Patience Has the Utility Function Where C₁ Is Her

question 23

Essay

Patience has the utility function where c₁ is her consumption in period 1 and c₁ is her consumption in period 2. She will earn 100 units of the consumption good in period 1 and 100 units of the consumption good in period 2. She can borrow or lend at an interest rate of 10%.
a. Write an equation that describes Patience's budget.
b. If Patience neither borrows nor lends, what will be her marginal rate of substitution between current and future consumption?
c. If Patience does the optimal amount of borrowing or saving, what will be the ratio of her period 2 consumption to her period 1 consumption?

---

Definitions:

Environmental Degradation

The deterioration of the environment through depletion of resources, destruction of ecosystems, and extinction of wildlife.

Global Warming

The ongoing rise in the average temperature of the Earth's climate system, largely due to the greenhouse gas emissions from human activities.

Industrial Pollution

Contaminants released into the environment as a result of manufacturing, processing, and using various goods, often harming ecosystems and human health.

Recombinant DNA

DNA molecules formed by laboratory methods that combine genetic material from multiple sources, creating sequences that would not otherwise be found in biological organisms.