=+17.5 Everyday Application: Teenage Sex and Birth Control: Consider a teenager who evaluates whether she should engage in sexual activity with her partner of the opposite sex. She thinks ahead and expects to have a present discounted level of life time consumption of x1 in the absence of a pregnancy interrupting her educational progress. If she gets pregnant, however, she will have to interrupt her education and expects the present discounted value of her lifetime consumption to decline to x0

, considerably below x1

.

A. Suppose that the probability of a pregnancy in the absence of birth control is 0.5 and assume that our teenager does not expect to evaluate consumption any differently in the presence of a child.