ISI ME-II 2006, 2007 (repeated question!)

[Gayyam]

Hi guys,

Can anyone help me with this problem (2006-8th question, 2007-8th question)? I've been stuck in a rut over it. I've only been able to solve the relatively easy 1st part



Thank you!

[Dreyfus]

After solving for optimal consumption plan in both period, I got this expression for savings, s, but it has 'p' also which I don't know whether it is  correct or not....
But second thought what I am getting is that p should be considered as constant.....

[Spiti]

Can you please mention any particular source to study about these type of questions?

[Dreyfus]

@spiti....sry, I don't know any such resource for these...

[Gayyam]

Hi Vaibhav,

Thank you! Could you please show me how you arrived at this solution? Specifically, what was the budget constraint. Only that would do too. The further part is just routine optimisation I guess.

I got the constraint as p*c1 + (p*c2)/(1+r) = w + w/(1+r). This was assuming that the agent has an income of w in both periods. The savings are then s = w - p*c1.

I too am not sure about this though.

[Dreyfus]

Ameyrane read the question once again ...in the ques it is given that "During the period, the agent has a unit of labour which she supplies inelastically for a wage rate w. Any savings ( income minus consumption during the first period) !"  earns a rate of interest r, "the proceeds from which are available in old age in units of the only consumption good available in the economy"
These lines indicates that agent's income in period 2 is 0
Therefore her BC will be C1 + C2/(1+r)=w
Rest...of ques is pure optimization....
Plz do let me know the value of S, you are getting...

[Dreyfus]

BTW ...can u plz help me with question 7 i) of 2007?

[Spiti]

In 7(i), they have given average propensity to consume, is it different from marginal propensity to consume?

[Gayyam]

Hey,

For Q.7 i)


I hope this is it.

[Dreyfus]

Yes spiti avg propensity to consume is different from marginal propensity to consume....!