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Suppose there are two agents Richy and Poory. Both of the live for two periods: Today...

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Economics

Suppose there are two agents Richy and Poory. Both of the livefor two periods: Today and Tomorrow. However, while Richy receives100K$ Today and 0$ Tomorrow, Poory receives 0$ Today and 100K$Tomorrow. Richy and Poory have the same preferences. Each of themprefers to smooth consumption perfectly, that is to consume thesame amount in both periods. Any deviation from perfect consumptionsmoothing does not add any extra utility to Richy or Poory.

  1. Draw Richy and Poory’s indifference curves in the space(Consumption Today, Consumption Tomorrow).

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3.8 Ratings (448 Votes)
By smoothening the income level across periods both Richy andPoory would be able to smoothen the    See Answer
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