E1)Adwoa's friend tells her that2001: A Space Odysseyis good. Adwoa is trying to decide between reading the book and watching the movie.

Assume that the movie yields an immediate utility of 1 in the single period (single day) during which Adwoa watches it, and a utility of 0 thereafter.

Assume that the book yields a utility of 0.1 for each of 100 periods during which she reads it, and a utility of 0 thereafter.

Adwoa's utility function at time tis Ut=u(ct)+i=t+1iu(Ci), representing the fact that she discounts the utility of future consumption.

First, suppose that =0.5 and =0.92.

a)What is Adwoa's present value of seeing the movie today?

b)What is Adwoa's present value of reading the book, starting today?

E2)Which will she choose today?

a)She is indifferent

b)The book

c)The movie

E3)a)What is Adwoa's present value of seeing the movie tomorrow (one period from now)?

b)What is Adwoa's present value of reading the book, starting tomorrow (one period from now)?

E4)Which does she plan to choose tomorrow?

a)She is indifferent

b)The book

c)The movie

E5)Which does she actually choose tomorrow?

a)She is indifferent

b)The book

c)The movie

E6)This utility function is time inconsistent. Did this particular example actually demonstrate time inconsistency?

a)Yes

b) No