Comparing Investment Choices
Two individuals, Alex and Ben, each start with an endowment of $200 to be consumed now and $0 to be consumed later. They face the same investment opportunity. On a graph of 'consumption now' (horizontal axis) versus 'consumption later' (vertical axis), Alex's optimal choice is at point A = (120, 120), while Ben's optimal choice is at point B = (80, 180). Based on this information, calculate the amount each person invests and explain which individual places a higher value on future consumption.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Analysis in Bloom's Taxonomy
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Analyzing an Investment Decision
An individual has an initial endowment of $100 to be consumed now and $0 to be consumed later, represented on a graph at point (100, 0). The horizontal axis measures 'consumption now' and the vertical axis measures 'consumption later'. After evaluating an investment opportunity, the individual chooses an optimal combination of consumption now and later at point K, located at coordinates (60, 60). Based on this information, what are the amounts of 'consumption now' and 'investment'?
Comparing Investment Choices
An individual makes a choice about how much to consume now versus how much to invest for future consumption. This choice is represented by point K on a graph where the horizontal axis is 'Consumption Now' and the vertical axis is 'Consumption Later'. The individual starts with an initial amount of resources entirely available for 'Consumption Now', located at a point on the horizontal axis. Match each economic concept with its correct graphical representation.
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Analysis of an Optimal Investment Decision
An individual starts with an endowment of $150, all available for 'consumption now'. On a graph where the horizontal axis represents 'consumption now' and the vertical axis represents 'consumption later', they choose an optimal point K at coordinates (80, 105). The amount this individual chose to invest is $____.
Inferring Preferences from Investment Choices
An individual has an initial endowment of resources entirely available for 'consumption now', represented on a graph where the horizontal axis is 'Consumption Now' and the vertical axis is 'Consumption Later'. The individual's initial endowment is at point (E, 0). They choose an optimal point K with coordinates (x, y). If the amount this individual chooses to invest is greater than the amount they choose for 'consumption now', which of the following statements must be true?
An individual begins with an endowment of $150, all of which is available for 'consumption now'. This situation is represented on a graph where the horizontal axis is 'consumption now' and the vertical axis is 'consumption later'. A classmate analyzes the individual's final optimal choice (Point K) and concludes: "The individual chose to consume $80 now and invest $80." Why is this conclusion flawed?