Suppose the equilibrium price of a pound of bacon is $3.50. the government decides that people have a right to a pound of bacon at an affordable price. to protect this new right, the government passes a law setting a maximum price of $1.50 for bacon. as a result of the legislation, there will be choose one: a. either an excess supply or an excess demand for bacon; it depends on the market reaction to the price control. b. neither an excess supply nor an excess demand for bacon. c. an excess supply of bacon. d. an excess demand for bacon.

3. saving two consumers, larry and jeff, have utility functions defined over the two periods of their lives: middle age (period zero) and retirement (period 1). they have the same income in period 0 of m dollars and they will not earn income in period 1. the interest rate they face is r. larry’s and jeff’s utility functions are as follow. = 0.5 + 0.5 and = 0.5 + 0.5 for each person is between zero and one and represents each consumer’s temporal discount econ 340: intermediate microeconomics. ben van kammen: purdue university. rate. a. write the budget constraint that applies to both jeff and larry in terms of consumption in each period and ), interest rate, and m. b. what is larry’s and what is jeff’s marginal rate of intertemporal substitution? c. what is the slope of the budget constraint? d. write each consumer’s condition for lifetime utility maximization. e. re-arrange the conditions from part (d) to solve for the ratio, . f. if > which consumer will save more of his middle age income? g. if > 1 1+ , in which period will larry consume more: = 0 or = 1?