Impatient consumers in the two-period world. Consider the…

Custom Essays Economics Impatient consumers in the two-period world. Consider the…

Economics

Impatient consumers in the two-period world. Consider the…

Impatient consumers in the two-period world. Consider the… Show more Please give me the solutions! Please help! Impatient consumers in the two-period world. Consider the 2-period environment from class. The economy is populated by two types of agents A and B. There is an equal number (N) of each type. The agents have preferences which incorporate impatience: they value consumption in period 2 less than consumption in period 1. Specifically, the preferences are described by the utility function U (c1, c2) = ln(c1) + ? ln (c2) where ? is positive but less than 1 (reflecting their impatience). Type A’s endowment pattern is ((y1)^A,(y2)^A) = (x, 0) where x > 0. Type B’s endowment pattern is ((y1)^b,(y2)^B) = (1, 1). Let 1 + r1 be the real rate of return. (a) What is the marginal utility of consumption in period 1 (i.e., what is MU (c1))? What is MU (c2)? (b) Write down the tangency condition for a type A and B agents. (c) Find the equilibrium real rate of return. How does 1+r1 depend on ?? Howdoes 1 + r1 depend on x? What is the intuition for these effects? • Show less

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