Aufgabe:
Investment and Consumption exercise.
Problem/Ansatz:
Could someone help me to solve this problem please?
A consumer with utility function
(0, 1) = ln(0) + 1.2 ln(1)
is confronted with endowments 0 = 500 and 1 = 550.
Calculate the optimal consumption in both periods using the Lagrangian approach if the market rate of interest is 8%.
b) Now assume the economy consists of only two consumers; the consumer from above
(consumer #1) and consumer #2 with utility function #2
(0, 1) = ln(0) +1.05 ln(1)
and respective endowment position 0 = 300 and 1 = 400.
(i) Describe the equilibrium in the capital market of this economy. What are the
conditions for equilibrium?
(ii) Calculate the equilibrium market rate which clears the capital market.
