Practice Quiz #5
If an impatient and a patient consumer face the same intertemporal budget constraint, have the same firstyear income, and if their indifference curves are both normally shaped, then
both will have the same marginal rate of time preference at equilibrium unless one or the other is at a corner solution.
If the statement that "anticipation is greater than reality" is true for an item, then the
consumer's behavior may appear to have a negative time preference when she really has a positive time preference.
The horizontal intercept of the intertemporal budget constraint is referred to as
the present value of lifetime income
When the interest rate increases
the substitution effect leads to an increase in savings.
If borrowing and lending is possible at a positive interest rate and if there is present and future income, then the intertemporal budget constraint
will be a straight line with a slope steeper than -1.
Suppose a bank will pay you a 10% interest rate on your deposits for 1 period. In this case you must sacrifice $10 of current consumption to finance
$11 of future consumption
You have $20,000 of current income and $45,000 of future income. The interest rate between the current and future period is 2 percent. What is the maximum amount you could consume in the future?
$65,400
You have $20,000 of current income and $45,000 of future income. The interest rate between the current and future periods is 2 percent. When you allocate consumption optimally between the two period, the marginal rate of time preference between the two periods is
-1.02
When you allocate consumption optimally between the two periods the marginal rate of time preference between the two periods is:
1.02
If William releases 60,000 units of CO2 this year. Each unit of CO2 causes 10 cents of damage next year. What is the social cost of carbon this year if the interest rate is 5%?
5714.3
If $100 today is worth $150 to you in the future, then you exhibit
A Positive time preference
If the marginal rate of substitution between future and current consumption is less than one, then this consumer exhibits
A negative time preference
If you wear your favorite clothes first and eat your favorite food before the food you prefer less you most likely have a
A positive time preference
If the interest rate is zero, then the intertemporal budget constraint
Has a slope of -1
On a hot day Joe would pay $1 for his first can of soda. He would pay 60 cents for the second can and 50 cents for the third can. Which is true for Joe?
If the price is 50 cents per can, Joe will buy 3 cans and have a total consumer surplus of 60 cents.
A decrease in the interest rate will
Produce an increase in current consumptionProduce an increase in current consumption
If the interest rate increases, it will cause you to
Save more of your income
Costco charges a membership fee is likely attempting to:
Take some of the consumer surplus
The golf club that charges a per hour fee and an annual membership fee is likely attempting to
Take some of the consumer surplus
The graphical representation of consumer surplus that sellers seek to get from consumers is
The area under the demand curve above the price charged.
Suppose you receive Y1 of your income this period and Y2 of your income in the next period. If you can either borrow or lend at an interest rate r, what is the most you can consume in the future period?
Y1(1 + r) + Y2
Suppose you receive Y1 of your income this period and Y2 of your income next period. If you can either borrow or lend at an interest rate r, what is the most you can consume in the current period?
Y2/(1 + r) + Y1
If you have a very steep indifference curve toward the horizontal axis of the standard time preference graphical model, which of the following would most likely be true for you?
You mow the lawn and wash the car first and then enjoy a round of golf.
