Solve the consumer problem

Assignment Help Business Management
Reference no: EM131434005

A consumer's income in the current period is y=60, and income in the future period is y=100. He pays lump-sum taxes of T=20 in the current period and T'=20 in the future period. His utility function is u(c,c' )=logc+βlogc'. For simplicity, β=1 and the real interest rate is r=0.

a. Set up and solve the consumer's problem and find optimal c and c', assuming that the consumer is not credit constrained, i.e. he can borrow or save as much as he wants in the current period: what are the expressions and numerical values for consumption today, savings today and consumption tomorrow?

b. Suppose that government decides to give a tax cut on current taxes so that T decreases to 15

and T' increases to 25. Redo the computation in part (a). Do optimal c and c' change? Explain why or why not with reference to Ricardian Equivalence.

c. Now suppose that consumers are credit constrained so that they can save as much as they want in the current period but are unable to borrow at all (we must satisfy s>=0). Redo parts (a) and (b). Are optimal c and c' different? Explain why or why not with reference to Ricardian Equivalence.

Reference no: EM131434005

Questions Cloud

Identify one web site that violates the use of colors : Identify one web site or application that violates the use of colors as described in Step 12 of the textbook. Take a screen shot of its screen and paste it in a Word document.
Create a menu for xyz companys budgeting system : In this assignment, you must create a menu for XYZ Company's Budgeting System. The system is a stand-alone application that uses a Visual Basic front-end and a SQL Server database on the back-end.
High seasonal effects is personal income tax preparation : A service with high seasonal effects (or "seasonality") is personal income tax preparation. One with low seasonality is men's haircuts. Name another product or service with NO or LOW seasonality.
What was the target audience : Select one of the ads that aired in the past Super Bowl (or pick from previous years if you have a favorite). You can find the ads on YouTube or just search form them. What was the target audience? What was the objective of the ad?
Solve the consumer problem : Set up and solve the consumer's problem and find optimal c and c', assuming that the consumer is not credit constrained, i.e. he can borrow or save as much as he wants in the current period: what are the expressions and numerical values for consum..
Benefits companies receive from super bowl advertising : On Super Bowl Sunday advertisers will spend up $5 million or more for 30 seconds of advertising time. The TV ads reach over 100 million viewers, internationally. What is your opinion of this and why? Plus, cite from at least one article that relates ..
What are the responsibilities of the instructor : Think of the forum as a classroom experience where you "meet" with your instructor and peers to discuss the weekly topic in terms of the readings, assignments and resources that have been assigned. The desired outcome is that you are able to (1) c..
Prepare journal entries to record all transactions : The contributed equity of Logan Dairy Limited as at 1st January 2016 was $2,000,000 consisting of 1,000,000 ordinary shares issued at a price of $2 per ordinary share. Prepare journal entries (without narrations) to record all transactions for the ..
Develop three proposals for your development strategy : you will develop 3 proposals for your development strategy, which include outsourcing (buy), insourcing (make), or a combination of both. You will present the pros and cons of each, along with a financial analysis. Finally, you will make a recomme..

Reviews

Write a Review

Business Management Questions & Answers

  Critical element for enabling health care system improvement

With a slow recovering economy and emerging health care policy changes, there will be increasing pressure on all health care organizations to increase efficiency.

  Investigate the role of advertising

Prepare a 16- to 20-slide Microsoft® PowerPoint® presentation in which you investigate the role of advertising in a culture of consumerism. Be sure to discuss the following:

  Correct segmentation marketing terms

Include the Ad's and it's picture (must have a picture, the advertisement and the source where it was found) assignment must be two or more paragraph for each Ad and have the correct segmentation marketing terms.

  Discuss any sociological aspects

Note: Please review the other student's responses so that you do not repeat another student's selection of a country. Then, describe the economic wealth or poverty of that country. Discuss any sociological aspects that may be causing this wealth o..

  Struggled for industry dominance with beta

Alpha, Inc. has struggled for industry dominance with Beta, Inc. its main competitor for years. Alpha has gathered large amounts of competitive data on Beta. They also hired one of Beta's Sr. managers to come in and help them compete agains Beta. Sti..

  Organization sources of conflictexplain what are key

organization sources of conflictexplain what are key sources of conflict within an organizational setting?what are the

  What could be included in an effective opening and closing

What could be included in an effective opening and closing of a claim or complaint letter? - Name eight or more ways to attract attention in opening a sales message.

  Write a report for senior management

You are a manager with 5 years of experience and need to write a report for senior management on how your firm can avoid the threat of a Federal Trade Commission investigation if you were to merge with other health care organizations.

  Explain leadership styles of presidents dwight eisenhower

What estimation can be made of leadership styles Presidents Dwight Eisenhower and John Kennedy which made them effective or inhibited their effectiveness?

  Research a high-profile case of an mne

Research a high-profile case of an MNE moving its headquarters out of its home country. How did this change the firm's strategy/structure?

  Decision maker on a particular dimension

Think about the last time that you (1) were treated unfairly because you differed from a decision maker on a particular dimension of diversity or (2) observed someone else being treated unfairly because that person differed from a decision maker o..

  Ethical standards of business communications to coursework

Business Communications - Outline for Business Report Identify, select and compile information using appropriate technology and information systems and Apply ethical standards of business communications to coursework - Decide on a topic for your fina..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd