Kevin has a wage income of $10,000 in the present and $15,000 in the future. His utility is given as U = min (4cp, 5cf), where cp denotes consumption today and cf consumption in the future.
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Kevin has a wage income of $10,000 in the present and $15,000 in the future. His utility is given as U = min (4cp, 5cf), where cp denotes consumption today and cf consumption in the future. The relevant interest rate is 10%.
a. If the interest rate were to increase to 15 percent,would Kevin be better off or worse off? Explain.
b. Find two measures to indicate how much better off or worse off Kevin is as a result of the increase in interest rates. Explain.
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- Suppose Marcus eats nothing but burritos for dinner. He buys 30 burritos each month. During the last couple of weeks, Marcus noticed a decrease in the price of burritos. The price of burritos fell from $6.00 per burrito last month to $5.75 per burrito this month. Assume that Marcus has a fixed income of $180 that he can spend on burritos. How many burritos can Marcus afford to buy at the new price of $5.75?You have $3,000 to spend on entertainment this year (lucky you!). The price of a day trip (T) is $40 and the price of a pizza and a movie (M) is $20. Suppose that your utility function is U(TM) T1/3M2/3. a. What combination of T and M will you choose? b. Suppose that the price of day trips rises to $50. How will this change your decision?Assume you can work as many hours per day as you wish at £20 per hour, after tax. You have no other income. You have no ability to borrow or lend.a) Show how this information can be used to illustrate a feasible set, showing the choicebetween leisure time per day on the x-axis, and general consumption on the y-axis. Label the axes and intercepts. Draw some indifferences curves and show where the optimal point would be.