Consider an economy with a constant population in which each person is endowed with y 1 when
Question:
Consider an economy with a constant population in which each person is endowed with y1 when young and y2 when old. Assume that y2 is sufficiently small so that everyone wants to consume more that y2 in the second period of life. Bear in mind that under the new assumptions, the equations and graphs you use may differ from the ones in this chapter.
a. Apply the Equations 1.1 through 1.6 to find the feasible set.
b. Assume that all people within a generation will be treated alike and graph the set of stationary per-capita feasible allocations. Draw arbitrarily located, but correctly shaped, indifference curves on your graph and point out the allocation that maximizes the utility of the future generations.
Step by Step Answer:
Modeling Monetary Economies
ISBN: 978-1107145221
4th Edition
Authors: Bruce Champ, Scott Freeman, Joseph Haslag