Suppose a person has constant marginal utility over both goods instead of diminishing marginal utility for consumption

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Suppose a person has constant marginal utility over both goods instead of diminishing marginal utility for consumption when young and consumption when old. 

a. Draw an indifference curve for constant-marginal-utility preferences. 

b. If the marginal utility of consumption when young were greater than the marginal utility of consumption when old, how would this affect the equilibrium level of consumption over a person’s lifetime? 

c. What if the marginal utility of consumption when old were greater than the marginal utility of consumption when young?

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Modeling Monetary Economies

ISBN: 978-1107145221

4th Edition

Authors: Bruce Champ, Scott Freeman, Joseph Haslag

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