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Julia's Intrinsic Impatience Illustrated by an Indifference Curve
Julia's intrinsic impatience can be understood by examining her choices on an indifference curve. Starting from point A, where her consumption is perfectly smooth with $50 now and $50 later, we can see her preference. If she were to lose $10 in present consumption, moving her to $40, she would need to have $62 in future consumption to feel equally satisfied (point B). The fact that a $10 loss now requires a $12 gain later demonstrates that she values current consumption more than future consumption, which is the definition of intrinsic impatience.
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Julia's Intrinsic Impatience Illustrated by an Indifference Curve
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An individual has a financial plan that provides them with $1,000 of consumption this year and $1,000 of consumption next year. They are then offered an alternative: they can give up $100 of consumption this year in exchange for an additional $110 of consumption next year. The individual states that they are indifferent between their original plan and this new alternative. Based on this information, what can be concluded about their time preference?
Identifying Intrinsic Impatience in Financial Decisions
An individual who has an equal amount of consumption planned for the present and the future demonstrates intrinsic impatience if they are willing to give up $50 of present consumption in exchange for exactly $50 of future consumption.
An individual who has an equal amount of consumption planned for the present and the future demonstrates intrinsic impatience if they are willing to give up $50 of present consumption in exchange for exactly $50 of future consumption.
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Match each scenario describing an individual's consumption choice to the type of time preference it best represents.
An economist observes an individual who has arranged their finances to have exactly the same amount of spending money available this year and next year. Which of the following scenarios would most clearly demonstrate that this individual has an inherent preference for consuming now rather than later?
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Figure 9.4b: A Visual Comparison of Intrinsic Impatience
Anya and Ben both start with a plan to consume $100 worth of goods today and $100 tomorrow. They are then presented with an alternative plan where they consume only $80 today. To feel equally satisfied as their original plan, Anya would need to consume $125 tomorrow, while Ben would need to consume $130 tomorrow. Based on this information, which of the following statements is correct?
Evaluating Consumption Choices
Interpreting Intertemporal Choice
Consider an individual who is currently planning to consume the same amount of goods today and tomorrow. If this individual displays intrinsic impatience, they would be willing to give up $10 of consumption today in exchange for exactly $10 of additional consumption tomorrow.
An individual's consumption plan is currently 'smoothed' so that they consume the same amount of goods today as they will tomorrow. This individual values a good received today more than the same good received tomorrow. If their consumption today is reduced by $15, which of the following changes in tomorrow's consumption would leave them feeling equally satisfied as their original plan?
An individual states they are equally happy with any of the following three consumption plans:
- Plan X: Consume $100 worth of goods today and $100 worth of goods tomorrow.
- Plan Y: Consume $90 worth of goods today and $115 worth of goods tomorrow.
- Plan Z: Consume $110 worth of goods today and $88 worth of goods tomorrow.
Based on a comparison of these plans, what can be concluded about this individual's preferences?
Comparing Client Preferences for Consumption
An individual's consumption plan is currently 'smoothed' so that they consume the same amount of goods today as they will tomorrow, represented by a point on their indifference curve. If their consumption today is reduced by $20, which of the following changes in tomorrow's consumption, if it keeps them on the same indifference curve, would demonstrate that they value current consumption more than future consumption?
Explaining Intrinsic Impatience via an Indifference Curve
An individual's preferences for consumption now versus consumption later can be represented by an indifference curve. Consider a point on this curve where consumption is perfectly smooth (i.e., the same amount is consumed in both periods). If this individual values current consumption more than future consumption, what must be true about the indifference curve at this specific point?
Consider an individual who is currently planning to consume the same amount of goods today and tomorrow. If this individual displays intrinsic impatience, they would be willing to give up $10 of consumption today in exchange for exactly $10 of additional consumption tomorrow.