Firms supply the goods and services that we as households demand. So what are people looking to buy? Why do they select one product over another?
September 3, 2020
Urban Economics Problem Set#2 Due Date: Feb/ 19/ 2019 Note: But1 you are responsible for your idea of solving the problems. TA oice hours: Fridays…
September 3, 2020

Jay is an economics professor who’s planning his future retirement. He knows that he lives for 2 periods and has $150 thousands in disposable income in period 1 and no wage income in period 2. He has quadratic utility U = 200c − 0.5c^2,where c is measured in thousands, and both ρ = r = 0. He is considering an investment opportunity– to purchase 1 thousand junk grade “C” Greece government debt zero-coupon bonds with a face value of $100 for only $50 each. The bonds mature at their face value in period 2. The problem is that there exists a 40% chance that Greece will default at the end of period 1, and thus he will lose his investment.

1. Should he take that opportunity?

KM
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