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Econ 101
Javier Birchenall
Due date:
Tuesday, November 17, 2009
Problem set 5: Optimal intertemporal allocations
The following problem set includes derivations and optimization using concepts related to class. Plan to
spend 6 hours (maybe more) on these questions. Please return the problem set on time (next Tuesday
during class), remember you have the chance to miss one and only one, use it wisely. If you have any
problems regarding the questions please contact me or your TA immediately. Good luck!
Please remember to show your work and write your section.
Intertemporal consumption
Consider a representative consumer who lives
2
periods and has the following utility function
V
=
U
(
c
)+
1
1+
r
U
(
c
0
)
,
with
c
as consumption in the
f
rst period and
c
0
as the consumption in the second period.
r>
0
is the
interest rate and
U
is the instantaneous utility function. The marginal utility of consumption is given by:
dU
(
c
)
dc
=
U
c
(
c
)
>
0
.
Households have access to
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This note was uploaded on 12/25/2009 for the course ECON 101 taught by Professor Dumbass during the Fall '08 term at UCSB.
 Fall '08
 DUMBASS

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