To Ensure a Well-Defined Solution to the Consumers' Intertemporal Choice

question 43

Multiple Choice

To ensure a well-defined solution to the consumers' intertemporal choice problems, we must assume that consumers' preferences exhibit the properties that

• A) they are all identical and that more is always preferred to less.
• B) more is preferred to less and that the consumer prefers diversity.
• C) the consumer likes diversity and that more is sometimes preferred to less.
• D) more is sometimes preferred to less and that first-period consumption and second-period consumption are both normal goods.
• E) more is sometimes preferred to less and that first-period consumption and second-period consumption are both inferior goods.

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Definitions:

Put-Call Parity

A financial principle stating that the price of a call option and a put option of the same underlying asset, with the same strike price and expiration date, should be in equilibrium.

Equilibrium

A state in a market where supply equals demand, leading to stable prices and quantities.

Strike Prices

The predetermined prices at which the holder of an option can buy (call option) or sell (put option) the underlying asset.

Exercise Price

The Exercise Price, also known as the strike price, is the price at which the holder of an option contract can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset or security.