Patience Has a Utility Function , Where C₁ Is

question 60

Multiple Choice

Patience has a utility function , where c₁ is her consumption in period 1 and c₂ is her consumption in period 2. Her income in period 1 is twice as large as her income in period 2. At what interest rate will she choose to consume the same amount in period 1 as in period 2?

• A) 0.40
• B) 0.10
• C) 0.20
• D) 0
• E) 0.30

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Definitions:

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually pay.

Maximum Willingness

The highest amount an individual or entity is ready to pay for a good or service.

Individual Pays

A principle where the cost of a service or good is borne by the individual who consumes or uses it, rather than by society or an organization.

Aggregate Demand Curve

Describes the buying behavior of a group of consumers. We add up all the individual demand curves to get an aggregate demand curve (the relationship between the price and the number of purchases made by a group of consumers).