The figure depicts Ruth's indifference curves for consumption today and consumption later. Assume a strictly positive interest rate. Based on this information, which of the followi... The figure depicts Ruth's indifference curves for consumption today and consumption later. Assume a strictly positive interest rate. Based on this information, which of the following statements is correct?
Understand the Problem
The question asks about the correct statements regarding Ruth's indifference curves for consumption today and consumption later, given the information about their slopes and a strictly positive interest rate. It involves understanding concepts from microeconomics related to utility and intertemporal choices.
Answer
Ruth may choose A as her optimal consumption choice.
The correct statement is: Ruth may choose A as her optimal consumption choice.
Answer for screen readers
The correct statement is: Ruth may choose A as her optimal consumption choice.
More Information
With a strictly positive interest rate, Ruth should prioritize consumption smoothing. Choosing point A with a slope of -0.2 can align with optimal intertemporal consumption due to tradeoffs between present and future consumption.
Tips
Common mistakes include misunderstanding how interest rates affect indifference curves or mixing up present versus future consumption's roles.
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