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Unformatted text preview: ( ii ) Using ( i ) solve for Mr A and B &s optimal consumption and savings choices ( c j & 1 ; c j & 2 ; s j & 1 ; s j & 2 ) , j 2 f A; B g : ( iii ) Using indi/erence curves and the Lifetime Budget Constraint, draw the en-dowment point, and illustrate your solution to Mr A &s maximization problem. Do the same for Mr B . Explain what a First Order Condition is and its role in an individual&s utility maximization problem. ( iv ) Show mathematically, for period 1, that Mr A and Mr B both have a marginal propensity of consuming out of current income that is strictly less than 1. 1...
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This note was uploaded on 01/18/2012 for the course ECONOMICS 2102 taught by Professor Tan during the Spring '11 term at National University of Singapore.
- Spring '11