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Homework 3 - Essay Example

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c) Optimal consumption bundle for a condition where gross interest rate (1+r) is greater than marginal rate of substitution, there is an increase in consumption. When gross interest rate becomes less than the marginal rate of substitution, then there is a decline in consumption…
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Homework 3

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Homework 3

Download file to see previous pages... c) Based on an income of y=110 and a lump-sum taxes of t=30, 80 units are upheld. This customer spends approximately 50 units and saving 30 units to enable him loan regardless of his perfect substitution. Therefore, his budget balances optimal savings, forcing him to borrow.
d) With an income of y=150, the consumer’s spending rate increases implying that his savings are likely to decrease while his taxes increase. He will spend an average of ninety units, and possibly save twenty ...Download file to see next pagesRead More
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