Consumer Theory 7

Consumer Theory 7 - Economics 21 Intermediate...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Economics 21 Intermediate Microeconomics Topic 2: Consumer Theory (vii) Application 2: Intertemporal Consumption I. Applications Two key areas: (i) Labour Supply; (ii) Intertemporal Choice. II. Intertemporal Choice Assume individual lives for two periods with a lifetime income endowment of y = ( y 1 , y 2 ) Consumption over time is c = ( c 1 , c 2 ) Now, $ x saved today (i.e. period 1) will yield $(1+ r ) x tomorrow (i.e. period 2) The future value of $ x today is thus $(1+ r ) x II. Intertemporal Choice Conversely, the present value of $ x received tomorrow (i.e. period 2) is: Intuitively, if we receive $ x tomorrow, can borrow $ z today, where: $ 1 1 + $ z 1 + ( 29 = 5 5 = 5 1 1+ II. Intertemporal Choice Thus, given an income endowment of: Then the maximum period 1 income is: And the maximum period 2 income is: ( 29 1 2 , y y y = ( 29 2 2 1 1 y y r y = + + 1 1 2 1 1 y y y r = + + y 2 y 1 Figure 1: Intertemporal Budget Constraint 2 y y 1 y 2 ( 29 1 2 , y y y = 1 y ( 29 2 2 1 1 y y r y = + + 1 1 2 1 1 y y y r = + + II. Intertemporal Choice II....
View Full Document

This note was uploaded on 07/16/2010 for the course ECON 21 taught by Professor Johng.sessions during the Summer '09 term at Dartmouth.

Page1 / 26

Consumer Theory 7 - Economics 21 Intermediate...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online