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1)The Intertemporal Elasticity of Substitution

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1)The Intertemporal Elasticity of Substitution. The tangency condition implies the Euler equation MU (C) = (1+r+) MU (C+1). In class we considered an infinite horizon consumer with preferences b'u(a). t=0 where ß is positive but less than 1. Instead of using u (c) = ln (c), we assume that - u(c) 1- . Ct ? The parameter o > 0 is called the intertemporal elasticity of substitution (IES). (a) Find an expression for the marginal utility of consumption in period t (i.e., find MU (Ct)). (b) Derive the specific Euler equation implied by these preferences. 1 Ct ?? (c) The gross growth rate of consumption is 0+1. Write this as C++1 = 1+ 9c,t where 9c,t is the net consumption growth rate. Using your answer to (b), and the fact that in (1 + x) = x if x is a small number, show that the net growth rate of consumption is approximately equal rt goes up by 1 percent, how much does consumption growth rise? ort. If

2)Reading Material: Joaquin, N. (1966). A Heritage of Smallness.

Learning Objectives:

Analyze the idea of “smallness” as discussed in the reading.

To contextualize the culture of smallness in relation of our identity, socio-political, and economic development.

Synthesize the discussion by constructing a well-thought and meaningful paper.

3) a Price elasticity of demand gives us a measure of how sensitive or responsive the good or service is to a change in the of a good service. [1 price; quantity demanded [2] demand; price [3] quantity demanded; price [4] price; demand 3.5 A perfectly inelastic demand curve is [1] horizontal [2] vertical [3] a downward sloping straight line with a slope equal to -1. [4] a curved line along which the product of price and quantity is constant. 3.6 The price elasticity of demand for petrol is generally considered to be inelastic. Which would be a good reason why petrol is inelastic in the short run? [1] It does not have a lot of good substitutes. [2] It is relatively inexpensive as a portion of one's total income. [3] It takes consumers a while to adjust to a petrol price change. [4] Firms can sell a lot of petrol at today's prices. 3.7 If the owners of Ster Kinckor move theatres ted the price of admission fees by 30 per cent, average attendance would rise by 50 per cent. Based on this data, it could be concluded that the price elasticity of demand for move tickets is [1] elastic. [2] inelastic [3] unitary elastic [4] perfectly elastic. 3.8 The demand for soybeans is inelastic. What would be the effect on the soybean market if the number of soybean farmers decreases due to unfavourable farming conditions? The price of soybeans would and soybean growers' revenue would [1] increase; increase [2] increase; decrease [3] decrease; increase [4] decrease; decrease