Jane consumes a bundle of two goods, wine and chocolate. The price of The price of...

 

Transcribed Image Text:

Jane consumes a bundle of two goods, wine and chocolate. The price of The price of wine is $10 a glass, and the price of chocolate is $2 a bar. Jane has a monthly budget of $60 to spend on wine and chocolate, and is a utility maximising consumer with well- behaved preferences and no intertemporal consumption. Calculate Jane's best affordable bundle assuming a utility function of U (WC) =W¹/2 c1/2. Show your working. If intertemporal consumption is possible, what would happen to Jane's consumption in period one if there was an increase in interest rates? Assume Jane is a saver rather than a borrower. Explain your answer. Do NOT draw a diagram). (Total of 5 marks) Jane consumes a bundle of two goods, wine and chocolate. The price of The price of wine is $10 a glass, and the price of chocolate is $2 a bar. Jane has a monthly budget of $60 to spend on wine and chocolate, and is a utility maximising consumer with well- behaved preferences and no intertemporal consumption. Calculate Jane's best affordable bundle assuming a utility function of U (WC) =W¹/2 c1/2. Show your working. If intertemporal consumption is possible, what would happen to Jane's consumption in period one if there was an increase in interest rates? Assume Jane is a saver rather than a borrower. Explain your answer. Do NOT draw a diagram). (Total of 5 marks)