7. (4 points) Consider an individual who lives for two periods, denoted

Period 1 and Period 2 and whose utility of consumption in each period

is u(c) = pc, where c is the amount consumed of the only good in the

economy. The individual's lifetime utility is u(c1)+u(c2)/1.01. Suppose

c1 = 1 and c2 = 1.44.

(a) (1 point) What is the individual's pure time discount rate (which

measures the individual's preference for the present)?

(b) (1 point) Define the consumption discount rate.

(c) (2 points) Compute the individual's consumption discount rate.

Explain your calculation. You may use the fact that if dc is a

very small quantity of consumption good, then pc + dc

pc is

approximately equal to dc/(2pc) and the fact that p1.44 = 1.2.

(d) (2 points extra credit) How is this problem relevant to the analysis

of climate change?