What is an Intertemporal budget constraint?
An intertemporal budget constraint is a constraint faced by a decision maker who is making choices for both the present and the future. The term intertemporal is used to describe any relationship between past, present and future events or conditions. In its general form, the ___ ______ __________ ________ _________ ________ _______ ______ _______ _____.
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Consider Figure 1 below where MC, ATC, AVC, D, and AR represent the marginal cost, average total cost, average variable cost, demand, and average revenue curve respectively under a perfect competition. Based on the figure, answer the following questions:
(i) What is the profit maximising level of output for this firm in the short-run? At this quantity, what is the marginal revenue?
(ii) How much is the total cost for this firm in the short-run equilibrium?
(iii) In the short run, is the firm making economic profit or suffering loss? How much is that profit or loss? Should the firm shut down?
(iv) How much is fixed cost faced by this firm at equilibrium?
(v) What is the break-even price for this firm? What is the shut down price for this firm?
(vi) If fixed cost increases further, what impact will this have on this firm’s profit maximising level of output in the short run?
A consumer has the utility function over goods X and Y,
Let the price of good X be given by PX, let the price of good Y be given by PY, and let income be given by M.
(a) Derive the consumer’s Marshalian demand functions for good X and good Y.
(b) Is good Y normal or inferior?
(c) If PX = 2, PY = 1, and M = 12, compute the utility maximizing consumption bundle of goods X and Y
State and prove the Walras' law in respect of the excess demand functions. How does the Walras' law make sure that if all markets but one are cleared, then the remaining market must also be cleared?
Discuss the efficiency status of a perfectly competitive market.
If fixed cost increases further, what impact will this have on this firm’s profit maximising level of output in the short run?
“The issues of efficiency and equity are distinct.” Discuss this statement in the context of Welfare Economics.
What is an Intertemporal budget constraint?