In a free market, sellers do not determine prices; buyers and sellers negotiating in the marketplace determine them. A seller may want to receive a set price for a product or service, but the quantity buyers demand at that price may be quite low. If the seller lowers the price, the quantity demanded is likely to increase. This phenomenon is known as the microeconomic concept of supply and demand. Prices are set by buyers and sellers in free-market capitalism. The microeconomic concepts of supply and demand establish prices based on buyers and sellers negotiating. Identify the components of the supply-and-demand chart using the appropriate terminology.

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?