In an Isolated Mountain Village, the Only Crop Is Corn

question 44

Multiple Choice

In an isolated mountain village, the only crop is corn.Villagers plan for two time periods.In the first time period each villager will harvest 100 bushels.In the second time period, no corn will be harvested.There is no trade with the rest of the world and no stocks of corn remain from before the first period.Corn can be stored from one time period to the next, but rats eat 25% of what is stored.The villagers all have Cobb-Douglas utility functions U(C₁, C₂) =C₁C₂ and can allocate their own corn between consumption and storage as they wish.If the introduction of cats to the village reduces the rats' predations to 10% of what is stored,

• A)consumption in the first time period will not change.
• B)villagers will consume 5% more corn in each time period.
• C)consumption in the first time period will increase but by less than 5%.
• D)consumption in the second time period will not change.
• E)consumption in the first time period will decrease.

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Definitions:

Discount Rate

The interest rate charged by central banks for loans to commercial banks or the rate used in discounted cash flow analysis to determine present value.

Issue Price

The price at which a new issue of securities (like stocks or bonds) is offered to the public by an issuer.

Decrease Rate

The rate at which a quantity is reduced over a specific period of time.

Weight Loss

The reduction of the total body mass, with an aim to improve fitness, health, and/or appearance.