Homework Answers
a. Budget constraint:
C1*1.21+ C2= 1.21M1+ M2
C1,C2 are consumption in period 1 and 2.
M1,M2 are income in period 1 and 2.
b. From utility function, we know c1=c2
c1*1.21+c1= 1.21*2000+1100=
2.21c1= 2420+1100
C1*= 1592.76
That means he saves $2000-$1592.76= $407.23
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1. Harvey Habit's utility function is U (C1, C2) = min {c1, c2}, where ci is...
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