Period 5: Dave 0, Christy 0
They both die at the beginning of period six. To keep things simple, assume that the interest rate is zero for both saving and borrowing and that the life span is perfectly predictable.
a. For each individual, compute consumption and saving in each period of life.
b. Compute their wealth (that is, their accumulated saving) at the beginning of each period, including period six.
c. Graph consumption, income, and wealth for each of them, with the period on the horizontal axis.
d. Suppose now that consumers cannot borrow, so wealth cannot be negative. How does that change your answers above? Draw a new graph for part (c) if necessary.
|
Identify market failure that plays an important role
: Identify a market failure that plays an important role in a movie, novel, short story, TV show, or song. Explain what the market failure is and how it is presented in the source. For example, one of my favorite movies is "Open Range," a western starr..
|
|
Described in the fair trade material play an important role
: Explain why non-governmental organizations (NGOs) like the cooperatives described in the Fair Trade material play an important role in the economic development of developing countries. Why do the governments of these countries require help to protect..
|
|
What is the economic service life of the investment
: A company spent $172,000 to upgrade some machines. What is the economic service life of the investment?
|
|
Comparative advantage in the production of yogurt
: Workers in the country of Andalia can produce either 10 tons of cheese or 20 tons of yogurt using a certain quantity of resources. With this same quantity of resources, workers in the country of Barragon can produce either 6 tons of cheese or 18 tons..
|
|
Life-cycle hypothesis
: Dave and Christy both follow the life-cycle hypothesis: they smooth consumption as much as possible. They each live for five periods, the last two of which are retirement. Here are their incomes earned during each period: Compute their wealth (that i..
|
|
Review the eye on your life caption
: Participate in a discussion with your classmates regarding a student’s CPI. Review the “EYE on Your Life” caption titled, A Student’s CPI, on page 183 in the textbook. Now that we have learned that the CPI shopping cart is filled with the items that ..
|
|
Present value of all future net benefits
: Let V0 = the value of wood harvested this year; V1 = the value of wood harvested next year; ΔV = V1 - V0; C = harvest costs; r = the discount rate; S = the present value of all future net benefits when forest is harvested respecting an optimal rotati..
|
|
Make social user costs different from private user costs
: What are some of the factors that could make social user costs different from private user costs in the case of mineral extraction?
|
|
Calculate consumer and producer surplus in this market
: The demand and supply functions for pizza in the local market are: QD = 20,000 - 833P and QS = 5,000 + 417P. Calculate consumer and producer surplus in this market.
|