1.5. 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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To draw an indifference curve for constant-marginal-utility preferences, we need to assume that the marginal utility of consumption remains constant throughout a person's lifetime. This means that the additional utility gained from consuming an additional unit of Show more…
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