Re: DSE 2013 Doubts

Posted by rmabides on Jun 25, 2014; 12:36pm
URL: http://discussion-forum.276.s1.nabble.com/DSE-2013-Doubts-tp7590991p7593596.html

Can it be solved like this?

c1(1+r) + c2 = y1(1+r) +y2

=> c2 = -c1(1+r) + ...

Now when we draw an Indifference curve for c1 and c2.. the slope is -(1+r)[absolute slope being 1+r], this slope must be equal to the ratio of marginal utilities in period one and period 2. MU for P1 is 1 and MU for p2 is beta.

so, 1+r = 1/beta => r = (1/beta) - 1

Am I doing it right ? Whats wrong with earlier approach?