5. Application of Rational Choice and Demand Theories

Question 1

What is consumer surplus?

Answer 1

A dollar amount measure to the extent to which a consumer benefits from participating ina transition

Question 2

Is a steep or flat curve more elastic?

Answer 2

Flat

Question 3

Intertemporal Model

Answer 3

How consumers decide to distribute their conusmption over tiem

Question 4

What is the Present VAlue

Answer 4

Present value of a payment of x dollars T years from now is X/(1+r)^T

Question 5

What is the equation for PV to fidn the future amount?

Answer 5

PV(M2)= M2/1+r

Question 6

What is marginal rate of time prefernce

Answer 6

The number of units of consumption in the future a consumer would exchange for 1 unit of consumption in the prensent

Question 7

What is the equation for the present value of lifetime income

Answer 7

M+(M/1+r)

Question 8

Permanent income

Answer 8

The present value of lifetime income

Question 9

What is the primary determinant of current consumption?

Answer 9

Permanent Income

Question 10

What does time prefernce depend on?

Answer 10

Circumstnaces at hand