Suppose the Super Bowl is this week, and Susan is in need of a television to watch the big game. As a college student, Susan knows that she can either buy her flat-screen television at the local electronics store, or she can shop online for a better deal but have to wait three days for the television to arrive. The following problem uses the economic concept of rate of time preferenceto help determine which decision is better for Susan. Throughout the question, assume that Susan pays for the good the day she buys it, so her wealth is affected in the initial time period no matter where she buys the good. Also, assume the shipping cost and cost to travel to the store are incorporated into their respective given prices. Finally, assume the goods are identical, and there's no cost to gaining information about pricesin other words, she knows the best price online and in the store without having to search.Suppose Susan receives a utility of 5.23 utils once she actually receives her television. Let indicate Susan's patience level; that is, represents the discount rate between consuming something today versus tomorrow.

For each value of in the following table, compute the present value of Susan's utility from receiving the television when she purchases her television in the store (and receives it today) and when she purchases it online (and receives it three days from now).

Answer rating: 100% (QA)

Present Value of Utility for Susan This scenario involves intertemporal choice where Susan needs to consider the tradeoff between receiving immediate ... View the full answer