Suppose a consumer's utility function is U(F0, F1) = F00.5F10.5, where F0 represents food consumed this year and F1 represents food consumed next year. For that utility function, the marginal utility of food consumed this year is 0.5 × (F1/F0)0.5 and the marginal utility of food consumed next year is 0.5 × (F0/F1)0.5. Suppose the consumer earns $100 this year and nothing in the next, food costs $1 per unit in both years, and the interest rate is 10%. How much does she spend this year, and how much does she save?
A. She spends $45 this year and saves $55.
B. She spends $50 this year and saves $50.
C. She spends $55 this year and saves $45.
D. She spends $95 this year and saves $5.
B. She spends $50 this year and saves $50.
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Two goods are considered substitutes if
a. a decrease in the demand for one leads to a decrease in the supply of the other. b. an increase in the demand for one leads to a decrease in the supply of the other. c. an increase in the price of one leads to an increase in the demand for the other. d. a decrease in the price of one leads to an increase in the demand for the other. e. a decrease in the supply of one leads producers to switch to production of the other.
The purchase of a virtual item from an online company with a virtual currency causes the nation's:
a. Monetary base to rise. b. M2 money supply to fall. c. M2 money multiplier to fall. d. Monetary base to remain the same.